Roper Technologies Inc (ROP) 2008 Q1 法說會逐字稿

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

This conference is being recorded.

At this time, I would like to turn the conference over to your moderator for today, Mr.

John Humphrey.

Please go ahead, sir.

Thank you, Anthony, and thank you all for joining us this morning as we discuss the results of our first quarter performance.

Joining me this morning is Brian Jellison, Chairman and Chief Executive Officer; and Paul Soni, Vice President and Controller.

Yesterday afternoon we issued a press release announcing our first quarter financial results.

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

We have also prepared slides to accompany today's call which are available through the webcast and are also available on our Web site at www.roperind.com.

If you will please turn to slide 2.

You will once again see our Safe Harbor statement.

I want to remind you that today's call includes 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.

You should listen to today's call in the context of all of that information.

And now if you will please turn to slide number 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 our telephone participants.

Brian?

Thank you, John, and good morning, everyone.

Well, the next slide you can see is just an overview of what we will talk about today and then get into Q&A.

We give you a little discussion around the enterprise in total and then talk about first quarter results for the enterprise and the individual segments.

We are going to update our guidance, talk about kind of driving forces that we see throughout the rest of 2008 and then summarize what we have done today.

So, next slide.

We look at first quarter, it was an all-time record for us in the first quarter for virtually every financial metric we have.

It was the highest level of orders, sales, net earnings, EBITDA, cash flow, operating cash flow, and diluted earnings per share.

Our sales and orders were both up 13% in total, 10% of that was internal growth and both categories oddly benefited by three points of foreign exchange.

The backlog in the quarter went up from $520 million last year to $590 million.

That's $70 million increase in backlog in the quarter means we should have a strong second quarter.

EBITDA in the quarter was $134 million and EBITDA margins went up again by 50 basis points to 24.6% which is an exceptionally strong way to begin the year.

Our net earnings were up 24% to $64 million, up from $51 million a year ago and the diluted earnings per share number was $0.68, up from $0.56 last year.

Operating cash flow in the quarter was $72 million, up from $57 million last year, a 25% increase.

So as first quarters go this was a very strong start for Roper.

Next.

In the first quarter, we made two acquisitions, the large one, CBORD, which we discussed in our year end conference call in February.

CBORD has been with us in the quarter for five weeks.

It is a leading supplier of cards and integrated security solutions for both education and healthcare.

We talked extensively about it in the call and have been reviewing it as we have done investor conferences in the quarter.

It is a particularly good match for us because it touches on a variety of markets that helps us expand our opportunities with our existing businesses.

Very synergistic with radio frequency.

We will talk about that when we are in the segment.

For us, we were delighted because they were in the process of changing their financial system at the time in the acquisition and all of that has been completed and the financial integration is really ahead of schedule.

Tech-Pro is a small company that we acquired in the last week and a half of March.

It is a company that is making test instruments and software for really the process industry.

It is in Akron, Ohio where our alpha business is.

Both of these are part of the Dynisco sensor technology company that we acquired back in December of '06.

Dynisco is off to a good start with us and Tech-Pro was a natural second bolt on for that family of products.

As you can see, we invested $378 million in the first quarter and the fruit of that you will start to see in the second quarter.

Next slide.

Now we want to talk about the specifics of our first quarter for the enterprise.

The income statement here, next slide, you can see net sales went up from $478 million last year to $543 million this year.

That's a 13% increase.

Gross profit actually increased you can see from 49.8% to 50.9% demonstrating, I think, the value of our products and services to customers in a market where a lot of people are complaining about pricing.

You can see we haven't had to make much in the way of sacrifices.

Income from operations went from 19.4% last year at $93 million up to 19.9% this year a 50-basis-point improvement.

Income from Ops did a little bit more than of course the sales.

Interest rates about flat to the prior year.

Our tax rate flat to the prior year.

There's some people who seem to think our tax rate is not 35%.

I don't know why, we have said it in the forecast 35%.

That's our number that we would expect on average throughout the year.

Net earnings is $64 million, up $13 million from $51 million.

That's an increase of 24%, but of course CATZ took $0.01 out of our reported number.

We would have been $0.69 without the creep in CATZ which held us back to $0.68 over $0.56, still a strong start.

Next slide, we would look here at the top line performance.

Sales and orders, we said, are both up the same percentage.

Orders, of course, exceeded sales and we had some benefit from really the strength of the euro, a little bit in the Canadian dollar but offsetting negatives on the cost side of the Canadian dollar.

Next slide, EBITDA, you can see we continue to grow EBITDA nicely, our EBITDA in the quarter went from $115 million to $134 million.

I would like to remind us that over the last trailing 12-month period you can see a more reflective story of how we grow and will continue to grow EBITDA.

In the 12-month period ending the first quarter of 2006 our EBITDA was at $352 million.

It went up $97 million during '06 so ended the first quarter of '07 at $449 million trailing, and this year it is added another $98 million of EBITDA coming from $449 million up to $547 million on a trailing basis and that doesn't have the benefit of the pro forma of what we would have from CBORD added to it.

So our trailing 12-month EBITDA is up 55% in the last two years.

Next slide.

Cash performance in the quarter was really spectacular.

Once again, our asset velocity initiatives continue to bear fruit.

You can see inventory drop from 9.7% of sales at the end of the first quarter a year ago to 8.8% of sales this quarter.

Our receivables were just slightly higher.

Part of that is the growth in international activity and very strong quarter out of energy with longer international receivables.

Payables and accruals were flat, so the net number comes down from 12.3% in the first quarter of last year for net working capital to 11.6% this year.

And our operating cash flow increased by 25% from $57 million to $72 million.

To come out with $72 million in the first quarter to the start of the year when Q1 would usually be your most negative quarter on operating cash flow we thought was particularly strong.

Next slide.

Here if we look at the balance sheet, the financial capacity of the Company, I think it is actually stunning achievement because in the last 12 months we have invested $415 million in transactions with CBORD, of course, being the biggest.

At the end of the first quarter last year our cash was $80 million.

Today our cash is $151 million.

Our net debt has only gone up from are $976 million to $1.065 billion.

Our shareholder equity is up well over $300 million.

Our net debt-to-cap is actually lower today than it was at the first quarter a year ago where it was 38.8% and today it is 36.3%.

Our net debt-to-EBITDA is lower than it was a year ago.

It is now 1.9 times versus 2.2 and that gives us substantial room to continue our acquisition program.

And our EBITDA interest coverage is higher at 10.7 times versus 9.4 a year ago.

Next slide.

When we get into the individual segment performance and we will start here next with Industrial Technology.

The performance of Industrial Technology was spectacular.

This is a business that had no acquisitions so all of this is pure organic growth.

Orders were up 14% in the quarter and sales were up 12%.

We had strength in virtually every business.

We only had one product line that didn't register an increase year-over-year and that was a very small business.

The quarter for Neptune set an all-time record, not just a first quarter record for Neptune, but an all-time record for any quarter in the history of the Company on both orders and sales.

So for people who were worried about the residential crunch, I would say that we have found a way to weather that storm pretty nicely.

Growth in Mexico was particularly helpful in the quarter.

We have a project going on in Mexico City which is an interesting one for us.

Niche field business.

These, of really all of our field and fluid product businesses are performing at a high level.

We have opportunities with Roper Pump in the energy segment.

We have Cornell driving really well with agricultural and waste water projects, and we have Abel driving well with mining projects in Europe and developing nations.

And then lastly, we have had a return to a build out for cold storage facilities, particularly internationally where our Hansen business has grown nicely in the quarter.

All of those drivers, we think, will continue in the next several months if not throughout the year.

Operating margins reached pretty spectacular number.

This is not EBITDA.

This is just pure operating margin up 140 basis points to 26.1%.

The things we continue to do in ongoing operational excellence drive a lot of this activity as does the leverage from the increased volume, and this goes into the head winds of rising copper prices and cost push inflation for energy to run our facilities.

So I think the people in this segment really have done an incredibly great job.

Next slide.

Here we look at Scientific and Industrial Imaging.

That is a little complicated story in the quarter because we have exited the motion imaging business.

We exited it with a minority position in it so we can't really put it at discontinued Ops.

The reality is that the sales were up 5% and orders were up 1%, but the fact that motion imaging is in the numbers from the prior year and not in the numbers this year, that had a negative 3% drag on the comparison on sales and a 2% drag on orders.

So the segment, if we could have excluded it, it would be sales up 8% and orders up 3%.

Internal sales were up 6% and internal orders were up 1%.

With very a small acquisition we had last year called JLT which added a little bit to the segment, or to the revenue.

Key drivers in the quarter, the favorable situation is our CIVCO, SynMed, MEDTEC and FMI businesses continue to do very well in the medical space.

They're growing at a double digit rate.

But the government research funding both here in the U.S.

and to some degree in Japan has, continues to drive softness in the Scientific camera business, and Microimaging which is really a combination of our powerful Gatan and Photometrics and QImaging enterprises and media software is rolling out a large number of new products which have just hit the market this month.

And those things, we think, will driver additional growth throughout the year, but actually the investment and launch of those pulled down margins a little bit in the quarter.

On the operating margin line, you can see we were at 20.8%, above the 20% that we want to be at a minimum level on Imaging so that was encouraging.

It is up 80 basis points from our year-end quarter.

Medical did very well on operating leverage, but the life science investments that we made in the Microimaging application arena partially offset the operating gains we got from our medical platform.

We expect margins in Q2 will be better than they were in Q1 and then in the second half of the year we will have some easy comps as we get rid of the problems associated with that.

The next slide, here we are looking at the Radio Frequency Technology segment.

Orders were up 17%, sales were up 13%.

And to understand how good the internal order growth of 10% is you would want to go back and remember that in the period a year ago, we had the benefit of the growth associated with the Middle Eastern project which was coming on line for the first time.

The reality is that our revenue associated with that will be similar to what it was last year, but it is not in the baseline number a year ago.

So, half of last year's first quarter internal growth came from the Middle Eastern project virtually, whereas this year none of it comes from that and yet, we have got the same growth rate in the first quarter of this year essentially as we did last year.

So this is very strong internal growth out of this family of businesses.

And sales, as you can see, were also up.

The key drivers here were excellent performance out of John Simler and the ITS team.

We were awarded a complicated and very sophisticated lane project in San Diego that people will be reading more about in the future.

The Florida open road tolling projects are moving ahead at a faster pace than expected and will help us have a strong second quarter.

We had a number of wins on major projects around violation processing and customer service in the road design area.

And then a very, very significant long-term multiple win in the Ohio turnpike which was not booked in the first quarter that will start to come our way throughout the year.

Our wireless sensor sales in Inovonics continue to grow nicely, largely driven by our senior care applications.

And then CBORD which only had five weeks of activity as you might expect those first five weeks wouldn't be as strong as all the rest of the activity because the seller wasn't a stupid seller.

But we have had phenomenal beginning.

CBORD was able to win Clemson University with about 17,000 students.

That has just been announced and that new product scenario will not only help us in growth throughout this year but gives us a long-term recurring revenue stream has Clemson gets billed out.

On the operating margin note you can see it was 19.4%.

That was really a 20 basis points lower, than, I think the year ago number.

That number will go up nicely in the second quarter and that was really because we had a disproportionate mix of tolling and traffic project work and what's encouraging, it is actually a positive, is that the quality of the operating earnings we are getting out of those projects is substantially higher than they would have been two or three years ago.

The CBORD margin improvement which will be helpful will start to kick in in the second quarter.

Next slide.

We look at Energy Systems and Controls, another just spectacular quarter.

Sales up 23%, orders up 19%.

You have got internal growth here of 14% and 10%, very broad based across the segment.

We only had one product line in that area that was sort of flat to the prior year.

Everything was up nicely double digits as you can see.

Zetec continues to perform exceptionally well with the steam generation inspection technology we launched and the adoption of that around the world.

And our compressor controls businesses did very well both in the Middle East and Africa in the quarter on a variety of turbo machinery control projects that is are underway.

Then we had in our protective technology arena for shut off valves and pressure sensors, very strong international growth and we see that continuing throughout the year.

Operating margins were up 290 basis points in the quarter, 22% operating margins.

New products that we were able to introduce in a variety of these businesses came in with higher gross margins than the products that they replaced.

We captured, of course, the volume leverage associated with more revenue as well.

We made a small bolt on acquisition, a little less than $10 million, in the last week and a half in March.

TechPro is a company which is very similar to Alpha Technologies, their primary focus has been on the rubber and plastics industries on a global basis.

They have got alpha, a very nice installed base, a lot of equipment, a lot of software, a lot of recurring revenue from people adding new applications.

It's very synergistic for that business.

New slide.

If we look at the guidance update for the Company as a whole, next slide, you can see we have raised the guidance essentially equivalent with what happened in Q1.

We had expected to earn between $0.65 and $0.67.

We earned $0.68.

We added $0.03 to the bottom line of our projection raising the full year from $3.10 to $3.13 and the $0.01 to the top line, from $3.20 to $3.21.

We established second quarter guidance at $0.77 to $0.79, which is up from $0.66 last year.

And we raised our EBITDA from $600 million to over $605 million.

That would be adding another substantial amount of EBITDA to the Company.

Net earnings will be above $296 million and operating cash flow is likely to exceed $385 million or more.

Next slide.

If you look at something that I think is important for people to reflect on, we get the question about so what is, how would we think about Roper in a kind of 2008-2009 period given what happened in 2000-2002 period in the basic industrial world.

So we once again want to kind of think about who we are and what we are today.

Two-thirds of our first quarter revenue came from companies that is we acquired since the middle of 2001.

That's two-thirds.

And that would be true with the profitability.

Today, we are a Company whose lion's share of activity is related to water metering and usage information to radio frequency technology applications and solutions, to information around freight matching and logistics for productivity, protective technologies for sensors and warning indicators and shut-off technologies for people in a wide variety of industries.

We have with CBORD the entry into a different form of healthcare applications and education markets.

We have both with CBORD and TransCore and several of the other businesses now long-term contracts that are involved in annual renewals and subscription growth.

We have a much deeper penetration in the international arena than we've ever had in Roper before where it was a one-trick pony really with Gazprom.

Today we have got, as we said last year, over 41% of revenue internationally and the international activity that we think is quite strong for us throughout the year as we built much better networks and access to global markets.

We have high gross margins throughout the Company, not dedicated only a couple of spaces.

We are no longer dependent on two businesses that were really largely driving, the variance that occurred in Roper in the 1998 to 2000 period.

We have a very strong balance sheet, we have access to debt markets in a way that's useful for us instead of having constraints around the Company and the way it was financed previously.

We have a very disciplined acquisition process that's produced one set of victories after another.

And we have a, most of our business is in really strong secular growth markets and the applications that we have in those markets really dominate the Company's end-market behavior.

So we don't see how you can look at a 2000-2002 view of Roper and whatever happened to Roper immediately thereafter and draw much of a conclusion about what would happen going forward.

It is a very, very different Company, much more secular in nature.

We have said consistently we expect to grow 1.5 to 2 times GDP and out perform that in every instance.

And then we said we ought to really grow at 5% or 6% or perhaps more in a no growth environment and here we are growing at 10%, albeit three points coming from currency, so 7% in a no-growth environment.

So we think the Company's end market activity and strategies are really paying dividends now.

Next slide.

Here if you look at the conference call summary, what we think we have reviewed here today is that the first quarter was a historical record for us for the first quarter.

Every financial metric, orders, sales, earnings, EBITDA, cash flow and diluted earnings per share were records.

Order strength was virtually across the board.

We had only about two businesses that were flat and one that was done.

Very strong growth.

International sales growth continues to build momentum and it gives us a lot of confidence about the balance of 2008.

Our Neptune orders and sales establish new records for this quarter which really gives us a lot of breathing room for the second quarter and beyond.

TransCore's growth has been maintained despite the fact that we have an exceptionally difficult comparison because of the Middle East project which added about 1 to 1.5 points of total growth last year for Roper and half of the first quarter growth for Radio Frequency.

Energy Systems' growth is expected to continue throughout the year, in fact, it could accelerate in the second quarter.

CBORD is off to a very good start.

The Clemson University award is a very substantial win at the expense of a publicly traded company and a very large publicly traded company that was trying to keep this as a project where we displaced two people that have been market leaders in the past in this category.

The financial integration that we have done here is ahead of schedule and the business development which has resulted in a lot of different meetings in Colorado and New Mexico and globally around Inovonics and TransCore is very good.

The channel access opportunity for us is good because we have a lot of parking control door openers that provide a real benefit for CBORD to get into university and multi-campus facilities that they wouldn't have had on their own.

And then we get more products to distribute through the CBORD channel.

Our backlog at a record $590 million means we'll have a very strong second quarter.

We know we're going to have better margins in the second quarter than we reported in the first, and the pipeline for transactions is quite good.

We have a lot of things that we think are very interesting and CBORD and TechPro really only represent, I think, the first two applications for 2008.

So we think we're poised now to continue to have very strong performance throughout the year.

And with that, we'd like to open it to Q&A.

Thank you.

We will now go to our question-and-answer session portion of the call.

(OPERATOR INSTRUCTIONS).

We ask that our callers limit their questions to one main question and one follow-up.

We'll take our first question from Wendy Caplan at Wachovia Securities.

Thank you, good morning.

Good morning.

Brian, when you were talking about the RF Technology segment you didn't talk about freight matching this morning.

Can you talk about how that business is going and since you're expecting some nice margin improvement in Q2 versus Q1 in that segment, can you kind of walk us through where we were here in the tollway CBORD first quarter, tollway CBORD and freight matching, and where you think we will be in Q2 on a margin basis or profit or some relative trends?

Well, certainly in freight matching we were worried throughout last year that we would see some fall off in the activity just because of what was happening in trucking.

We didn't really see that.

In fact, we expanded the suite of offerings people could buy and we were getting enough new subscription value that it would offset whatever shortfall you had in the number of drivers subscribing.

That trend has continued.

Freight matching is still fine, the logistics business is good.

In fact, we are looking at some things in that space that are somewhat interesting.

We don't really see a fall off.

The growth in that space may not be as robust as it was two years ago, but it is still fully satisfactory.

When you look at tolling side of things, we are going to have a strong second quarter in that area because of projects that Florida is expediting and moving up.

So new wins we have had.

The mix in the first quarter of road applications, if you will, was slanted more to design and construction activity helping people with engineering oriented kind of applications.

And those are always a little less good than product sales.

So, Q2 will be benefited by that.

There is an amount of money that we continue to invest in the design for the Black Diamond launch of products there in Radio Frequency and it won't really produce sales probably until the third quarter.

So that pulls us down, so actually we had a fairly strong number here at 19.4% and it will go up nicely in the second quarter.

So we are not really seeing, anything pulling back.

I think it, what perhaps people want to reflect on and we, it is hard to put everything out in a press release.

But that internal growth in RF is really quite good because it is as good as last year and half of last year's reason for growth couldn't reappear because of the Middle East project.

Thank you very much, Brian.

Okay.

We will take our next question from Shannon O'Callaghan at Lehman Brothers.

Good morning.

Good morning.

Hey, Brian, so on the comments around organic growth, obviously, decelerating makes sense but 7% still very good in this economy.

Are there any pieces, either on the organic growth or margins or anything, in the past we have had Redlake or DAP or some kind of issue that is kind of a drag or something you are not happy with.

Would you characterize the growth in the margins you see in the quarter as something you are happy with?

Are there any things that are sort of underperforming or is it just a little bit of a slow down because of just obviously the nature of a flat economy?

Well, if we take that in two pieces.

Say on the margin side, we would expect the margins that we had in the first quarter would be our weakest of the year.

I don't think we are going to have another quarter where we are not well above 20% operating margins.

Also, even at 24.6% for EBITDA I would expect that's our weakest EBITDA performance of the year and that's going to go up, so we will be much stronger in the second quarter and remain strong throughout the year.

The, in terms of organic growth, when you are an inquisitive Company, which we are, we separate the organic growth so everybody can understand what's going on with sort of same-store sales but a part of our world involves bringing in new entrants to our family.

We are not doing bolt on acquisitions.

The beauty of our cash-on-cash model is that we are able to reinvest in some very strong assets.

So you will see a dramatic increase in revenue in RF in the second quarter when we actually report some meaningful numbers for CBORD.

Five weeks is hardly anything and we are going to have very strong second quarter out of CBORD.

I think the situation around, the only areas that we were frustrated with were the camera businesses where basically the U.S.

funding is just not, not going very well with government-related issues.

And the Japanese thing isn't marvelous either.

Those businesses really need to have research funds because that's pretty much what drives the end market demand for them.

They're not a big part of the Company so they don't have a huge effect when they get that.

But on the other hand they drag down our growth.

If we were to remove those from the growth in all the rest of the businesses that 10% or 7% number, which ever you want to use, would certainly have been stronger.

I don't see that changing much.

It is just as, it gets a little better with these new products coming in for Microimaging in Q2 and Q3 they're expecting pretty strong uptick in orders, so we are curious to see how that goes.

We're hopeful and think they will do pretty well in orders in the second quarter.

So maybe it is a long-winded answer, Shannon, but I think that addresses what you were asking.

Yes, that's helpful.

Thanks.

The other thing is just on the deal environment and how you are looking for things the rest of the year.

I mean we are starting to see more things come out of private equity, you have mentioned in the past you have a good relationship with private equity firms and as they're looking to maybe delever and monetize some things you are off on an avenue for that.

Are you seeing an increase of supply coming from private equity firms, do you think it will be an above average year?

Well, I think that generally what we do with these people is we talk to them all the time.

So, I don't think we saw really a shortfall in supply.

But we are seeing a lot of properties.

We are having discussions about a lot of things.

I think the issue is the expectation around multiples of the EBITDA you are acquiring or the nature of the business you are acquiring.

And you are getting a little more realism, but not as much realism as we would like in that category.

So there tends to still be quite a bid/ask spread, but as the year goes on, those, people who want to monetize aren't going have a lot of other choices.

So I think that's favorable for us, and all of the conversations we're, well, the conversations we are having now are not with people who are desperate, but people who realize we are able to get stuff done, whereas other people they talk to maybe can't pull the trigger and get it done.

When you look at our capital structure with one times, the debt to EBITDA number and we are going to start pouring out cash in Q2 and Q3, we are going to certainly be in the drivers seat for that kind of activity.

So I would expect that this will be a robust year for transactions for Roper.

Okay.

Great.

Thanks a lot.

Okay.

And our next caller is Mike Schneider at Robert W.

Baird.

Good morning, Brian.

Good morning, John, how are you?

Good morning, Mike.

Very nice quarter and great momentum, guys.

Brian, I guess the first question is just on RF and these multiple operations projects as you call them.

I guess this is the first time at least I recall you underscored the momentum in that business, and I have been writing for a while about how large this opportunity is.

What has changed there?

Is it your technology on your part or is it a change in view among your customers?

Just some color would be helpful.

I think two things.

A little over a year ago, we split the TransCore operation from its historical structure into two separate businesses.

So we have what we call commercial technology, which John Worthington is running, and we have ITS, which John Simler is running.

We have a series of regional managers here in the U.S.

and abroad focusing on the ITS activity.

They are a very critical component for creating demand opportunities in the end markets, but they have a very clear focus on what they're doing and what kind of things we are interested in doing.

They're also benefiting from a huge number of privatization projects that people are analyzing and studying, and we get the benefit of maybe helping people because we are pretty neutral in the respect for which one of maybe 50, what these public/private projects are, the PPP things or PQ as they call them.

There's an enormous amount of activity going on in that area and I think we have designed quite a good business model to participate in that.

Then on the commercial technology side, we have really allowed our R&D people to focus on a very clear pathway for product development and complementary products and services for people in the commercial RF space.

So I think that's helped a lot.

So you get kind of the benefit of macro economics in the marketplace coupled with focus and clarity around what we would expect and the margins we would like to see in the area and the result is pretty positive first quarter and very good remainder of the year, we think.

And, Brian, going forward as this business grows, is it additive to margins or does it pressure the segment margins and especially vis-a-vis the tag work.

When you are selling tags it is additive to margins.

When you are doing the design work it is dilutive to margins.

But when we bought the company it was, the design work was pretty dilutive.

Now it is much less dilutive.

So in this quarter where you had disproportionate amount of ITS activity we were still able to report 19.4%.

If we didn't have the start-up expense for Black Diamond it would have been better.

So we are comfortable with that.

But we would expect this to be the last quarter below 20%.

Okay.

And regarding Neptune, ITT just held its call and they, among others, are talking about just a general slowdown or delay in some municipal spending vis-a-vis water projects.

I'm curious what you are hearing from the field.

Obviously, Neptune had a great quarter, but is that market share gains that continue, project rollouts that just have been underway, and can you discern, if indeed, there has been any hesitation on installations maybe on the day-to-day meter business?

We are not seeing think delays.

As I said the first quarter we want to make sure people understood it wasn't just a record first quarter, it was a record for any quarter in our history for orders.

So we are just not seeing that.

I think if you remember it is not the CapEx side of the water activity.

So, in fact, the Cincinnati project, which is one of the biggest ever, was finished last year.

So people expected that the fourth quarter, and certainly the first quarter of this year, would be difficult comparisons.

We heard that from everybody all the time and they were wrong.

The difficult comparisons but fortunately we have gifted people.

And they continue to deliver and we are finding business that people didn't see.

This Mexico City project was us at our finest.

So is the project out of country that is going on and, in fact, much of the leadership team of that business is not in the United States today.

So we are not talking about where we are and what we are doing because we don't want anybody to know because I think we are in places that other people aren't seeing.

That's to their credit.

Now we have been cautious about guidance in terms of what kind of stuff we would have because of the common sense of everything you read, the morbidity in the comments from everybody else about these spaces are pretty Draconian.

But we are just not seeing that.

I think, remember, we are selling water meters and automated meter reading technology that produces revenue that somebody is buying for $100 per unit.

So the pay back is pretty strong.

So we just don't see any kind of pull back.

And just final detail, can you give us a sense of how the growth rates compare between the [ARB] meter business and then the AMR portion of that division?

John, maybe.

Yes, I -- Mike I do have that, but not at my fingertips.

If it is okay I will follow up with you on that?

Great.

Thank you very much guys, and congratulations.

Our next caller is Alex Blanton at Ingalls & Snyder.

Good morning.

Morning, Alex.

Good quarter.

I want to just ask you for a clarification on the order rate.

When you say net orders what do you mean by that specifically, and you mentioned a 13% order rate of which 3% was currency.

That seems to be net of acquisitions.

Is that what you mean?

If I understand the question, our total orders were up 13%, 3 points of that came from acquisitions.

Yes.

3 points from currency.

So.

Oh, 3 points from acquisitions?

Yes.

And 3 points from currency?

Right.

And 7% organic.

So 7% was organic.

Okay.

That wasn't clear to me.

Okay.

Secondly, you gave a lot of information about CBORD in the previous conference call so you kind of went over it very quickly this time.

Now, it was in the quarter for five weeks, is that?

That's right.

Five weeks.

And you announced three months ago you paid 367, it was a $367 million deal.

Right.

Is that still the number we should use and can we subtract that from the 378 to get the amount you paid for TechPro?

Yes, I think so.

John, you can --

$367 million is what we paid for CBORD.

There are some additional fees, as you know, that always happen with these types of transactions.

Unfortunately, we can do these without attorneys.

And so some of those fees get capitalized as well.

I mean the total fees on this deal were in the normal range, maybe 1%, maybe slightly over that.

And so the rest of that is going to be TechPro.

The rest of --

So if you take the $367 million add a point to it that's about $4 million of fees and the rest of it is going to be TechPro.

Got it.

Okay so TechPro is really tiny.

Yes, less (inaudible).

Then could you just quickly go over the basics of CBORD for benefit of people who weren't on the last quarter's call to know exactly what it is, relative size and so on, and sales?

Okay.

The, what we have said is we project CBORD to do somewhere between $8 million and $10 million of revenue a month in its, starting in the first 12 months of activity.

It would be, of course, modest at the beginning, but second quarter will be at those levels at least.

And the rest of the year we expect it to run in that kind of span.

What happens with CBORD is that they have a very big install base.

They're in about 750 campuses and a whole variety of hospitals, 300 beds and above, and as they handle kind of everything that would happen in a cashless area plus all of the access for situations.

So in a student-based environment, they will have one card in the wallet that allows the person to get access to the dorm room, access to other university situations, paper trail or paperless trail around what's happening at the library and the bookstore.

They can use the card as a debit card to charge against stuff with preset amounts so you don't have this ugly thing people see where people try to get the student in and have charges that for overrunning the credit card.

It is not that kind of thing.

They get revenue by providing all of the software to handle the cash register transactions of everything that's going on here.

We are expanding it with our parking control applications from our Amtech business inside TransCore.

The hospital situation keeps a trail with their suite of software around nutrition management.

It is actually a supply chain forecaster for food consumption, the type of things people eat.

It allows a patient or another person that's granted a card access to various places in the hospital.

They can deal with the pharmacy, they can deal with new infants, whatever it is.

There's just a variety of thing that is go on that are sophisticated and instead of having some access control technology from a traditional company and an enterprise software thing from another company, the university can wind up with one kind of unique spaced environment around CBORD that is a whole suite of things it can do.

CBORD acquired the Diebold access control piece for these kind of applications a couple of years ago.

And it is a business that from prior experience I know quite a bit about it.

We have a wonderful leadership team at CBORD and they're certainly off to an exceptional start.

The business is about 50% recurring revenue from the software that is embedded.

It is not sold.

It is rented for a year at a time and they have above a 95% return rate on that.

And then on top of it about 30% more of the revenue comes from those installed base people expanding their suite of activity and about 20% from new products.

We expect the new product portion of CBORD will grow more rapidly than it did inside the business.

And then lastly, CBORD has very substantial gross margins, it has essentially no assets, much of its activity is prepaid.

So it is a very, very strong cash generator.

Okay.

That is great.

And so I take it five weeks would be about $10 million in sales, something --?

Well, the first quarter would be their low point.

It is less than that.

You can kind of figure out the math.

It is closer to $8 million for the stub period in the quarter.

Okay.

Thank you.

Okay.

Our next caller is Deane Dray at Goldman Sachs.

Thank you, good morning.

Good morning.

My first question is more of an observation.

Remember, last quarter you provided a slide that was actually very insightful regarding your book-to-bill and how it tends to stay towards 1.0 with only occasional deviations from that and it works out to the decimal point you are hitting 1.0.

So, what a back to mean reversion which is pretty positive.

For the, and Brian you made the comment on the uptick in gross margin that you are holding price.

Can you give us a sense of where you are getting price and out of that 7% core revenue growth how much of that was price?

No, I mean, gosh, that's, we do this with our field people all the time, Deane.

That's, the joke of course is that it is just in the mix.

I mean, we have such a wide variety of businesses.

Gross margins could pretty widely vary and it would be just very, very difficult, there's no standard products in almost all of the businesses.

So, you wind up with so many application possibilities that trying to track the absolute price is a hopeless task.

But in Energy where we had this very, very strong improvement a lot of that is our petroleum analyzer work in Lauden in Germany and Verjon in France, lots of new products, lots of new applications, those came in with higher gross margins than the things that they have replaced.

So we have quite a sophisticated and diligent situation around how we, how we look at R&D applications and people know pricing is important.

Instead of too many businesses who build up the costs and put a multiplier on it, it is not what we do here.

So people know that we are going to be really disappointed if we're hearing something coming in less than a 50% gross margin.

And so that is sort of an underlying base.

I don't know how great of an answer that is, but it is the truth.

Well, when the guys come in with their budgets for '08, are you looking at how much of a price they're assuming for the balance of the year or are you focused on --?

We do two things there.

We want to know what their embedded thinking about price is and whether there's any erosion in any of the areas, and then we want to look at their direct material costs and do an exploded analysis about what's happened on a cost push inflation and whether we are getting any reduction in material costs.

So we do look at that and I would say that the margin in Q1, the gross margins in Q1 were better than the plan.

Good.

And then interest in your follow-up comments on your point regarding the petroleum analyzers.

We have been to some trade shows where you have got your equipment, the gas chromatography applications for oil and gas.

Just give us a sense of where that business is today, what your leverage is to the whole oil and gas cycle and where do you want to take the business?

We bought a company a little over a year ago called AC Controls in Europe and that gave us a better access to this field of activity.

So we have been building that technology into some of our other brands and what we call [PAC].

It is really four different brands we have assimilated under one division.

That business has performed in this kind of 15 plus percent growth arena for quite a while now.

A couple of years ago, the business was more dependent on sulphur regulation for instrumentation sales.

That cycle of activity is long gone and so we have got a lot of applications that are going well.

I would say that a lot of our growth in the future, two and three years from now is going to be in beverage and foodservice because we are, have split the business with a product management function today.

So gas chromatography is one aspect of what we are going to do, but certainly not the only force of work.

Would you say beverage and food is that on food quality and safety?

Yes.

Yes, and process, the bottling industry, there are a lot of things that we can do in there about what's happening in the contents of what's in a container.

And should we expect that to be bolt on or will you grow --?

It is new product design that we have underway that we are launching at a slow pace as we learn more and more about what we are doing.

But it is existing intellectual capital we can deploy in these new markets.

Sure.

Thank you.

Operator, we have time for one more question.

All right.

Our next question is from Jeff Sprague at Citigroup Investment Research.

Thank you.

I made it under the wire.

Trust me, it is better than being cut off in mid-sentence last time.

We covered a lot of ground.

Just a couple of things, Brian or John.

How do you feel about your ability to use leverage in this set of capital markets, kind of in terms of turns on your EBITDA?

Would you take it up to [3-ish] or so if the right set of opportunities presented themselves or --?

Well, they would have to be pretty exciting opportunities, but I think we are more likely to be in the two 2.5 times, 2.75 times, but remember we generate a lot of cash.

So if you think about your capacity, here we are ending the quarter at 1.9 times so you say 60 bps or more below where you would be.

We've got trailing EBITDA of 550 and you don't have any pro forma number that's released in there on CBORD.

So even if you look at our guidance for the year, it is 605, you have got a lot of capacity there, and then we reinvest that with the same kind of multiple.

So if we did $500 million or $600 million of transactions between now and the end of the year we would still have a very strong investment grade debt situation.

So I don't see that as a difficult prospect for us.

Right.

And then you hit Neptune quite a bit with Mike's question, but can you give us a sense of U.S.

growth versus kind of the new opportunities, non-U.S.

that you are pursuing?

Yeah, I think it was about a third non-U.S., two-thirds U.S.

growth.

And then just finally, a lot of pressure on guys like GE Healthcare on procedures dropping off.

You are not seeing any of that in your patient positioning businesses?

You know what happened, we that in the fourth quarter because of confusion around what was being reimbursed, but our stuff is middle level technology.

What we are doing is the reimbursement confusion is lifted from our services in this space.

So we had very strong order inflow in the first quarter and we have a little, quite a bit of international business in that arena which is different than CMS schedule reimbursement in the U.S.

So there was some noise and it's behind us.

When we had a quarterly review with the medical guys we were all extremely impressed at their enthusiasm and comfort level because they were worried in the fourth quarter last year about all of this noise in the marketplace.

So I think it is probably a problem for GE, but it's not a problem for us.

Great.

Thanks a lot.

Is that it?

We have two minutes.

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

I will now turn the call back over to Mr.

Humphrey for closing remark.

Okay, thank you, Anthony, and thank you all for joining us today.

I do know there were two or three folks who were still in the queue in terms of questions.

I'm sorry that we have to cut this off at 11:00.

I will be available this afternoon for any follow-up questions you might have, and as always we look forward to talking to you again in three months.

Thank you.

This does conclude today's presentation.

We thank everyone for their participation.

You may disconnect your lines at any time.