Roper Technologies Inc (ROP) 2009 Q3 法說會逐字稿

Good day and welcome to the Roper Industry's third quarter 2009 financial results conference call.

Today's call is being recorded.

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

Please go ahead, sir.

Thank you, Laura.

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

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

Earlier this morning we issued a press release announcing our financial results.

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

We've 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 two.

We begin with our Safe Harbor statement.

During the course of today's call, we will be making forward-looking statements, 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.

Now if you will please 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.

Good morning, everyone.

If we move here to the first slide on the enterprise overview, I can see orders were $499 million.

Sales a little less than that, sales down about 4% from that.

Book to bill was 1.03.

We don't focus on book to bill a lot.

We are mentioning it this quarter because it is the first time in four quarters that actually our book to bill ratio has been above one.

Generally it trends in the kind of 0.97 to 1.03.

But that will go up dramatically in fourth quarter because of several announcements we will be making.

Gross margins stayed at 50.8%, same as the second quarter.

EBITDA margins were at 24.7%, which excludes the restructuring.

Decremental margins were only 31% against the gross margins of 51%, so we were 20 points better than gross margin line.

We continue to think that that is very good performance.

And our diluted earnings per share, the way they're reported at $0.61 with $0.02 of restructuring also included $0.01 of additional interest costs related to the bond offering; or it would have been $0.64 against our guidance of $0.61 to $0.67.

The operating cash flow in the quarter was 18% of revenue, and 154% of net income; and free cash flow was almost the same at 17% of revenue and 143% of net income.

What is unusual about the quarter, in addition to what we think is pretty reasonable performance, are a variety of significant achievements that occurred here in the third quarter and in the beginning weeks of October.

So the next slide.

Here if you'll look at the strategic achievements, you will see, I believe it was Thursday evening and Friday there were various releases out from different sources about TransCore being selected for the Houston metro HOV lane award, which we will talk about in more detail when we get into the segments.

That's an $81 million contract at the moment.

And also we had Gaz de France award our [Technolog] business the opportunity to do AMR gas for the country.

This is a very significant achievement that we will talk about also when we get into the RF segment.

Those two things together will easily exceed $150 million over the next couple of years.

The medical platform launched, formally, our integration of RF technology into our urology suite of things that we do in radiation oncology, as well.

The RF suite, we will talk about when we get in the segment; but it allows the patient, the doctor, and all of the treatment stuff to be gathered together and measured collectively to assure that everybody has the right person and the right material to proceed.

Fourth big deal is that our automated reading and billing technology, which we call ARB, is really fixed based way two-way communication, proprietary network for Neptune, which we have launch and already received orders in excess of 100,000 units for this technology.

Fifth we were successful in the middle of the quarter with a $500 million 10 year bond offering that came in at 6.25%; and while we left that fixed, we did a swap on our other $500 million bond we will talk about momentarily.

This is really important for us because it gives us a much better risk profile going forward that doesn't expire until 2019; and the other five year bond is good through 2013.

At gives us a flexibility to use some cash on some acquisitions that we're very far along in; and we made quite a bit of progress and we expect to announce some things in the near term.

So this really builds momentum for us for 2010 and beyond.

My next slide.

On the income statement, you can see bookings were up $10 million in the third quarter.

Frankly, we had hoped to get this Texas thing resolved in Q3, which would have driven the books up dramatically; but it is not going to occur now until the fourth quarter.

Net sales were down 4% or so.

That was disappointing, but it is really because we weren't able to start to incur the revenue that we will have with the Texas project.

Gross margins, though, were the same as before even though revenue was down a little bit, still 50.8%.

SG&A came down proportionally to $152 million.

Income from ops was 19.5%, excluding the restructuring.

Interest costs, this is just a function of rounding that the--they rounded up in the second quarter of 14 and rounded down in the third quarter of 14; but in fact, we are higher by the equivalent of about $0.01 due to the bond offering in the third quarter which was not in our guidance, of course.

In the second quarter this year we had a gain on the sale of certain assets around our satellite communication air time called Global Wave, which added $3 million to the earnings number in the second quarter; and of course, doesn't repeat here in the third.

We had a significant benefit from tax, which really is the 2005 tax share rolling off.

You are seeing it in pretty much everybody that reports based on the FIN 48 reserve roll offs that occur that everybody is getting a favorable tax benefit, and we enjoyed the same.

Net earnings were the $58 million or $0.63 a share, which excludes are restructuring but includes the interest charge.

Next slide.

On the asset velocity, we again continued to do very well.

Our inventory finished the quarter at 8.9% of sales and our inventory plus receivables, payables, and accruals subtracted was 8.9%, staying below our 10% strategy.

That is 440 basis points less than just three years ago; and of course, frees up well in excess of $80 million of funds that we can use to deploy in better areas.

Next slide.

We look at cash generation in the quarter, and year-to-date.

Year-to-date we have generated $229 million of free cash flow with what should be our strongest quarter ahead of us here in Q4.

And we have had $81 million of free cash flow in the third quarter, which is 143% of net income and 17% of revenues.

You can see the year-to-date comparison in the right hand graph.

In the third quarter of '06, our free cash flow as a function of net income was 97%; and of course; it is 40 points higher now at 137%.

12th year in a row that we'll have free cash flow above net income.

Next slide.

Here if you look at the balance sheet, you will see now during the quarter, of course, we paid off all of the revolver.

So we have a complete $700 million undrawn revolver.

We ended the quarter with $256 million in cash.

Our net debt is $868 million giving us a net debt to net cap number of 28%.

Really equally importantly is the lengthening of our debt maturities.

So we really have--having $0.5 billion hanging out there for 10 years is certainly the strongest position that we have ever been in in Roper.

Next slide.

From here, we will look at the individual segment operations.

The first is imagining.

Next slide.

In imagining, you see they had order growth sequentially of 13%.

Their performance is really what we expected, we were about $10 million in orders from the second quarter.

The cost actions that we had taken earlier in the year, in fact, did materialize so we see some margin improvement up 220 basis points to 19.3% for them.

The stimulus overall, what we would say is that we are starting to see less sluggishness around the decision making there and that's good.

So some of the quotation work that was at record levels in the first part of the year, we're finally starting to get a few decisions; and we think Q4 will continue the momentum build for really all of the businesses within scientific and industrial imagining.

Most important business, of course, is medical.

Those niche markets around consumables were very strong and they offset really the weakest with the OEMs.

But on the other hand, the shipments into OEMs that have any capital equipment, of course, were down.

Most importantly in the quarter, we launched our RF suite of technologies and we really don't have time today to go into that.

You will hear more about that as we do various investor presentations all year long; but this is a very big opportunity for the medical industry to tie the items that we use to asure that they're available at the time of the surgery, and in the right order with the right person; and we are very proud of what has been done here of our medical people.

The next category is the microscopy life science area.

There, the orders continue to improve very much in international business, not much domestic business to be concerned with.

The launch earlier this year of our evolved camera and applications that it serves are, in fact, not only gaining with existing customers but winning back some OEM customers that, frankly, we had ignored in the last several years.

We have got very good backlog in that business so that the fourth quarter should asure that we have continued growth.

The last category of that is our Spectroscopy business.

And that business has record high levels of outstanding bids; but they're not yet orders, so they can't be booked.

But we do expect based on what we are doing, particularly in China and Japan, that we ought to have significant bookings in the fourth quarter.

Next slide.

Here we look at energy.

The energy system, which has been a real difficult problem for us in the first half of the year, picked up some here in the third quarter, sequentially.

It was up almost 10% from the second quarter.

We will have better margins, along with those higher sales in the fourth quarter, which are really known to us and we are quite comfortable with where the margin performance will go.

In the refining and PetroChem area, orders and backlog was higher, and the end markets are finally improving a little bit in there.

Certainly a lot activity that we enjoy both in the Middle East and Brazil means we should have a safe, strong fourth quarter.

The sensor and instruments business improved--really rebounded, I'd say, in the third quarter.

Finally, we saw the rubber industry and composite industry increase orders, particularly in China and Asia Pacific in those factories.

And the plastics business came back fairly strong, still off year-over-year but dramatically better than it was in the first half of the year.

The oil and gas business is kind of split into two situations: our compressor control technologies remain very good lots of service work, orders improved sequentially over the second quarter.

We should have a very strong fourth quarter there.

Unfortunately, the shut off involve business and the Canadian activity we have in the oil sands arena, those businesses remain very weak and we really don't see much more than just modest sequential growth in the fourth quarter for them.

Our nuclear testing business.

The probes and consumables that we use in the steam generation side of the business did extremely well as we expected they would in the second half.

Unfortunately, the instrument sales and the fixtures for using them were weak and we expect that to continue week in fourth quarter.

So it is going to be probably not much improved in the fourth quarter over the third.

Next slide.

Here we're looking at industrial technology.

Here we have just outstanding margin performance.

You can see operating margins in industrial were 24.1% OP.

That includes the cost of the non-cash intangible charges.

So the performance here is really spectacular.

Orders were flat, which frankly for industrial, we would generally expect the third quarter would be off to the second quarter; and the fact that it is flat was encouraging for us as we think momentum is picking up in here as well.

You can see those gross margins at 48% and EBITDA at 29%.

In the water, AMR, and meter market, our operational performance ratios are as strong here in the third quarter as they were before.

So they have been able to, frankly, manage the downturn for them without losing any ratio performance which is remarkable.

And now are back in the fixed network market with the--our fixed base technology with over 100,000 units under contract.

So that is beneficial to us, and we expect a little bit of improvement in the fourth quarter over the third.

The material test business primarily centered around (inaudible) had a very strong improvement in the insequential orders.

We see industrial production coming up a bit in the end markets they primarily serve.

So they're expecting double digit sequential sales increase just from our backlog and normal seasonal demand in the fourth quarter.

The flow control business, primarily the pump businesses, were up a little bit in the third quarter over the second.

Even though on a normal decline--seasonal decline basis, we saw that in revenue.

The industrial refrigeration business move out of Chicago and into Commerce, Georgia was done successfully.

Certainly it hurt margins a tiny bit in that business in the quarter, but that was expected and their performance there has been quite good.

We see a little bit of improvement in the fourth quarter in flow control as well.

Next slide is the RF technology business.

Here we have really received two very, very special and important awards.

If you look at just the--the Q3 performance, orders were down 4%, but if we would have booked the Texas order, orders would have been through the roof.

Sales were down a bit.

In the toll and traffic arena, they did an outstanding job in managing project performance with various installs and those margins really helped keep the quarter up.

In fact, despite the sales being down in total you will see operating margin increased 110 basis points in the third quarter.

In the bid level we have at about this point in the end of the first quarter we were a little concerned about bid level activity.

Boy, that's no longer the case.

We have actually got more bid level work out there than at any time in our history.

In the fourth quarter, we will have increased US tag and reader sales; and we should expect the Houston project to kick off here within a matter of weeks.

On freight matching business, we have been pleasantly surprised throughout the year that the subscription base for that business has held very strong.

The services and subscriptions continue to outperform the end market, which is down dramatically.

And we did see here at the end of the third quarter, an improvement in the spot market and that gives us some elasticity for new subscriptions being ordered.

In the education and health care, the renewal rates have been outstanding all year long, they're really very close to 100%.

But the new installs in the education and health care market have--have been flat at best.

We haven't had any growth in that side of the business as people delay decisions.

And in California, we won a couple of major school districts; but still haven't been able to take advantage of the installation to the degree that we had hoped this year.

But that may change soon.

So for Q4 we would see that as kind of flat to modest growth sequentially from the third quarter.

The utility business, we have [Technolog], has been working all year long and really before to try to capture the Gaz de France business and we finally achieved that in the third quarter.

This fourth quarter will be just-we will move into doing work.

We will finish some software shipments and some installation, getting them ready to collect the billing information and do the service work.

That will be very modest income; but nonetheless, it does begin to benefit us from the start up.

Next slide.

When you think about this contract, it is in Euros; which is, of course, beneficial to us anyway.

It is going to have deployments primarily in 2010 and 2011 with a little rollover into 2012 depending on how quickly they do everything.

There are over 100,000 locations that will be deploying our Cello based technology into meters and collections.

Then we have a 10 year maintenance contract.

We are just expanding our offices in France as we speak and getting ready for the deployment there.

It will certainly help us next year.

The Houston metro award is really around the design, install and operation of their high occupancy vehicle lanes that we've talked about before.

They're going to be converted into reversible lanes so the traffic one way in the morning on a tolling basis, and return in the evening on a tolling basis.

It gives them a high degree of efficiency, and it is something we think there's a lot of opportunity around the country to do.

We are doing some of that in California and Florida and Washington now.

But this will be a much bigger deployment.

Their own information that is public at the point talks about the estimated contract value at $81 million.

Now if we look at the guidance for the year.

Sorry, one more slide.

The Q4 guidance for would be $0.68 to $0.74; and the full year depths, which these numbers exclude restructuring but include the interest cost, would be $2.57 to $2.63.

We would have had to raise that number if we were going to raise the guidance.

We really decided if you look at the $0.04 net interest cost of the bond offering, offset somewhat by a swap we did on the $500 million fixed to floating, on the bond that expires in 2013; mathematically you get about $0.01 in the third quarter and you get another $0.03 in the fourth quarter.

We still keep the operating cash flow, at least, to exceed $350 million.

Next slide.

Here, we are looking at--reminding us about what the essence of what we want to communicate this morning our depths were $0.63, which excludes the restructuring but includes the interest, or it would have been $0.64.

Gross margins remain flat to the prior quarter.

EBITDA margins are at 24.7%, which we think is outstanding.

Year-to-date, our restructurings cost us $10 million and clearly paid for itself already.

Our free cash flows we talked about earlier, $229 million year-to-date.

The orders were up sequentially in the third quarter.

More important than that, because that's really a very modest number, was the momentum that we see throughout almost all of businesses and the fact that we have got a book to bill above one for the first time in a year.

Each one of segments ought to perform better in the fourth quarter than they did in the third quarter.

And then we have the benefit of these very important strategic achievements where we've got these new multiple year contract awards in RF.

We've got the technology investments that we've launched in medical.

We've got the liquidity to go ahead and complete a couple of acquisitions that we're very close to now.

And with that, we're ready to open it up for questions.

Thank you.

Thank you.

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

(Operator Instructions).

Our first question comes from Mark Douglass with Long Bow Research.

One moment.

Hello?

Hello?

We will now go to Christopher Glynn with Oppenheimer.

Could you just give a little more complexion on how the public school vertical is developing, and how you--just review the evolution of that and how you see the opportunity over the next several years?

Well, the opportunity is really big.

The situation that's a bit frustrating for us is we have two large districts in California, in Los Angeles and San Francisco that we would like to be able to see more movement with.

We've had some movement, but we have a lot of quotations out.

I think that the school systems are reluctant to make any kind of decisions.

So, the adoption for new business there has been slow in both the second and the third quarter, but the prospects are certainly as good as ever.

We have added nutritionist to our staff, and built a very outstanding variety of information around nutrition management.

Parental selection of what people can use with their meal cards, and we think that's going to bode well.

So over time I think you get a rebound in growth rates.

In the meantime, we are not really losing activity.

We haven't really had price pressures in the area, and we have actually had some conversations looking at adding to our install base there.

Okay.

Then into industrial tech.

The material test business, some positive comments into the fourth quarter.

Does that look like some lumpiness, pent up demand, or more of a clean reset off the bottom; do you think?

I think it is probably more of a clean reset off the bottom actually.

We really haven't seen a pent up demand factor into our material test business.

Remember that most of our material test business goes direct to customers.

So we don't really have the distributer stocking/destocking phenomenon that you hear about.

So what we are expecting and we have already seen with respect to the bookings is that normal fourth quarter seasonality will apply there.

And what we're expecting for the fourth quarter is supported by that plus the backlog that we have going into the fourth quarter.

Okay.

Thank you very much.

You're welcome.

We will now go to Mark Douglass with Long Bow Research.

Good morning.

Morning.

Am I on?

You are.

Okay.

I don't know what happened but thanks for taking my call.

Can we discuss the Texas project a little bit?

And I don't know if it is also would be indicative of other types of projects, but you're assuming revenue should start to flow in fourth quarter.

How evenly does the revenue come, is it back end loaded?

Can you discuss a little bit how the revenue falls into projects like that?

Well, as you might imagine, we have been involved in presentations working around this.

This is something that, assuming we were going to win, that we frankly thought would have occurred in the third quarter.

So, we are well along with our ability to serve the customer and we would expect that we would get some activity yet in the fourth quarter.

But primarily it will be in 2010 and 2011.

It is about half the money goes to the design and installation process, and about half of the money goes to the maintenance contract over time.

But that is the current phase, it is not unusual for these projects to become larger once they get started.

So, we will see a significant portion of the benefit in 2010.

Okay.

Continuing on with the tolling or even AMR type of markets, states--they're--they're tightening their belts, their budgets are under pressure.

Granted these types of activities can save them costs in the long term, but are they less willing to lay out the cash at this point?

What are your expectations for those types of markets right now?

Well, if you think about the number of things they have that offer them pay back opportunities, they seem to be limited.

So we don't think that cash utilization will be anything other than a positive consideration when they're looking at these projects.

And I think people are beginning to see the opportunity with the efficiency and things like the high occupancy vehicle lanes; and we are going to be--sharing a lot of new product ideas and application technologies probably before the end of this year with people about ways they can make modest capital investments to collect a lot more funds to offset costs they have for their regular maintenance routines.

So, we would say that the economic market that states and municipalities face is actually favorable to us, and I think that's proven by the level of quotation bid activity we have, which is at an all-time high.

Okay.

Thank you.

Our next question comes from Alex Blanton with Ingalls & Snyder.

Good morning.

Can you hear me?

You said something interesting early on in the presentation.

Right at the beginning, you were talking about the book to bill ratio and you said it would go up dramatically because of several announcements you will be making.

Did I get that right?

You did.

Okay.

But some of these--just the Texas contract alone would be quite substantial and it would--some portion of it would be booked in the fourth quarter, and the considerable majority of it would be booked in 2010, and so that will improve things.

Okay.

So that is not--not much is in the orders yet then?

Zero is in the order.

So that was in October.

All right.

Yes.

Okay.

Good.

So when you're talking about the book to bill there you are talking some other big orders in the fourth quarter?

You said several announcements.

Sequential, we think almost all of our businesses will be sequentially stronger in the fourth quarter than they were in the third.

And part of what happened in the third quarter: half our businesses were sequentially up over 10% in orders.

But we didn't book the order around tolling and traffic.

So it really held back how strong the underlying orders were in the third quarter and the way we record them, of course.

And secondly, Neptune remains kind of weak, so it was down mid-single digits sequentially.

And when you take that along with the tolling, which can often be lumpy, as we have said before, the order strength while it was up $10 million over prior quarters sequentially would have been up really more than that.

A lot of your comparisons in the slides were sequential rather than year-over-year.

Is it the case that this sequential changes here are due to more than just seasonality?

Is that the point you're trying to make here?

Normally--

I think we've kind of baselined.

I think, Alex, what it is we've baselined on these kind of things and you are seeing an improvement pretty much across the board.

Certainly year-over-year, we are down organically.

I mean there's no way to say anything about that.

But on the other hand, a number we don't talk a lot about is our backlog.

Our backlog at the end of the third quarter is only down 10% from where it was at the end of the third quarter in 2008.

When you think about all of the head winds we've had to face, probably the things--the two thing we are most pleasantly enamored with is our backlog is only down 10% against a horrifically difficult market; and our detrimental margins are 20 points better than our gross margin.

So we just think we are poised for a pretty good future.

Okay.

Well, you are certainly doing a whole better than most companies in the industrial space.

That leads me to the second part of my question here.

What's--you haven't said much about next year in terms of sales and earnings outlook.

In fact, I don't think you said anything except to say that it looks good.

Can you be more definitive on that?

Well, we could be, but we aren't going to be.

We will wait until we get around to providing 2010 guidance, and it is certainly conceivable we may have a transaction or so before then as well.

So we will wait to provide 2010 guidance when we have a clear view on that.

When will that be, in January?

Generally, we do it at the time of the year-end earnings call.

So I think you'd find, yes, it would be early--probably early February, we would release earnings for 2009 and comment on the forward guidance.

But I would say that it does look to us like the overwhelming majority of our businesses each one should do better in 2010 than they did in 2009.

So we haven't done as poorly as many other businesses.

I don't think we probably get the sharp rebound.

We don't expect our business to be up 35% and 40%, but I think we should have a very solid 2010.

That's good.

Thank you.

Our next question comes from Terry Darling with Goldman Sachs.

Thanks.

Good morning.

John, wonder if maybe you could help us understand what happened with the energy systems and controls margins in the third quarter versus the second quarter?

Looking at that sequentially, profit down a lot more than revenues.

The slide seems to indicate a little bit mix there but maybe you can talk through that a little bit more.

Mix was a little bit of an issue although we hate to even talk about mix either on the upside or downside outside of RF where you have really an impact from hardware shipments versus services.

But really when you look at Q2 versus going into Q3, we had a couple of things.

We actually did a nice job around collecting some old accounts receivable in the second quarter, which had previously been reserved for.

So we actually got a little bit of a benefit, maybe a $1 million out of that.

Then in the third quarter, we actually had some higher inventory reserves associated with the fact we have lower production rates.

Outside of those two things, we expect as we look into forward into the fourth quarter for margins to come back into the low 20% range.

Okay.

And it sounds like, margins beyond the fourth quarter we really ought to be thinking about the third quarter here as having a couple of items that we are sort of transitory in nature; is that fair?

Right.

Right.

Okay.

Then looking at the sort of the commentary on 4Q relative to the guidance range for 4Q, I am just trying to think about what would push us below the midpoint of that range, what are the risks to the fourth quarter?

With respect to the fourth quarter, the things that would push us on the low side is if some of the expectations around the seasonal benefit in industrial and energy, if those don't actually happen.

Those would push us toward the low end and on the high end would be extra revenue.

Okay.

And in terms of which areas within industrial and energy the seasonality would potentially be most acute, can you focus us there a bit.

Sure.

It is our paternal test businesses as well as our petroleum analyzer business, which is selling into refinery and folks who generally have operating budgets that they look to finish up for the year.

Okay.

And then Brian, I was wondering where your thoughts are on additional restructuring at this point, do you feel like we're pretty well through that, could we see a little bit more; where do you stand there?

It is really--a very fair question.

We--the only residual in the fourth quarter are European things that just take longer to get done.

We just finished our Q3 reviews and people feel better sequentially about what is happening.

But we have them doing some risk assessment around, well what if you're wrong.

You were certainly wrong this year in the first half, particularly the energy people, which were slow to get started.

And the--I think the hardest thing for everybody in these industrial businesses, well what kind of ramp do you really have in 2010.

Do you have a rebound or do you a modest growth pattern off of our baseline.

So we have got some work going on that would say that what happens if you only get a modest growth pattern have we really been as aggressive as we could or should be.

We don't really have any businesses that are continuing to deteriorate.

So I would say we don't expect restructuring unless we decided to do something more aggressively in Europe than we have done and I doubt we will do that.

Okay.

Thanks and then I guess lastly, just John on 4Q tax rate.

It sounded like there were maybe items here this quarter that were transitory in nature; but can you square us up there, and any thoughts looking further out as well?

Well, they were transitory in nature only in terms of when they hit.

These were really tax positions that we've taken that we feel comfortable about; but with the FIN 48 rules, we do have to take a reserve against those when they're set up.

So we would expect to have probably some FIN 48 benefit next year and the year after.

But in terms of the fourth quarter specifically, we will probably be somewhere in the 33% range plus or minus half a point.

Thanks very much.

Sure.

Our next question comes from Michael Schneider with Baird.

Good morning, Brian and John.

How are you?

First starting in the RF.

Brian, your comment that a bit of activity and now it's ending quotes seemingly hit an inflection point here recently and are at record levels.

Could you give us some color on how the mix looks now, domestically versus overseas?

And I believe that's been an area of focus.

But I'm just curious what you're expecting, I guess, in that mix and then specifically overseas?

Well, I would say outside of North America it's really incredibly lumpy.

You do a lot of work.

There was a project we hoped to get this year, we didn't get in South Africa that we put a lot of energy in and around preparations for the World Cup; and I am always reluctant to say because if you get them they're large and substantial, and if you don't, there's not much there.

I think we have expansions that we have discussed in the Middle East.

And we have new applications in other emirates that we have discussed and if they came they would be significant.

I just don't think that they should be part of a kind of a story line, because we don't really have to hope for things for 2010 to be a solid performance.

And then in the US, where we have--the bids are public, it's right there, you can see we have some things going on on the West Coast now.

We have won some things.

It is really hard as a public company to be more granular.

We like to be, but we're not allowed to be.

We can't really say because of the political sensitivity of what the agencies are saying; and so I can't really provide more color, but there's an awful lot of opportunity out there, Mike.

Okay.

Similar just on new projects.

The fix based system now that you have launched.

It sounds like you won you're first major contract there.

Can you talk about this development and deployment versus what you've done with Hexagram in the past and what that relationship looks like going forward?

We looked at Hexagram as somebody that we thought had a reasonable fixed base solution around a certain kind of activity.

We wanted to have--asure ourselves that over time as fixed networks for water became a little bit more important, maybe they could capture 20% of the market instead of 2% of the market that we had our own development technology.

So we put quite a bit of money in the last year and a half into the development of a two-way fixed base technology either we we thinks works really well for the water business as such, as opposed to somebody trying to create a ubiquitous thing that would work for different kinds of utilities.

We spent a lot of time on software development around the information that utility and small utility could have or perhaps information that they would be able to sustain and that we think the Neptune guys have really achieved won an interesting contract that's in an exceptionally remote area that's in a very tough environment that hadn't been announced.

But it is a really--kind of ratifies the architecture that they've chose and the work that they've done; and the costs are favorable.

And instead of being a distributer of somebody else's technology, we are selling and capturing the margin that we should for technology that we built internally.

Okay.

And then can you just finish with the discussion around the convergence of Technolog and Neptune and your entrance, or at least the initiatives to get in the gas and electric at this point; and just how that relates to the Gaz de France win?

Well, the Gaz de France win is, particularly, around gas.

Technolog has a more expensive technology around commercial applications than anything we do with Neptune.

It is more refined, it is related to billing and long-term service, and it is related to the explosive nature of gas versus the leak nature of water.

So things that people need to monitor really differ.

What we do have is world class design engineering capability in the UK business of Technolog, and a big install base and a stronger orientation around a couple of people running around in our own trucks providing service and billing support to large clients.

France is exactly that, again, where you have got the entire country here.

Gets us not only into Gaz de France; but as you may know, Suez owns it and so immediately we look at other country application.

Technolog was a pretty small company at the time of acquisition, and they're rightfully very proud about what they have won here to get a UK based operation to capture the country of France is, I think, quite a significant achievement.

And it bodes well for the future and that business is better in the short term than integrating Technolog and Neptune.

They really are two independent companies that we just helped pull together in terms of the technology sharing.

So is it Technolog's technology that was used to develop the fixed base network for the initial--?

No, but we certainly borrowed the intellectual property of their engineering to try everything out with and look at other applications in the US and we continue to do that.

We think that the Cello technology we have in the UK and soon in France can be brought into the US and tried in some markets here, and we are working on that as we speak.

Thank you.

You're welcome.

Our next question comes from Jeff Sprague with Citigroup.

Morning.

If we can just drill into RF a little bit more.

Brian, as it relates to Houston, you mentioned design and install and maintenance but not tag specifically.

Is that area kind of fully populated with tags as it relates to yours or some other follow on opportunity there?

Well, there's never--it is never fully populated with tags.

There are always people who prefer to wait in line rather than being able zip on through.

But this is a service contract so it does extend the number of locations that the ego plus toll tag can be utilized.

And it is the same tag that can be used on regular toll lanes as well as these HOT lanes, which we think is the right solution.

But the 81 million that we have talked about is just for service side.

There is no expectation or nothing that we factored in with respect to a higher tag sales by having another location where you can use the tag.

Let me say there--in that 81 million, but we certainly expect to sell more tag because of the expansion of the system.

That's on top of the 81 million.

As it relates to tags, it looks as if the sticker price, no pun intended, of tags has fallen precipitously.

I guess that's very positive if we think about maybe just the elasticity of demand and driving penetration.

But A, do you think that's the right conclusion; and B, do you actually see kind of a larger appetite for tags and/or systems as they perhaps become a bit more affordable?

I think in terms of deployment, that there's a little more price and elasticity than people think there is.

But in terms of adoption of users that are buying the tags and participating in the system, there is price elasticity; and our sticker tags are more like $10 versus the hard case tag more like $20.

So, there are certain things about the hard case tags some agencies like and most--certainly end users like the sticker tag and you can buy it from a vending machine in Texas.

So it is an entirely different way to get access to things.

And we think that physical characteristics of the tag are more important, frankly, than the price variance to the tag.

It is--for those of us who have been stuck with plastic boxes, they can be a bit of a nuisance and they can be stolen and all the things along with it whereas a sticker tag just has more functional utility in many ways.

So that continues to be good and I think people, they're getting more comfortable with efficiencies we continue to build into background operations.

So, I think the growth in this area should continue to be interesting.

We have seen some disclosure on some bids that would suggest (inaudible) maybe you guys are bidding tags at a couple of bucks a piece.

Is that going on?

Well, not any of the tags we are talking about here.

There are other technologies using a different kind of tag that would be relatively low cost, and those tend to be nonintegratable into a whole variety of things and can't be read by existing readers and what have you.

So, the application of those is quite confined.

But we have recently won a contract that people wouldn't have assumed we could have even bid on let alone win.

I can just asure you that we have the capability to use all of the technologies everywhere in the world at whatever place we choose to use them.

So we are going to remain the technology leader for applications, and if people have a system that they want nothing other than a dumb read on, we can provide a level of technology to support that.

If they want an integrated system that you can move from one place to another, you can get that.

If you want to be able to move throughout the country, we offer that.

So, I think we have a full gamut of choices for tolling agencies to select.

All right.

Then just finally any update on the Toronto order?

Let's see.

That would be the Toronto Water.

The--well we didn't even mention that in a contract award situations that I can do.

I think there's some people who think that maybe an infinitesimal portion of that would occur yet within the quarter.

I believe it when I see it.

But it is really going to turn out to be primarily deployment in 2011 and 2012 because everything--we expect it modest first year and what's going to happen is modest first year.

That looks like that's 2010 and then rapid deployment in 2011 and 2012.

That is what it looks like to us.

Great.

Thank you.

Our next question cops from Shannon O'Callaghan with Barclays Capital.

Hey.

Brian, on this RF suite medical, I guess you said you would talk about it more in future presentations; but can you give us a little more feel of exactly what you are doing there, and is this something that could be an additional opportunity to expand in other areas?

Absolutely.

It is--we have been working more than a year on solving a really simple problem.

If you look at surgical application, you have a patient who is in a different part of the hospital, you have a doctor in a different part, you have materials in the operating room and materials in other places that need to be pulled.

If you integrate all of that, with a suite of RF communication technology that allows the doctor to walk into the room and immediately have feedback about, hey, this is who I thought it was and here is all my stuff and I don't need the nurse to go check anything else out and all of the items are here.

Let's go ahead with anesthesiology and move.

We have that.

We have taken a long time to get this right and spent considerable internal development on software and the applications, and have it in trial as we speak; and I think it will take a while to ramp because of the decision making process, but it is a good area.

That's going to help a lot and we just don't have a very big direct sales force, and we continue to look for something that givers us a better direct sales force.

And once we get that, then we have got a very fascinating suite of products to start to sell.

If you think about it, Shannon, the RF suite really builds on what SIFCO has had as their the core competency, which is looking for ways to improve the quality and efficiency looking at it from the doctor's perspective, not looking at it from somebody who wants to sell a lot of capital equipment or other things.

So, we take a slightly different approach out of the SIFCO world, and this is really a way to make sure that treatment plan plus the doctor plus the accessories are all available.

So it improves the doctor efficiency and improves the quality of outcome.

So we are excited about the potential this holds.

I would say, now, this is again for niche that is we're in.

We are not trying to control higher hospital communication technology.

Yes.

Okay.

And then just on the acquisition comments.

I mean, clearly you're sounding pretty confident that things are happening near term.

Is this Roper specific, or would you say that's reflective of the broader acquisition environment?

Can you give us a little feel of what you are seeing?

That would be Roper specific.

Okay.

And how active?

Weeks not months.

Okay.

And what is the--what is the environment like in terms of how many active bidders you are running up against?

Well, you know we try to not do that.

In the situations we are involved in now, that's not what's going on.

These are long-term multiple months of activity we've done throughout the year, and we have been very patient because our whole goal for this year was not to do a good acquisition but to do a great acquisition.

And use our liquidity and pick at least two targeted areas that could really give us post-close stronger organic growth out of these businesses than they can get on their own.

That's our--that's been our plan all year; and hopefully we are going to execute that soon.

Either to build existing capabilities, or are these new types of things we should be expecting?

These build existing capabilities and open up new channels and opportunities for technology deployment that we don't have now.

Okay.

All right.

Thanks, guys.

You're welcome.

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, Lauren.

Once again, thank you, all, for joining us this morning.

We do look forward to talking to you again in about three months after we have closed out the year.

And are able to provide some information with respect to 2010.

Thanks.

Bye bye.

That concludes today's conference.

Thank you for your participation.