Roper Technologies Inc (ROP) 2009 Q1 法說會逐字稿

The Roper first quarter 2009 results conference call will now begin.

I will now turn the call over to John Humphrey, Chief Financial Officer.

Thank you, Anthony.

And thank you all for joining us this morning as we discuss the results of our 2000 first quarter.

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

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

The press release also includes 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 turn to slide two, we start with our Safe Harbor statement.

We will be making forward-looking statements during today's call, which are subject to risks and uncertainties as described on this page and as detailed in our SEC filings.

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

And now if you will please to turn to slide three, 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 participants.

Brian?

Thank you, John.

Just a word here, we will try to move a little bit quickly this morning.

I know that a number of our analysts have a competing call here at 10:30 and I'm sure you would like to hear as much as ours as possible, so we will move quickly.

We're going to cover here on slide one, a quick overview of the enterprise, and a little bit of detail around the segments in terms of how Q1 was, and how we think sequentially Q2 will look.

And then an update on guidance and a summary with the Q&A period next slide.

So from an overview, the sales were down 6.9% in the quarter.

We were up 6.8% with the acquisitions that we had done last year as they favorably impacted the first quarter, organic growth was down 10.5%, which was a couple points worse than we expected.

We will tell you why.

And currency hurt us by 3.2% in the quarter, which was kind of a $0.03 or $0.04 head wind for us.

On gross margins, we did, we thought, very well, almost 50%, there at 49.9%, excluding restructuring.

Our EBITDA margins were only down 160 basis points, closing out at 23% excluding the restructuring.

The area where we outperformed the most internally was on detrimental margins.

We had feared our decremental margins would be in the 40s because our gross margins of course are so high.

When you look at those three segments, that struggled in the quarter, their collective gross margins are are 51%, and yet, the decremental margins were only 36%, which we think is really quite outstanding performance from our field people.

Our adjusted earnings per share were a $0.59 versus last year's $0.67.

Just a comment on that $0.67, in your modeling, you will want to look at the information there around the new convertible accounting FASB thing that took effect January 1, which is in both of these numbers; and then operating cash flow for the quarter was $51 million, which is really better than it looks.

We will explain in a minute, because of unusually heavy Q1 cash usage that will be -- we have a table on.

The next slide.

One of the things I think we felt good about in this quarter was the government's process that we had used in the fourth quarter to effect a contingency planning and extend that into the first quarter, and in fact are continuing to do it now.

We had all of our operating people together, last week, for most of the week, in the industrial and energy segments and the product-oriented portion of our RF segments.

It was an incredibly positive event in the sense of how close all of these presidents are to their end markets and the customer culture and what they're learning about the kind of solutions there that are going to be required as the market returns to some closer normalcy.

At some point, in time, in channel conflict changes that are going to occur in the nature of product, and expectations, was really very interesting.

Secondly, we were encouraged that no one had cut any development investments.

We're still making the same level of market channel investments and product development and new launches as always, and in fact, with declining sales, the R&D spend is actually up, as a function of revenue.

It was refreshing to see again limited staff as we have, I know you know that is true in our corporate enterprise, but it is pretty well true in the field as well.

We were able to get in one room all of the division presidents and all of the controllers, no multiple layers of people at Roper, and you can really get to the core truth quickly, and challenge everybody on any variance issues.

The low fixed assets meant we didn't have to really close down any kind of large facility because we were having absorption issues.

We were able to flex Neptune on very low volumes in a lot of creative ways, and none of the other factories had difficult absorption issues.

Our break-even analysis gave everybody the awareness, quite early in the fourth quarter, about the challenges they would face, and certainly if we had thought we could come out with decremental margins of only 36% with 51% gross margins, that would have been remarkable, and that's what they did.

There were no targeted broad-based situations where we said take 7% of SG&A out or anything like that.

Everything was done on an individual market basis because of such wide variances in aggregate demand.

Our SG&A cost model, because we're not withholding any particular channel or way we go to market, was able to be flexed very quickly.

And in the first quarter, our SG&A expenses actually declined by 14% when we excluded the acquisitions.

And we think that is quite an achievement.

Next slide.

On the decremental margins, here you can look at industrial technology, we were down $43 million in revenue, and our change in operating profit was $14.9 million, and that's a decremental margin ratio of 35% against a gross margin of $49 million.

And we think that is quite good in an industrial environment.

Our energy systems and control segment had a reduction in revenue of $21.8 million, change in OP is $9 million, the decremental margin was $43 million against a higher gross margin of $54 million.

If you look at the variance, we were 14 points under the gross margin in industrial technology and we were 11 points under the gross margin in energy systems and controls.

Energy systems and controls will be better but we have a lot more European-based people, and so the effect of that in our margins will show up better throughout the year and would be worse here in Q1.

The scientific industrial imaging story, while it looks the best actually has a kind of a different scenario.

A change in revenue was $12 million.

Change in OP was $3.4 million.

So it delevered at $27 million.

That is because it was a mixed change in Rugged Mobile, which really pulled down our organic growth and that is a very low-margin business.

So it doesn't mean we performed better decrementally.

It just was an easier target.

And in total you can see $77 million down in the three segments that had lower sales, $27 million in OP, 36% decremental margin.

Frankly, almost all of this OP variance comes out at Neptune stores, pack, and a little bit out of Dynisco, and the rest of the Company was equal to or better than the prior year.

Next slide.

On asset velocity, the discipline continues.

Here, you can see that our inventory plus receivables minus payables and accruals had new all-time low point in the first quarter at 10% of revenue.

That's down 240 basis points from two years ago.

And 2007, increasingly, looks a lot like 2009.

It is remarkable the similarities in the ratios and the numbers.

Next slide.

On operating cash flow, you can see net earnings were $52 million, and operating cash flow was $51 million.

So it is kind of a virtual 100%.

We're going to do over $130 million routinely on a year basis.

So what happened, you can see is receivables were favorable by $30 million, inventory unfavorable by $3 million, payables unfavorable by $5 million, because of course you're making less purchases.

Depreciation was $9 million.

And amortization was $17 million.

Then you have $36 million of timing, John can talk more about that, we had a cash tax payment required in the first quarter of $12 million, which would be very atypical and won't repeat, and we had interest payments, which are accrued but had to be paid.

They're only paid twice a year and that happened to hit us in the first quarter.

That won't be the case in the second quarter.

That was $12 million, and then of course, we had the annual field bonuses that were required to be paid.

So those things quickly add back to much, much higher cash conversion.

And we had an improvement in deferred revenue, which shows up as a negative, here, $16 million, but is a wonderful thing to have, I can assure you that is a very good thing, not a negative, and so those things are understating the quality of our cash earnings in the first quarter.

Next slide.

Our balance sheet remains very strong, undrawn revolver is $473 million at the end of the quarter.

The cash was $178 million, our net debt was actually $8 million less than it was last year.

And of course, we invested $705 million last year.

Shareholders equity, $2 billion.

So net debt to net cap is 34%.

And we're sitting on over $650 million in cash and immediate liquidity for transactions.

Next slide, now we're going to look at the segment level.

As we go through the segment, the first is industrial technology here.

Next slide.

You can see in industrial technology that we did end the quarter with these difficult organic fees down 22%, and operating margin still closed out at 23.3%.

And EBITDA margins were 28% with gross margins at 48%.

We would stand those numbers up against any industrial company in the world.

We had exceptional margins in our opinion on this level of sales, just incredibly great restructuring activities, staying ahead of the curve, with just little correction movements producing very good results for us.

Now, in the first quarter, we look at the water automated meter reading and readers being primarily Neptune, we had very difficult comp in Q1 on orders.

People may have forgotten that in the first quarter last year, we had the big African order, which was effective, also another international order.

The collapse in the housing markets has of course been beyond anybody's expectations, and with us having the leading market shares in the country, that has actually had some depressing effect, and distribution channels are only buying the absolute minimum of activity.

As we look forward to the second quarter, Neptune will have sequentially stronger orders in the second quarter.

And we're quite assured of much stronger sales in the second half of the year as we look at commitments.

In the next area, the material test, which is primarily Struers and Logitech, they had a very difficult Q1.

The materials lab testing market was down very dramatically, more than 25% for equipment, and that brought with it then a little lighter consumer sales, the consumables, than normal.

In the second quarter, the consumable situations will come back decently because they're not just tied to new equipment spikes.

And we think we will have a modest uptick in Struers in Q2 but still be difficult.

The pump business, as some people thought that they perhaps did not perform well, they actually had very, very strong Q1 performance.

They were very similar to any normalized Q1 activity.

Certainly performing at no difficulty at all, although orders in the quarter were a little soft.

In the second quarter, orders are going to be up sequentially.

We already booked some things that give us confidence there.

And we have a very interesting new product out, Roper pump, that is kind of a proprietary thing.

We're not going to disclose a lot yet but orders for that are very strong.

Last, in general activity, the short cycle book and ship businesses, which represent over half of this kind of activity all looked fine on a book-to-bill basis.

They were all close to one.

But the problem was that the amount of orders weren't really great.

And we don't see any material change in that for the second quarter.

Next slide.

If we look at energy systems and controls, that was the most difficult comp here.

We had very widespread end-market weakness.

You're hard pressed to find anything that looked good really, compressor controls was about the only thing that looked good.

We continue to take more cost actions.

The problem on the margin here, with 17.7%, and 22% EBITDA, is really driven by the actions that we're taking that affect people with longer lead time, severance obligations for us.

So we know we're going to have a better, we're confident we're going to have a better, second quarter on margin in this area and then it should just continue to accrue.

We had very sharp in refinery and petro chem, which is petroleum analyzer and then in process control, which is some additional elements of pack and certainly Dynisco, those businesses were awful.

They had very sharp order falloffs, significant customer capacity situations where people just closed for extended periods, and that didn't get us the normal consumables that would go along with the Dynisco portion of that business.

In the second quarter, we don't think that the end markets are going to improve.

But we're confident that the margin is going to improve as these cost improvements that have a longer lag will start to take effect.

In the oil and gas arena, CCC I said was already very solid, no deterioration.

It looks forward to an extremely favorable booking environment here in the second quarter.

The AMOT (inaudible) businesses are shutoff valves and Canadian activity, with the oil sands, was okay on a revenue basis, not okay on an orders basis.

We have taken quite a bit of action there.

We think that is going to struggle for the next several months.

And then in the all-other areas, the nuclear testing orders were light in the first quarter, but we have solid commitments for the second half.

We actually have a plan work schedule now.

So they're going to have sort of a blowout second half of the year from recognizing sales and profitability basis.

The small or niche businesses, metrics, dynamic hardy, those all did very well, no deterioration, we expect that to continue.

Next slide.

In the scientific and industrial imaging business, here, it is really better than it looks.

The quotation activity has gained quite a bit of momentum here with renewed funding with the National Institutes of Health and other scientific funding in general.

But we had extremely weak bookings in our Rugged Mobile businesses.

Those businesses are very low margin, but they actually caused about half of that organic D you see in here.

So the underlying businesses are better than this looks.

And of course still pulling in here at 24% EBITDA margins.

The medical niche businesses continued to do well.

The consumable business was strong.

International was up dramatically in the quarter.

And we have some very important new products, all of those milestones in terms of field testing were achieved, and those are going to be launched here in the second and third quarter, which are going to bolster us in the second half of the year.

And notably, in our acquisition pipeline, we have quite a few things in this area that are pretty interesting as those types of businesses, which normally would carry extremely high enterprise multiples are still high, but within the bounds of rationality now.

So the acquisition opportunities there are better than they have been.

And secondly, in the microscopy area, which is primarily Gatan and microimaging analysis piece, orders were up in the first quarter from the fourth quarter, but the hardware shipments associated with that longer lead times were weaker than they were a year ago.

We've got quite a bit of increased activity as we've got our PhD and lead engineering people out in the field trying to catch up to the solution demands of people who want to get their products and solutions in and funded before the end of the year, because of the stimulus program.

So we feel pretty good about sequential growth in microscopy throughout the year.

On the camera side, the life science portion performed very well, had close to a record quarter in some aspects of those products.

Quote activity was good, but the industrial markets were mixed, generally flat.

The OEM sales were a little bit better.

And we expect the camera activity to be sort of similar throughout the rest of the -- certainly the second quarter, if not the year.

And then generally, this idea of having to get your engineers out of their respective locations out into the field has had the kind of positive effect that we expected it would, and it is good to see people reconnected with the end markets and solutions.

We think we will have a better second quarter in imaging, but even stronger second half of the year.

Next slide.

RF Technology, here the core business is doing really well.

The acquisitions are all accretive.

They're ahead of plan.

In the toll and traffic solution side, we had solid backlogs coming into the year.

Still have very strong backlogs.

That's helped sustain organic growth.

Project activity is pretty robust.

There are a lot of things on which we're quoting.

As you can imagine, there could be a lot of different infrastructure plays that can be interesting over time for us.

As the second quarter, kind of more of the same, it is going to a more difficult Q2 comp because we had a very high level of hardware and tag segments in the second quarter last year, so that can put a bit of stress on the margins and absolute revenue quarter over quarter.

In the education health care systems and security, we've got terrific bids out, and likely success stories that we can't really talk about because they have political sensitivity.

One in a very large school system in the northwest, one in a very big city in the midwest, and an important program with military.

CBORD in the second quarter will have a very high seasonal quarter so it should have its best quarter and certainly the best cash recognition in Q2.

The wireless security and OEM sales were down in the quarter.

Sequentially they will be better in the second quarter.

But they're still going to struggle on a year-over-year [V] basis.

Freight matching is better than some people reported.

Our Get Loaded integration program is ahead of schedule.

Carries with it very solid margins.

We expect that our freight matching business will continue to perform well.

Canada is holding up with link operations.

And the US core performed well, although it is a little more difficult market.

And we're very fortunate to have a very wide range of products to defend the price points in.

We will probably have some modest productivity initiatives going on in the US, but on balance, these businesses are very strong.

We were able to do an important thing that we don't have time to fully talk about today.

It is not overly material, but we negotiated a deal with Inmarset Satellite that is important around asset tracking.

We were going to contribute some assets and we're going to get multiple satellite coverage for ourselves.

And a lot of acquisitions in the RF space, we're having discussions with, which are interesting.

Technolog is sort of well under way, but the ability to share their technology and synergies with people will have more of an effect on us in the second half than this one.

Next slide, here we look at the guidance update next.

On the 2009 guidance, Q2 depths, we established at $0.61 to $0.65.

The reason for that is that we see orders increasing, meaningfully, in the second quarter over the first quarter levels, just not sure how much that will come in fast enough to get the shipments caught up to that.

The sales will certainly improve over the first quarter.

We're looking modeling a 4% negative currency head wind, Q2 over the prior year.

And of course, those numbers at $0.61 to $0.65 exclude any restructuring or future acquisitions.

For the full year, we took the depths down $0.10 on the entry level to $2.60 to $2.80.

I think we're pretty comfortable at the midpoint of that.

Could it be above that?

Boy, if there was any modest improvement in the global economy, we are certainly very well positioned to take advantage of that.

Operating cash flow, we didn't provide any guidance previously, so we put it in here as an initial place holder that will exceed at least $325 million in operating cash flow.

And CapEx this year is likely to be between $25 million or plus or minus.

Summary points on Q1, we achieved a high end of our EPS guidance at $0.59, excluding the restructuring, against the $0.55 to $0.60.

We had very, very nominal cash.

We've only had to spend $5.4 million of recognized costs thus far to execute the contingency plans in the fourth quarter of last year and the first quarter of this year.

We have outperformed on the decremental margin expectation versus what we had planned substantially, which is why we were able to produce this kind of income with lighter sales than we thought.

The business mix of RF and scientific medical softened what was pretty draconian decline in industrial and energy.

And cash conversion performed well when you look at the normal usage.

Next slide.

Q1 business reviews that we had with the field, you got everybody in the same room, no layers, we know exactly what the field controllers do, and we do a creative thing where we have anonymous voting, all of which is RF collected by the way, and it was quite interesting to see how the presidents felt versus how their controllers felt versus how corporate felt at the beginning of our multi-day conference, and then voting at the end, how we came a little closer together.

And I think corporate got much more comfortable and the field got a bit more conservative, and on balance, I think we have a good view of where we're going.

The asset light model we have certainly enabled the leadership teams to act and they did a great job.

And I think what we close on is just while you look at Q1, while we wouldn't call a bottom necessarily to the global economy, or even the US portion, we're really quite comfortable that Q1 for us will be our lowest level of nominal sales and operating profit.

And even at that low level, we had 49.9% gross margins adjusted for restructuring, and 23% EBITDA, and 17.9% operating margins, and EBITA at 21.4%.

And we just want to remind everybody that not all EBITDA is created equally.

Our EBITDA at 23% only has 1.6% of depreciation in it.

And that 21.4% tends to turn out to be real cash.

So with that, we open it up to questions..

Thank you.

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

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

The first question from Christopher Glynn at Oppenheimer.

Thanks.

Good morning.

Good morning, Chris.

So in the press release, you mentioned that the orders and quote activity picked up in March and early April.

Just wondering is that largely on normal seasonality, a little muted seasonality, relative to a normal year?

Well, one of the things that has been odd in the last three quarters is that every quarter has started off sort of okay, not spectacular in the first month, and then the second month has been exceptionally weak, and then the third month has been pretty good and on balance you come out okay.

We're seeing a little more sustained rhythm here since the end of February.

So we feel a little bit better.

March was up high single digits from the January and February average across the board.

Okay.

And just related to normal seasonality, would you -- could you relate it to that at all?

No, especially not on orders.

I mean the orders are really not a wonderful indicator in terms of activity here, because we only book orders that are going to be shipped within 12 months, and frequently, the lead times on things can confuse the issue, so I don't know, John, if you want to add anything to that.

Actually, that's true.

Our order rate doesn't really vary dramatically in most normal circumstances, it did surprise us a little bit with February being as weak as it was and that's why when we looked at March we didn't just say okay it was up dramatically from February so we feel great.

We also looked at the January-February run rate and then also again at the last five months run rate so we looked at this in a number of different ways and have deconstructed it and as a result do feel good that the second quarter is going to see some sequential improvement.

Sounds good.

Thanks.

Alright.

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

Baird.

Good morning, guys.

Good morning, Mike

Maybe we can first approach Neptune.

Can you give us a sense of what the quoting activity is?

And you mentioned it is sequentially stronger.

Are there awards still occurring at this point?

Or do you see municipalities still sitting on at least the bids they collect and things being pushed down in terms of deployment?

And then also just to follow up on Chris' question about orders specifically for AMR projects, you said they are sequentially stronger.

Did you book something since quarter end?

John, you want to comment on that?

Sure.

In terms of the deployment, the deployments that have already been won, so orders already received, are kind of rolling out as expected.

Once we get to that point of course, all of the activity is lined up and the municipality generally has their work schedules, and they're continuing to roll that out without very much change at all.

Clearly, the decision-making process has been slower than it was one or two years ago.

As many of the municipalities are going through their own sets of confusion, regarding knowing what their funding and tax bases are but also whether anything is going to be flowing from maybe a federal government level, but all of that noise in the system has made the decision making a little bit slower.

But I mean we're actually not in a position to be able to talk about anything that we may have won recently.

As you know, Mike, with your close contacts there, those folks don't like it when their suppliers talk about any orders before we're allowed to.

I think what is important, though, just Mike, for investors to understand what is happening, when we say stronger sequential -- what is going to happen is we had kind of the big trough negative is behind us with Neptune, and without revealing very strong statistics, we would expect any negative fees we have now to be contained at the high single digits to maybe 10% level for the balance of the year, because any -- to the degree there is any destocking in Roper, it would come really from Neptune.

That has clearly occurred in the distribution channel.

So guys who would buy X tend to buy half of X because they can get immediate turn-around from Neptune in a matter of days so our ability to flex in the short run has made things a bit worse.

We had an in-depth review of that with them, and let's say that they're down substantially more than 10% in the first quarter, and aren't going to be substantially down more than that for the rest of the year.

So there is sequentially stronger comment for Neptune is weighted more to the distribution side rather than the project deployments?

Well, normalized activity, I think what is a thing, and we certainly didn't miss it, I just think normally new housing starts don't have squat to do with this business because it is all the install base.

But when you take away sort of a million new housing starts with the kind of share we have, and you figure that is somewhere between 50 and $100 per unit, that has been a problem, and we think that that has now finished nesting its way through the system And so that's why we're -- I mean we're more than confident about Q2's improvement of Neptune.

Okay.

Thank you.

And impressive performance on the margins, guys.

Thank you.

Thank you.

And we will take our next question from Matt Summerville at KeyBanc.

Just two quick ones here.

I think Brian, in your prepared remarks, you mentioned that you were feeling better about Z tech's performance in energy in the back half of 2009.

I guess in the latter half of '08, you started to see those projects pushed out I guess.

How much, from a regulatory standpoint, is that what gives you the confidence that they won't get pushed further into 2010?

Yes.

Absolutely.

And furthermore, the naval activity that we have had virtually nothing of is truly back, and those commitments are usually very firm, and they really give us a spike up in the second half.

And then just I may have missed it, if you talked about it, with [Pack end tech] and [Denisco] also sticking with energy, what are your sequential expectations there?

I guess, and have you seen customer utilization rates improve and shutdowns become less in magnitude as we sit here right now?

I would say that we haven't seen any improvement.

We would be worried that we're going to -- I don't think we think we are getting any order improvement, although we think that we should.

I mean we got a pretty strong challenge to our leadership team.

Actually at Pack, we have brought in a new president, and he has been on board now for three or four weeks.

He is a Dutch guy, speaks French, speaks German, and he's just been around, trying to kind of redress our focus on who we are and what we're doing.

I think candidly Pack has seen some opportunities in the industrial arena, tried to go after them.

Those have produced nothing of real consequence.

So we feel quite good about his breadth of experience, comes out of a large company, was running a private company in Australia, very much a global guy, and exceptionally strong person that we think will do a better job than what we've had in the recent past.

And so we're kind of counting on him and we know the people there are looking forward to [Jerome's] expertise and activity, and already have stepped up to the plate somewhat.

So part of it is just our own effectiveness that we think is going to be better.

And the fact we know our margins are going to be better.

It is not even a challenge to know that our margins are going to be better.

And then just sticking with energy, with CCC, I guess, what are you seeing in that business that is yielding the better performance relative to some of your other energy businesses?

And I guess similar to your comments you made with the businesses I just asked about, I guess how do you feel about the second half of the year in CCC and visibility there, because that tends to be a little more project-oriented?

In CCC we expect a very strong Q2 order flow.

They have usually strong Q2 seasonality anyway.

Lead times at CCC are much longer than most of our business.

It is much like the tolling and traffic business, where you might be six to nine months out.

They have high degree of confidence at the start of a quarter as to what they're going to do.

We're pretty well -- we pretty well know that bookings in Q2 will be better than Q1.

I think that everything they're doing related to the turbine control technology is attractive.

On the other hand as you get to the fourth quarter with them we worry a bit about the power generation side of those businesses.

We got a great leader there who has certainly done a wonderful job in getting people focused on right-sizing here, if they have any challenges down the road.

They're going to have a solid year, with close to a record Q1, so you know, we feel okay about that.

Thanks, Brian.

We will go next to Alex Blanton at Ingalls & Snyder.

Good morning.

I would like you to comment on the the following observation that this recession ought to be quite good for Roper in two respects, and actually, the worst of the recession turns out to be the better for you.

One is that it is very harmful to a lot of your competitors who aren't as well-run or well-financed as you are, so you should be gaining a lot of share in some of your businesses.

And if you could give us some examples of that, it would be useful.

Secondly, the prices of the companies you want to buy should be coming down quite a bit.

And could you comment on that?

Yes, we could.

We agree they should be coming down a bit.

We would like to get sellers to recognize how much more they should come down.

First, I have to say that the first quarter didn't feel as good as you describe.

But we do believe everything went really well.

On the customer activity, you're absolutely right.

We compete in a lot of small markets where usually we're the number one player.

The people at the fringe have great difficulty.

You just saw last week that merger market and debit wire communications perhaps on Sun Capital writing their investment in mark to zero and the potential filing of bankruptcy for all of those assets, which would include of course the EZ pass system into England, which is currently under bid, and which we are a bidder along with them.

So there are several things like that that are already in the early stages, and a whole lot of other things that we're aware of that are going to come to fruition.

So we would agree with you that that is good.

The other thing that happened in our in-depth multi-day review with people is that because we don't have any layers here, you know, when we talk about how a business is doing, like impresser controls, it is because we're talking to Chris [Krepes] who runs it and his controller in the same meeting with everybody else.

So there is nowhere to hide here.

And by the same token, we're right out there with the rest of them.

And what we're seeing is a lot of customer inputs about how they want to look coming out of the recession, and we're hearing a lot of things around channel shifts and a lot of things around integrated nature of if they were buying some portion, they would like to buy more of that portion going into an OEM activity or maybe they're going to be more willing to outsource a larger portion of what they do, and coming out of the recession, I think the purchasing decisions from end users is going to be surprisingly different than what we hear a lot of our competitors saying.

So that is why we actually increased our investment in R&D and product launches so that we don't miss the opportunities that we think we will see in 2010 and '11.

Okay.

Thanks.

And follow-up question is that there has been some comment on the street that perhaps your guidance is somewhat unrealistic and that you will be -- there has been speculation that you will be reducing it later on in the year, as a result of the economy.

And related to that, you said that you are not going to say that the economy bottomed in the first quarter.

When do you think the economy will start to recover in terms of when you are looking ahead at your guidance, what are you assuming about the economy, or is that even a factor?

And how confident do you feel in the guidance that you are giving us for the second half?

Well, I think in terms of level of confidence, at 260 to 280, with looking at the sort of 270 midpoint, we feel quite confident about that, frankly.

I think the thing that is is frustrating is that the stimulus program, and government activity, has gotten a number of people in our end markets to say well, wait a minute, wait a minute, maybe we could call this something else, and it will be treated as a shovel-ready project, and I won't have to spend my budget money on that, and that has hurt our Q1 orders in ways that people wouldn't have foreseen.

We have one example, I don't want to say where it is but it is very important project for us, it is already previously funded, but no orders are placed, and the orders will be important, because the municipality and state involved is moving stuff around here.

And that has been a nuisance.

I will tell you that.

That has been a nuisance.

Our orders wouldn't have looked as weak if some of these things hadn't gotten in the way.

I think we have a lot more visibility around how we think we will perform over the balance of the year than we do the general economy and I would say that we're probably more pessimistic about the general economy than a lot of people we run into, and I think part of the reason that we took the guidance down to 260 to 280 from 270 was looking frankly at what everybody else is saying, and looking at how other people have recorded, and the depth of how far down the organic [Ds] are.

We were down 10.5%, and looked like the tallest midget amongst most people.

So we don't want to be ridiculous about that.

I think people that are betting their ranch on we're going to have terrible 2009 are naive, don't understand who we are, can't keep abreast of the fact that 36% of our revenue is in RF, when just two years ago, it was 27%, so we're a very different company, and we've transformed at a pace of change that some people understand and others don't.

Okay.

Thank you.

You're welcome.

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

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

Okay.

Thank you, Anthony, and thank you all for joining us this morning, and as always, we look forward to talking to you in the next three months.

This does conclude today's presentation.

We thank everyone for their participation.