Roper Technologies Inc (ROP) 2010 Q2 法說會逐字稿

Good day everyone and welcome to the Roper second quarter and 2010 financial results conference call.

We will now begin.

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

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

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

In addition, we issued a press release announcing the acquisition of iTradeNetwork.

We will be discussing these items during today's call.

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

Now 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 all of that information.

And 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.

Well, the first slide here, well we'll cover a little bit about the enterprise overview and then we will turn to the individual segments, talk about our guidance for the remainder of the year and then introduce you to iTradeNetwork, come back summarize it and take questions.

So the slide please.

Enterprise overview, we had record orders in the quarter, all-time record for any quarter in our history at $619 million.

Organic growth was 18.3% as you can see and that is despite flat growth out of RF in the quarter.

Sales were up 12% to $567 million.

Net earnings were up 20% to $71 million and our diluted earnings per share were $0.74.

We actually had $1.9 million of foreign currency remeasurement that created some noise there but decided to not give you an adjusted number.

It is rather obvious if that $1.9 million hadn't occurred, the $0.74 would have been higher.

Our operating cash flow was $110 million and our free cash flow was $103 million representing 18% of sales and 144% of net income.

It is the best first half in our history for cash flow and certainly the best orders for any quarter in our history in Q2.

Next slide.

It is worth pointing out the difference between the various four segments here in terms of orders.

You can see on this slide that our total orders for scientific imaging and medical were 82%, 26% of which was organic.

Our Energy Systems & Controls business was 33% organic.

There is a little currency noise so that the total appears to be less than the organic number because of currency.

Industrial Technology which includes Neptune was up 31% and then the RF business while flat actually had a book to bill ratio in the second quarter of 1.11 as a number of things that we'd hoped to turn into revenue have been pushed out a little bit.

Total corporate book to bill then was 1.09.

You might remember we talked about last quarter when it was 1.03 or something as a sort of a breakout indicator and sure enough that is proven to be true and so our organic growth in the second half should certainly be double digits and above, [I think].

Next slide.

If we look at the income statement, here you will see the bookings at $619 million compared to $489 million in the prior year quarter, up 27%, sales $567 million versus $505 million.

Gross margins were up quite a bit, 270 basis points, 53.2% versus 50.5%.

That of course results in favorable income from operations.

The operating margin at 21% also had 30 bps of sort of negative impact from businesses that we have owned for less than a year in terms of the leverage.

Our leverage on continuing businesses was quite strong.

And then you see the other income line, there is a little bit of information in there.

You might remember last year in the second quarter we had a gain on a sale of our satcom, portions of the satcom business, that virtually offset the restructuring charge of a year ago and rather than make that overly complicated, there is actually a $5 million swing in the quarter between the gain on the sale of the business and then this FX remeasurement loss of $2 million that we had in the quarter.

And that is inside these two comparisons.

Tax rate was just a slightly better and that gets you your DEPS at $0.74 versus $0.64.

Next slide.

On the asset velocity performance you know you tend to think it just can't get any better but once again it did.

You can see here our inventory at the end of the second quarter dropped to 7.5%, down from 8.8% a year ago.

Receivables improved to 15.3% versus 16.1%.

Our payables and accruals offset the receivable at total and then some so you have got the inventory plus receivables less payables and accruals came in at an all-time record low of 7%.

And if we just -- the last two years have dropped 10.4% in '08 to 7%, so we have improved by over a third during that period and that is just sort of universal exceptional operating performance by our field people.

Next slide.

Here if you look at our continued focus on cash generation and you can see that everything continues to escalate.

We had cash flow as a function of income down here for conversion at 146% versus 134% last year and 112% the year before.

Much more importantly we think is really the 17% free cash flow yield versus 13% two years ago.

So it is up by a third as well.

Next slide.

We will get into the individual segments here, next slide is we will start with RF.

RF was flat in terms of orders for the quarter at $192 million.

Organic sales actually dropped a little bit, 7% although you can see the EBITDA margins at 26% and gross margins at 49% were good.

The book to bill was 1.11 but we still need both more orders and more sales there.

We had a spectacular quarter in terms of renewals and new wins in our software subscription businesses meaning CBORD and Horizon and Freight Matching.

We had growth in the education security markets that CBORD was able to tap in the quarter along with integration services for execution as they do installs.

You might remember Q2 is a critical seasonal quarter for us in terms of subscription renewals and cash collection for CBORD.

But we had lower tolling project activity.

We had a large job in the second quarter last year in Ohio which was a one-off thing that was done and didn't recur which pulls down revenue in general.

And then we have gotten off to a very slow start in Houston in terms of execution around things that they plan to do.

So we had less tolling activity than we would like to have seen in the quarter.

And then we had from a margin viewpoint sort of a culprit, our wireless security business in Boulder has been struggling for a year with end markets that couldn't be worse for them and their margins were sharply negative compared to the prior year.

It actually counted for more than half of the margin variances in the quarter and we hope that should start to go favorably in the right direction in Q3.

In the second half, our CBORD and Horizon wins that we have already booked and contracted for should guarantee double-digit growth for those businesses throughout the rest of the year.

And the tolling delays while slowing down Q2 a little bit and they may actually continue to be modest in Q3 ought to push up Q4.

So we expect to have pretty strong results in Q4.

And then of course the iTradeNetwork that will get added to our software as a service businesses, we will talk more about will be a boost certainly in 2011 if not a little bit of a modest boost yet this year.

Next slide.

On the Energy Systems & Controls business, here you can see orders were up 32% organic, 33% with the currency.

Sales up 13% and operating margin compared to the prior year was up 240 basis points.

EBITDA at 28% and gross margins all the way up to 54%.

Now what was important was we had a disappointing margin quarter in Q1 and we told investors we expected a sharp improvement and you can see here we got just that, a 650 basis point improvement in margins from Q1.

We had very strong demand in the Industrial Sensor and Instrumentation businesses, very good growth in the engine shut-off valves in our diesel engine protection technology.

And compressor controls had a record Q2 level of orders driven mostly by global LNG and upstream projects even some extraction projects.

And then the refining in petrochemical markets were -- remain quite weak for [pack] and its family of brands but their margins improved as we got past the problems that they had fallen into in Q1.

In the second half, we think our favorable end markets will continue to serve us really well as people execute against very high levels of backlog and that will drive more organic growth and the margin performance that we captured in Q2, we would expect to maintain if not improve in the second half.

Next slide.

Here if we look at Industrial Technology, I think kind of the first, second, third and fourth thing that can be said about it is Neptune is back.

Here you would look at orders up 31%, sales only 7%, meaning we built massive backlog here which is going to turn into cash performance in half two.

We had an all-time record margin performance across the board in Industrial Technology whether it was pump businesses, Cornell Roper with spectacular results added to Neptune and the Struers business rebounding.

You see gross margins at 51% and EBITDA margins at 31%.

You know just everybody thinks we have high-margin businesses and of course we do but my goodness, Industrial Technology at 31% is certainly a spectacular level of performance for this family of assets.

We were up 35% in orders in Neptune a little more than that, primarily led by demand for our RF integrated meters.

Much more normal buying patterns back.

You had quite a few midsized projects that we were able to win -- St.

Paul, Minnesota; San Angelo, Texas; Roseville, Minnesota, some really notable quotes that we are confident we are going to win in the short-term future.

And all of this growth has absolutely nothing to do with the fact that we will be rolling out Toronto towards the end of the year and next year.

For Struers and the capacity utilization situation in terms of things that they sell to an end market has certainly driven their consumable business back to where it was and new product instrumentation sales are up as well.

And then fluid handling pretty much across the board had quite spectacular performance.

In the second half, Neptune had such a huge backlog that it is going to drive double-digit growth for us and we think both Roper and Cornell Pumps off of 35% to 50% increases in their markets will do particularly well in the second half.

Next slide.

In the Scientific Imaging & Medical arena, medical continues to become increasingly important as this gets built out with Verathon.

You can see we were up 82% but organically we are up 26%.

In orders, Verathon is actually tracking above the performance that we articulated for you last year at the time of that December acquisition.

We have had good demand for ultrasound consumable products for our CIVCO business and some new products that have been launched for our medtech business around radiation oncology and positioning products which we think will drive strong performance in the second half.

And the camera businesses that basically do imaging diagnostics and life science and physical science are continuing to have the same sort of growth ahead of them for the remainder of this year that they have enjoyed in their recent past.

Gross margins here you can see are all the way up to 61%, EBITDA at 27%.

Second half we think the channel expansion investments we made in Verathon will continue to serve us well.

We are certainly getting them into end markets that geographically that people wouldn't expect it, and I think we will have some exciting announcements over the next nine months in terms of new countries in which we have made real headway.

The radiation oncology business has been working closely with large OEMs on couch tops and are launching a variety of products that should stand us well towards the end of the fourth quarter this year and provide real growth next year.

And then we have very strong backlog in our camera businesses.

So all we have to do is execute against normalized delivery for these longer lead time items.

Next chart.

Here we will get into the guidance update for the Company.

Next chart.

Full-year guidance, we have increased to $3.05 to $3.15 from $2.95 to $3.10.

Q3 at $0.75 to $0.80 is probably a realistic number because the fourth quarter there is so much coming into it, we could easily make $1 a share in the fourth quarter.

So we think the $0.75 to $0.80 is probably in the proper wheelhouse for Q3.

The full-year operating cash flow we have increased by another $25 million so we are laying out here at $425 million to $450 million.

If we get to $450 million, it would be another all-time record and if you look at the number of shares we have and you look at that operating cash flow divided by the shares and put in any kind of a multiple on it, you get a pretty much higher valuation than the way we have traded lately.

We are on track certainly for a record year and we don't see anything that would slow that down.

Next slide.

If we look at the introduction here to iTrade, next slide, the Company overview -- this is the iTradeNetwork logo.

It really it is a phenomenal business.

It provides subscription-based hosted software solutions primarily to the food industry.

It has got the most extensive secure global trading partner network in the world.

It facilitates transactions which we'll demonstrate for you here shortly between retail grocers, restaurant chain operators, food-service distributors and it is just moving into a global platform in the UK and Germany and we will talk about that.

The iTradeNetwork has 6200 customers that transact within it today and they spend over $250 billion annually.

It is about as close to ubiquitous control in an end market as you would want to see.

It delivers though customized and comprehensive business intelligence solutions that allow people to learn more about what is happening on their spend management side so that they can see where there are opportunities to do various things.

It is a relatively young business.

It was founded in 1999.

Rob Bonavito and his leadership team are all staying in place to drive the business forward over the next several years.

And even though it has this massive network with $250 billion billed annually, it only has 240 employees which is the kind of businesses that we have come to love.

It is located in Pleasanton, California, the headquarters which is literally a couple of blocks down the street from our Gatan offices.

And also in Boise, Idaho, where it acquired a company called Instill and Stokenchurch UK, where it acquired Amphire.

Next slide.

Here we look at the customer base which is certainly a who's who of who is critical in the food industry.

You can see on the operator side you have got everybody from Sodexo and Dairy Queen to Aramark and Applebee's.

In the distribution side, you have got people all the way from Sysco to Coors to Bunzl to Martin Brothers.

So there is just a wide variety of people that are pulling from operators into their distribution channel and then out either to retail or to pulling from suppliers into restaurants.

In the retail you can see all the large grocers in the country starting out up at the top with Wal-Mart and Publix and dropping down to Supervalu and Costco and so forth.

And then on the supplier side, you pick up all of the big producers from Campbell's and Dole and Cargill and Tyson and so forth.

There is a lot of expansion with the existing customer base as they buy more and more business intelligence in addition to using our network to communicate and drive transactions.

Next slide.

The challenges in the food industry are really quite difficult.

What ITN does is really solve some of their most perplexing and irritating problems.

They standardize and streamline these wide variety of product catalogs and they wind up reconciling thousands of SKUs from different suppliers.

When we were looking at looking at this, looking at red delicious apples as an example and say well how many different SKUs could you have for a red delicious apple for heaven sakes?

And the answer is oh about 862.

And so the grocery store wants to order a red delicious apple, it is not as easy as it sounds.

And if they are going to control the spec on it, it has got to get a tight match.

And that is where ITN does an incredible job to allow both the seller and the grocer to acquire exactly what they want and the way they want to have it.

The food industry challenge is that it solves our inconsistent descriptive technology or terminology that makes it so hard to pull from somebody else's catalog.

There are a lot of nonstandard spellings as you can imagine to fit columns on distributor invoices that just don't work for people.

And then there is a very inconsistent use of pack and field sizes.

We were talking with Rob about other applications like carrots and if you think the apple is a challenge at 862, try 11,000 ways you can order a carrot.

Next slide.

iTradeNetwork's software as a solution really links the food industry supply chain in a very creative way.

Here on the slide on the top, we will look at manufacturers like Campbell Soup and Del Monte who have to get to distributors like say Sysco here, and Sysco in turn is going to get it to an end operator in this case say Applebee's or Taco Bell or Sodexo.

All of the different matching occurs inside our network.

At the bottom, you are looking at more just the direct grocer chain where manufacturers are getting their goods particularly everything on the outside of the grocery store if you think about it all of the fresh goods, all of the perishable items that it is critical time of the essence orientation to everything and that is what we are doing here to facilitate that with these large grocers.

Next slide.

When we think about what is happening with iTradeNetwork, it is not unintentional to include this cloud that you see here around collaboration, visibility, control and insight because it is really at the forefront of having a GDSN network capability to allow people to get real-time access to a lot of different things that are going on.

And so just calling out some of those bubbles that that data resides in here are things like contract rebate management.

There is -- fundamentally if you're going to make money in these industries with slim margins, you got to get that rebate management program really right and we really help facilitate that.

And so the system can kind of pay for itself off of just that particular aspect alone.

When you think about procurement, you have got to have a network to do all this matching that we are talking about.

And then when you think about the analysis and reporting up on the top, that is what gets you the business intelligence information for a Coca-Cola or for Coors or other people, data that they just won't get on their own without us providing the analytical support for them.

Next slide.

So with that we get back to kind of a summary of where we are.

There are sort of 10 key takeaways for me in Q2.

One was we had record first-half cash flow.

We had record Q2 orders even with RF flat.

Imagine what the orders would have been if we had been up double digits in RF and from time to time we will be.

Q2 free cash flow at 18% of sales and 144% of net income.

Gross margins up 270 basis points to 53.2%.

Energy improved as we said it would, up 650 basis points.

Our Scientific Imaging & Medical grew by 82% largely with the Verathon acquisition but 26% organic growth is pretty good too.

Neptune is back to normalized activities with orders up over 35%.

We had a whole family of Industrial Technology businesses record margins across the board whether it was gross margins, EBITDA margins, operating margins, what have you.

And our software as a service businesses within RF had exceptional cash performance and are now going to be joined by a really phenomenal high trade network business.

And our DEPS and cash flow guidance was increased.

So we certainly remain on track for a record year.

And with that, we will open it up for questions.

(Operator Instructions).

Terry Darling Goldman Sachs.

Thanks, good morning, Brian.

Brian, I wonder if you might go back and go a little deeper on some of the margin pressures underneath the RF technology segment.

Like you talked a little bit about your wireless business in Boulder being a little bit weaker but maybe you can just get into some more color there and what you are expecting in the second half?

Well I think -- it is a small business but it had particularly negative performance.

It has for a while but without some of the other businesses having more growth, it sort up pops it up to where it is.

They have really struggled as you can imagine because it is mostly going to go into residential and commercial building security markets.

And those have been pretty bad and those guys have really stumbled for nine months.

We have made a number of changes there and we expect that it was at the nadir in Q2.

Actually we don't think the margins were that bad.

It is just that we didn't have a lot of tolling hardware and tag shipments in Q2 at the expense of the normalized administration.

And when that happens, it just gives you a little less favorable results than you would have if we had had more tags shipped in the quarter than the margins would have looked a little bit better.

But being down 110 basis points, the Inovonics business caused well over half of that.

So that is the reason I called it out.

Okay.

And then I guess a similar question just in terms of anything going on with the year-over-year incremental margins in the imaging business, upper 20s, you know, I think at other points in the cycle we have seen that incremental significantly higher.

Anything weighing that down on a transient basis that we ought to be aware of there and how are you thinking about incrementals for that business in the back half of the year?

Well, the incrementals are great.

I think what you have got to realize is how much of that business is Verathon.

So John, if you want to comment on that, you have got the acquisition with all of the --

Right.

So the increase in amortization that you see for the Company is really almost exclusively in the imaging segment.

So we are up by I think about $3 billion or so year-over-year.

So that is impacting the segment pretty dramatically.

If you exclude the impact from acquisitions, we saw very nice margin growth there and consistent with what our expectations are for that business, somewhere in the 30% to 40% range because of the higher gross margins there.

Okay.

And then maybe that is a good segue I guess for me I'm a little confused as to what is assumed in the second half guidance in terms of the impact from step up and amortization and all the other acquisition related items on the acquisition that you are announcing today on the iTrade.

Can you take us through that?

Sure.

The nice thing is that we won't have to talk about inventory step up as there is no inventory in this business.

So what we have included into our assessment for the rest of the year really very, very modest EPS contribution from iTradeNetwork.

I mean it might be a penny but really it is not large enough I think to really move the needle for us.

What you are really seeing on our change in guidance is really a stronger performance from the base business than what we thought three months ago.

And of course the cash growth where we increased both the top and the bottom range by $25 million will have some impact from iTradeNetwork of course because of those amortization charges are all noncash.

But we factored all of that into our thinking.

Thanks, John.

And then maybe talk about the iTrade impact on the longer term.

I guess specifically it sounds -- it is not a cost-saving story here obviously but can you talk a little bit more about where you see the revenue synergy potential with some of the other related businesses that you have referenced in some of your parts of your press release here.

ITrade has been growing pretty dramatically and certainly outsized leverage in that business because of the nature or the cost structure a business like that has.

It is continuing to really assimilate a couple of acquisitions it made in '08.

So it has a lot of activity going on in Europe with an acquisition called Amphire made.

It provides most of the distribution capability for the UK pub system.

For those of you who have been in the UK, you know that is not a modest statement.

The opportunity to continue to grow other things we do with those people is really quite substantial and we are going to be able to take them global in markets that is very hard for them to get access to previously.

In the US, we are going to be able to do some things with Rob's team around spend management and contract and rebate management and business intelligence that is going to give what they call Karma a substantial opportunity to expand.

And then they have just won a contract with a very large beverage company in the US.

It is a five-year multiple that will continue to roll out favorably for us.

So we also have menu planning and CBORD that ITN has coveted for a very long time.

And we have done -- we have been at this ITN acquisition off and on through 15 months.

It has been a very long relationship with Accel-KKR and the leadership team at ITN.

And they feel that there are some very good synergies with CBORD and Horizon and this will kind of break down what has been a difficult way to kind of share the wealth.

Now that they are all inside the same family, I think we will be able to bundle some things together that will be best for everybody involved at the customer level.

So Brian, it sounds like this is an upper single, low double-digit kind of organic growth business and maybe you can take it a little bit higher from there.

Or can you put a finer point on that for us?

Actually, Terry, I think it is a little too early for us to give revenue projections on a by business basis.

That is not something we do for any of our businesses for lots of reasons including competitive reasons and I think we will stick to that for this one as well.

No, John, I understand that.

I mean you are spending a good chunk of change here though.

Maybe the historical growth rate -- I mean some kind of a spec here in terms of the growth rate you are paying for a 10 multiple business does look like a high-margin great cash flow generating business.

But I think people are wondering here about what the growth expectations ought to be and maybe just the history there would be helpful.

Don't forget about asset-lite on that as well.

Of course it comes in with almost no assets to speak of.

So on a cash basis, it will continue to be just fabulous.

And I understand the question but I think that at this point, it is premature for us to be talking about business by business expectations around revenue growth.

It is a very good business.

It has been growing faster than anything I would want to commit to going forward.

Okay, that's helpful.

Thank you.

Wendy Caplan, SunTrust Robinson Humphrey.

Good morning.

Just a couple of quick ones on the acquisition.

Did I miss a revenue number in your release?

And can you talk a little bit about competition and just to get a feel for this, is it mostly perishables or nonperishables just to understand the mix?

No, you didn't miss our revenue number.

We didn't give one.

So that was -- let's say if there is any competition you would be hard-pressed to explain who it is.

This is really guys who are enabling the largest people in the world to transact better than they can do on their own and they are competing against administrative systems that are not driven to buy a network capability that we have.

The business in the press release that KKR put out, they articulated that the business had been more than tripling its revenue and EBITDA during their three-year ownership period.

And what John is saying is we are not going to give any forward revenue guidance until we have had a chance to get a little more close to all of that.

And there certainly are competitive issues here around this very unique business that make it reasonable for us to not provide a whole lot of information there.

It is certainly going to add to our total growth in the kind of mid single digits arena for 2011, or the next 12 months.

And we said it is going to have more than $55 million of EBITDA contribution.

So it is a spectacular acquisition.

In terms of somebody talking about multiples, if it is publicly traded, its comps are between 20 and 25 times EBITDA and the worst performing one is at 17.

So we think this is an outstanding acquisition and the right home for Rob and his team who really wanted to work with us for a variety of reasons as opposed to going ahead on their IPO.

This is a business that could have IPO'd itself at a very high number.

Okay.

You understand that I am confused if there isn't competition why we are not talking about growth rates?

Well, the growth rates -- what would you like to know?

It has been more than double-digit growth for its entire lifetime.

There is no reason to think it wouldn't continue to do that.

But the real important thing about this is cash on cash returns and it not requiring reinvestment and the freedom to use that cash to grow still further.

Okay, okay.

And speaking of that sort of business can you give us an update on Freight Matching and whether this is a good environment for Freight Matching?

You know, the wonderful thing about Freight Matching is last year was the bottom of anything.

It didn't really go down.

This year it is getting a little better and it is going up a little bit.

But most people belong to the network so at the margin when you have growth like this, you get a little bit of a pop but it is just again, it is a network where people have got to be connected to it.

Think of it like iTradeNetwork, you have got to be connected to it.

Guys says gee, I am going to sell a Christmas tree.

Oh yeah, really?

Well, you are going to have to sign up for the iTradeNetwork to get your Christmas tree in at one of these stores even though you're only to be there for four weeks.

There is no other way for you to access the store, get the SKU right, get the invoice right, get the contract rebate rights or anything else.

So these are just very, very unique businesses and we have now got five of these suckers and they are just beyond world-class businesses.

And Brian, are there any more of these suckers in the pipeline in terms of --

You betcha, you betcha.

Okay.

Thanks very much.

Alex Blanton, Ingalls & Snyder.

Good morning.

Just to continue in that theme, if we don't have the sales figure, then when you add this to your revenue and I assume it is in the RF segment?

Yes.

How are we going to judge how the rest of the segment is doing if we have no idea how big iTrade is in revenue?

Well, we will be disclosing that of course as it starts to flow through on the results, Alex.

So the information will be available as we have the third quarter call and the associated filing of the 10-Q.

So then why isn't it available now?

We'd prefer not to have that as part of the announcement and discussion today.

This is a high-margin business.

It is above the Roper corporate average.

And frankly that is all we really want to say about the margin performance which is really I think what you are looking for.

Well, and in the future we want to be able to judge how much it is adding.

And Alex, we will be able to provide you with information so you know the answer to that question.

Terrific.

Did I pick up that you bought this from KKR?

Is that what happened?

Accel-KKR, yes.

Excuse me?

Accel-KKR.

Yes.

And when do you expect it will close?

Tomorrow.

Tomorrow.

Yes.

So it will be there for most of this quarter or for two-thirds of the quarter.

And what is going to be the impact on the balance sheet here?

I don't think we have discussed that at all.

You don't have that much cash.

Well, we finished the quarter with over $250 million of cash.

We will be utilizing a portion of that to pay for this and the rest will be a draw against our outstanding revolver.

We have a $750 million revolver which is undrawn at the end of the second quarter.

So yes, so we would expect that revolver to be drawn somewhere in the $350 million to $400 million range by the end of the quarter.

What is the interest rate on that?

The interest rate on that is LIBOR plus 130.

LIBOR plus 130.

And the interest on the cash -- the interest for (inaudible) I assume is what, pretty well?

There is no spread on that cash.

Given our very conservative investment policy, it is fair to assume that we are not going to be losing any interest income.

Okay.

And finally, and I think Wendy referred to this, but you said the acquisition gives Roper additional scale to pursue acquisitions in the software solution space.

And you indicated you see a lot more businesses like this.

Is that correct?

And are you in touch with those and are there reasonable -- are they for sale?

You really want to think about this as a network business, okay?

And so we have got a network in Freight Matching.

We have got a network around connecting campus activities whether they are in healthcare or they are in the university or educational environment.

We have got -- we have got a network now that relates to food service.

We like these network businesses that are once they are started, they are very hard to break into and they have high entry barriers and they have very high cash velocity and they have a high degree of stickiness.

And we have evolved the Company really since the Neptune acquisition in '03 always moving a little bit in this direction all the time.

What iTrade does is kind of really give us enough scale now when you put a link in Canada and get loaded on the East Coast and that business on the West Coast and Freight Matching together with CBORD and Horizon and iTrade is really three different things are pooling together as a common network which saves a fortune when you look at what happened in the UK and in the Instill business and here.

They are very, very immediate synergies that you capture in businesses like these as you build them out and there are a lot of small players that can join our family.

And so we have a number of small more bolt-on type things that can go into these networks that are attractive.

Okay, sounds great.

Thank you.

Jeff Sprague, Vertical Research Partners.

Thank you.

Good morning.

Brian, can you describe a little bit how you actually get paid, Roper gets paid owning an asset like iTrade how the business model actually works?

It is a subscription for the most part.

So they pay a fee and everybody on all sides of the transaction is paying the fee.

And then you sell services to the people that are involved so that you can do -- you can help them with their spend management, you can help them with analytics.

There is just a wide variety of things that you would be amazed really, or perhaps not -- I mean, I am always amazed at these large companies that you think would do more of their own analytical work, but they don't.

And so they tend to contract with iTrade for that and that is a pretty substantial growing portion of the company.

You take the largest customer they have in the UK is this UK pub system, and there is a lot of different small entities there.

And yet if you can provide the people that are providing it with a whole lot of information about logistics and delivery and size and reorder points and things like that, it is worth real money to them.

And our network has all of that data inside.

So it becomes sort of a CRM type feedback device for people who don't want to do that on their own.

Then I guess the nature of these businesses does change your cash flow somewhat.

I just see that the unbilled receivables are up 25% or so sequentially, and about 40% since the end of the year.

Is that a function of -- ?

That is the seasonality of what happens with CBORD, and John can explain that.

Right.

CBORD has an impact on that as well as the timing on some of our percent of completion revenue recognition, which is both at our CCC business as well as in our TransCore tolling operation.

So in some of those instances where we have a project and we are executing against that project, and we hit certain milestones and then the cash comes in later.

What we are seeing right now is actually a little bit more than what we would normally see as far as the growth in the unbilled, but it is not anything out of the ordinary for those businesses.

And then the second quarter has a little bit additional from our CBORD business.

So you would expect to come back in-house in the second half?

I do.

All right, thank you very much.

Richard Eastman, Robert W.

Baird.

Good morning.

I just wanted to follow up for one second the last question.

So we -- again, the business model here is that everyone involved in this network pays a subscription fee to have access.

And then do we sell kind of basically these data mining services in addition to that subscription fee?

Is that how we can boost our penetration into these accounts?

Yes, that is a great summary of it, yes.

Then, John, do you also have a GAAP EBIT assumption against that $55 million EBITDA assumption for '11?

We still have a little bit of work to do in order to finalize exactly what the valuation and the amortization is going to be for next year.

We will be able to fill in some of those details.

I have a working assumption for that, but we will be able to fill in some of those details as we get closer to the end of the year.

Then in terms of the Neptune's business, is the Toronto business -- where does that stand?

Or has that started shipping now in the third quarter or will it ramp up in the third?

We have had a ceremonial installation which was well attended and covered by the press up in Toronto.

Now that ceremonial installation went along with ceremonial revenue.

And so we are still on track with what we thought kind of when we talked three months ago for this to start really to ramp up in revenue in the fourth quarter and then ramp up again going into 2011 and again in 2012.

All right.

And then it sounds like Houston is maybe pushed back until fourth quarter at the earliest.

And then the France gas piece, is that started to ship?

France has started to ship.

Installation is going on there.

That is rolling out as expected.

It is true that Houston is going a little bit slower.

I am not willing to completely give up the ghost on maybe having something in the third quarter but our guidance really assumes that that is a fourth quarter event.

And then starts then and rolls into 2011.

Okay.

And then just I'm sorry one last question on the scientific side of the business, the EBIT margin again we had anticipated that would trend lower sequentially.

But should we think of kind of the normalized margins in the scientific piece of the business at somewhere between a first and second quarter average EBIT?

I think that is a fair assessment, yes.

That's fair?

Okay.

Great, thank you.

Chris Glynn, Oppenheimer.

Thanks.

Just want to review some of your public exposure a little bit.

I know the Neptune and TransCore had some good directional trends and some signs in the orders there.

But if we think about them both more as quasi-public funds than direct, how do we think about the concern around public finances broadly impacting those businesses and any kind of associated concerns there?

Well, certainly we think it always has slowed down decision making.

Last year you had people who made very slow decisions or postponed them because of the stimulus scenario.

That has pretty much come to a head so you are seeing a more normalized rate of activity and there is a lot of replacement business in Neptune.

That just sort of everything slowed down last year.

We haven't had any real resurgency in home-building and yet Neptune is up over 35%.

So we think that it is still at levels that were less than sort of some parts of 2008 but they are going to do really well.

So I don't think the municipal funding issues that Neptune is facing are going to get any worse than they are today and we are looking at pretty substantial growth.

In the TransCore case, it is a little stickier because people have a tendency to -- it is easy to postpone the things once you have won the contract there is really no leverage to force somebody to get going other than them worried about losing funds that have been set aside for the project.

And so we still see the decision-making around this project is slower than it would have been a few years ago which gives us some sort of pause in what we said about Q3 and how we feel about them in general.

Now the reality is as everything else is back to really strong growth then the acquisition is going to be really spectacular.

The TransCore tolling side of our business becomes less critical to the overall effort of the Company.

And so it tends to get a disproportionate amount of air time in every investor meeting we have.

But the incredible beauty of our software as a services business inside RF really is what is driving our success and the tolling business is okay but not the core to Roper's success.

Thanks, I appreciate that.

Just any incremental color on the status of how E-ZPass is treating you?

Well of course they are treating us marvelously.

How could there -- we love them and the testing is continuing.

We've spent a lot of money with them for them to do their testing of our stuff but we don't have any specific timeline.

Most of the people in the trade assume they will make some sort of decision before the end of the year.

I think our own people are hopeful of that but wouldn't be surprised if it rolls into 2011.

Okay.

Thanks again.

Matt Summerville, KeyBanc.

Good morning, Brian.

A couple of questions.

First, with the Industrial Technology segment, the incremental margins whether you look year-over-year, sequentially, were pretty significant.

And I guess I am trying to get a sense is this business now in a new kind of margin bandwidth going forward?

I would've thought maybe 25, 26 was peak.

You are trending nicely above that.

Is there still room to move there?

How does the back half and into '11 look in that regard?

Well, what you are really seeing in industrial is the benefit of last year's restructuring.

So those margin improvements are certainly sustainable as long as you have the kind of revenue we are looking at there.

So I think you are at kind of a new higher baseline plateau.

Based on the mix of activity, I don't know that I would guarantee 51% gross margin in the industrial category for our lifetime but yet you know, they are there and that is despite any of the pressures on cost push inflation.

I mean we smile when people write about another water meter company about copper pressures.

We never even talk about any of these things and our margins just keep going up.

So our guys are the best in the world at what they do in every one of the categories we own in the Industrial Technology arena.

And I don't see any real problem.

And I can't help but also comment that we are sorry about LeBron.

One more follow-up question.

With regards to the energy business, you have had a couple of hiccups there on the instrumentation side.

I guess one, what did you do to kind of fix the problem?

And I guess two, does that cause you to think differently about those businesses strategically?

Well, not really.

You know I think that we had one business that did rather poorly in the first quarter.

I think we have resolved the difficulty around that although that business is not still performing where we would like to see it but its end markets aren't really helping it any.

I think we remain sort of pleasantly surprised about how well the compressor control business is doing in both the upstream and LNG arena.

The performance of the business is really very, very strong.

So it isn't really anything that we have a problem with in any way and we expect frankly to have a little bit of margin improvement for the remainder of this year.

So they are a very good business.

Thanks, Brian.

Mark Douglass, Longbow Research.

Good morning, gentlemen.

Can we talk about energy systems controls again?

If we look at the orders there and what is driving there obviously we are finding petrochemical is still pretty weak.

Any end markets in particular for sensors and instruments for example that are doing particularly well?

And then related to that, how much is sold through distribution in that segment?

Mark, you are exactly right.

The portions that are reported in energy and control that are really for industrial end markets which is the sensors and instruments that are going into latex and rubber processing, those areas are doing extremely well off of -- they were down dramatically last year.

There were up even more dramatically this year.

And their performance has come right along with that.

They did all the right things in terms of cost and are really benefiting from those actions this year with the sharp revenue increase.

And as far as going through distribution, very little of this segment or really any of our segments goes through distribution.

Most of the instrument sales are all direct.

There is a small piece of the sensor piece of this segment that goes through some distribution.

But what we are seeing is really a rebound in industrial capacity and industrial production and that is flowing straight through to our sensors and instrument business.

The other area that is up probably a little more than the average here because you're right, refining and petrochemical continues to be a weakened market, but our diesel engine protection business for oil and gas applications is doing extremely well and has rebounded very nicely.

Okay, thanks.

That's helpful.

If we can talk about the acquisition again to help me understand like who is purchasing it within the organization.

Is it purchasing managers that really want to know what is going on or is it the warehouses?

What exactly or who within the organizations are doing a lot of the purchasing?

Well, it is generally a business decision so it is executed through the people who are doing the purchasing on the buy side obviously.

But it is really a business decision around how they want to be able to understand and control and analyze and simplify their purchasing from different suppliers or distributors.

So they will make a business decision so they want to have better visibility, better control, better compliance, better understanding around where they are purchasing from and they will select the service and the network that iTrade has.

And then all of their associated suppliers will then need to sign up onto the network in order to be able to transact business with that end customer.

And that is the case for all of the end grocers, distributors, and retail locations that were listed on the slides in addition to 6000 others that were not listed.

I think it is very important to have a distinction between what some people would think of as supply chain and really the software as a service type subscription business.

Okay?

So supply chain activity has a different kind of sale than the subscription software business does.

And in our case, this is a subscription software business for the most part with very high renewals as opposed to somebody selling an ARB system to manage something.

You are joining a system remember where you have got somebody like Sysco in the middle and they are going to deliver to restaurants and are going to deliver to groceries and they are going to deliver to institutional clients to have one backbone like ourselves to be able to assimilate all the different things they have going to different people hugely, hugely favorable situation.

If those people -- if Kroger decides they are going to use iTradeNetwork as its backbone for SKUs, you don't have a hard sale to anybody supplying Kroger.

They are going to have to go through our network to do that effectively.

So you have the whole perimeter of the store that iTradeNetwork is going to be very, very critical to and your own competition are really the people on the inside of the store that's more the consumer packaged goods people that have maybe a different kind of hard SKU system that is tied into inventory turns and consigned inventory and things like that.

But that is not the way the perishable world works or all the things that are inside and outside the store.

So it needs to be viewed as a subscription software business and not a supply chain.

Okay, but then do they offer services to help people integrate that into their ERP systems or is that solely up to the customers to do that?

They will customize everything for the large customer, no question about that.

But the growth with the existing customers tends to be around rebates and contracts and spend management and things like that where people they don't -- they have promotions and they don't -- they have got to have proof of how much it increased revenue and so forth in order for them to calculate what rebates they are going to provide back to them.

Okay, that is really helpful.

And then finally again, just related to deals in general, I mean a lot of people including yourself are flush with cash, generating a lot of free cash right now.

Are you finding that that the competition is kind of heating up forcing higher multiples?

Are you maintaining your discipline on the multiples and so that might just hamper your potential for acquisitions going into the 2011?

Or how should we think about all the cash out there chasing a lot of properties in light of potentially slow growth in 2011?

And thanks for your condolences on LeBron.

Okay.

Well we have noticed and there have been a lot of acquisitions this year.

I would stack ours up against anything anybody else has done anywhere in the world when you look at multiples paid.

So this is a business that is worth a lot and we are getting a super team and it is going to help us grow because there are other things we can add to its platform very nicely.

As far as prices out there in the marketplace, you know it fluctuates a lot depending on whether or not people can get their IPOs done or whether or not people can get the financing and people don't have [mack outs] or due.

Private equity has got a ton of cash and strategics have a ton of cash but I don't think that the people generally that compete with us as a diversified growth company are going to generally miss these kind of opportunities.

I mean look at what we were able to do in December with Verathon and now iTrade.

Here is two businesses that just have spectacular performance.

You are going to have two businesses that are going to change well in excess of $100 million of EBITDA between the two of them.

And if you look at what we paid for them collectively, you are looking at $825 million.

I mean it is pretty spectacular what we have done.

I don't see anything like that changing.

Remember we generate a lot of free cash flow and if you lever it at 2.5 or 3 times, it means we need to invest 500 or so a year with our current capital structure.

We were able to do that easily and I would like for the Company to be remembered as somebody that in December of '03, we invested about $500 million to buy Neptune and we only had $124 million of trailing EBITDA at the time.

Here we are spending $525 million and our trailing EBITDA at the moment was $540 million so it is less than one times.

Back in '03, we had to raise equity.

We had to refinance the capital structure of the Company.

We had to do a convertible bond.

This time we are taking cash out of our balance sheet and drawing down our revolver a little bit.

So the strength of the Company, its ability to deploy cash is dramatically better than any other time in its history and we are going to continue to do what we do well now.

Thank you.

You are welcome.

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

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

Thank you, Augusta, and thank you all for joining us this morning.

And we look forward to talking to you at the end of the third quarter.

That does conclude today's conference.

Thank you all for your participation.