Roper Technologies Inc (ROP) 2010 Q4 法說會逐字稿

Good day and welcome to the Roper Industries Fourth Quarter and full year financial results Conference Call.

As a reminder today's conference is being recorded.

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

Please go ahead.

Thank you, David, and thank you all for joining us this morning as we discuss the results of the Fourth Quarter and full year 2010.

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

If you'll turn to slide 2.

We begin with our Safe Harbor Statement.

During the course of today's call we'll be making forward-looking statements which are subject to the risks and uncertainties as described on this page and as detailed in our SEC filings.

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

And now if you'll please turn to slide 3, I'll turn the call over to Brian Jellison, Chairman, President and Chief Executive Officer, and after his prepared remarks we'll take some questions from our telephone participants.

Brian?

Thank you, good morning, everyone.

We start off by just saying the outline for today.

We'll talk first about our full year financial results here for 2010 and then go into the enterprise results on a financial basis for the Fourth Quarter.

Then we'll look at the individual segment detail and the outlook for each one of those segments for 2011, talk a little bit about sort of beyond the numbers things that happened in 2010 that have been learnings for us during the downturn as we come out, and then establish our 2011 guidance and move to Q&A for you, so next slide.

For 2010, our enterprise financial results are just fundamentally in every category an all-time record, whether it's orders, sales, backlog, earnings, EBITDA, cash flow, anything one can think of.

Our EBITDA margins for the year reached 26.7%, of course another all-time high.

Our operating teams performed exceptionally well and we enjoyed full year EBITDA leverage on the next dollar of incremental sales of 40%.

We had a record asset loss, we'll have more to talk about there, and for the first time, we ordered $0.5 billion in operating cash flow for the calendar year.

Our free cash flow became 20% of sales.

We look around at capital market competitors for us and many of the S&P 500 businesses don't enjoy 20% operating margins let alone 20% free cash flow to sales.

Our free cash flow exceeded net income for the 13th consecutive year.

We increased our dividends this year by 16% for 2011 after raising them last year 15% for 2009.

Our book-to-bill ratio for the full year was 1.06.

This has created a record backlog of $785 million, which is up $220 million from our year-end backlog last year and I think one of the things that's amazing for us is that the excellence that we had really permeated throughout the enterprise.

There was only two or three businesses not participating.

Next slide.Our full year income statement you can see here our bookings reached about $2.5 billion for the first time.

Our bookings were up 25% on the year.

Our net sales were up 16%, 8% organic for the year, but of course it continued to move up throughout the year starting out the year with a minus 3% and then a plus 5% and a plus 14% and closing out at a plus 15%.

Our gross margin again spectacular, 53.4% for the year up 250 basis points over the prior year.

Our income from operations for the year was up 30% at $514 million and I would remind people that we have about $86 million of non-cash intangible amortization that depresses those income margins, so our operating profit margins reached 21.6% for the year.

If you add back the non-cash intangible amortization you're over 25%.

Our interest expense was up just modestly at $67 million and the tax rate was slightly down this year at 28.1% versus 29.5% for the prior year.

That left us with net earnings of $323 million up from last years $239 million and full year diluted earnings per share of $3.34 versus $2.58 last year.

Next slide.

Our full year operating cash flow, as we said before, was $500 million.

That was up 36% from last years $367 and our operating cash flow as a percent of sales you can see continues to trend up.

It was 16% in '07, 19% in '08, dropped by a point to 18% in the great recession and it's now back to 21% here in 2010 and our cash conversion on an operating cash flow basis was 155% of net income.

Next slide.On a full year free cash flow basis, the $500 million drops to $471 million, as we had about $29 million of CapEx.

Our free cash flow, as I said, was 20% of revenue, up 300 basis points from last year.

We had stellar execution, which you'll see in our asset velocity numbers in just a minute, and you can see here, you've gone from 122% free cash flow in 2006 to 128% and then 143% and I think in 2008 that was of course a record for us.

People expected we would fall off in the downturn and we didn't.

We held the 143% and now this year as we start back up we're at 146%, so really sustained cash flow performance conversion in the spite of very different economic markets during that five year period.

Next slide.On asset velocity, this is sort of a slide internally here because we focus so much on it that it kind of takes our breath away.

You look here at 12-31-10 and our inventory is down to 6.6% of revenue, receivables at 14.8%, payables and accruals at 16%, so when you add inventory and receivables and subtract the payables and accruals, which is our core measurement, we had 5.4% of sales.

You go back to '07 and we were at 10% of sales and those of you who followed us a long time know the number used to be dramatically higher than that.

When you think about 5.4% to support your revenue and you've got 26.7% EBITDA and 20% free cash flow to sales on a 5.4% number, it truly is outstanding performance and speaks volumes about this asset like business strategy and execution that we put in place.

Next slideOn a balance sheet perspective, we closed the year out with $270 million in cash and $520 million in undrawn revolvers, so it's about $800 million of existing capacity.

Our net debt to EBITDA is only at 1.7 and our EBITDA to interest coverage is nearly 10 times.

We've invested $900 million in the last 15 months in transactions and certainly we're positioned to capture opportunities at that level in the next 15 to 18.

Next slide

Well here we'll look at the specific Q4 enterprise results slide.

Once again, it's an all-time record.

Truly remarkable quarter for us.

Sales were up 23% to $679 million and organic growth represented 15%.

Our backlog at $785 million is up 39% from the prior year.

Net earnings were up 49% to $107 million.

EBITDA at $200 million in the quarter, a breath taking number, up $53 million from a year ago and EBITDA margins at 29.4%, I'd just ask people to compare those to gross margins from your S&P 500 diversified companies.

Our free cash flow at 22% of sales and up 31% to $147 million, again just very strong and by closing out the year as strong as we have it really gives us a lot of confidence going into 2011 that we'll have another record year in 2011.

Next slide

Our Q4 income statement, you can see here sales and bookings up 23%, both organic at 15%.

Book-to-bill closed out at 1.02.

Gross profit 54.7%, up 210 basis points from a year ago, operating margins at 24.5% and I'd remind you again about our non-cash intangible amortization which is about $25 million in the quarter so another 3.7%.

You take the 24.5% and the 3.7% you get an EBITDA number of 28.2% in the quarter, not bad.

Interest expense the same in the fourth quarter of '10 as it was last year.

Our tax rate dropped at 27.7%.

Our guidance was for it to be a little bit above that.

We had the benefit of the R&D tax there in the quarter.

Net earnings were up 49%, as we said, to $107 million and earnings per share on a DEPS basis $1.10 versus $0.77.

Next slide

When we get specifically into each of the segments here we'll talk a little bit about how the fourth quarter was and more importantly what we think 2011 looks like, acts like.

So if we look at the margin performance in the segments, you can see RF was at 50% gross margins and industrial 52%, energy 56% and medical & imaging 63%.

Just virtually the same EBITDA performance along the way, 31%, 32%, 31%, 32%, which excludes the corporate cost that brings those down to our enterprise number.

We had really exceptional margins throughout the enterprise with really no segment lagging very much.

Of course the RF is made up of two entirely different kind of entities now with little less than half of it being tolling and transportation and administrative activities, which of course carry much lower margins, and then the majority of the business in our software as a service and other RF product spaces which enjoy higher margins.

Next slide

In the RF technology segment, you can see orders were up 4%, sales up 17%, organic sales were up 6%, finally returning to organic growth in radio frequency.

Our seaboard and horizon software businesses had excellent results with campus security, which has picked back up as people are introducing new systems and integrating them with locks and other technologies on campus.

And then the healthcare applications were a little better than we expected given hospital weakness.

We got the benefit of a first full quarter of iTradeNetwork in the numbers and then in a bit of a surprise, we actually shipped the first phase of the Houston Metro Toll Project, which actually we've switched over now to our United Toll Service system technology which is quite valuable for not only the city but for us as well.

That was something we would have expected much earlier in the year.

Having not had it come in earlier in the year we thought it would be a 2011 item.

A little bit of that is moved into 2010.

For full year 2011, we expect that the software businesses will grow through expanding subscription bases, new applications that are going to be offered to existing clients, and then a rollout of recent wins which is going to benefit us throughout the year and certainly more so in the second half of '11.

Our tolling projects in 2011, as we ship much more of the Houston project will add growth but it does come in at lower margins.

And then our organic growth would be expected to reach double digits in the segment in 2011.

However, we don't see any improvement state and local government activities, so we're really not counting for anything incrementally out of that space.

Next slideIn the industrial technology arena, you can see organic growth here was 21%.

We had double digit order growth in every business that reports into that segment.

Our oil and gas businesses that go along with the Roper pump and a few of the other businesses were exceptionally strong.

And we had said earlier this year that we thought we would do a little better in our material best equipment sales.

Well, we did a little better.

We did 50% better, which was certainly well above anything we would have envisioned.

We also won Mexico City for Neptune, for products that have been selected for delivery in 2011 and that will add to our Toronto project, which is finally under way a little bit in the fourth quarter.

For 2011 full year, we think Neptune will be able to grow driven by the Toronto project ramp up and Mexico City shipments and then modest growth in the US water market.

We still have copper cost pressures.

That could drag down pretax earnings as much as $10 million in 2011 if it keeps going at the rate it's going, but hopefully we won't have to suffer all of that.

We expect a record year in fluid handling.

Every one of these businesses is doing exceptionally well.

And we see a continued recovery in industrial end markets which is very important for our material analysis business, which could have a record year this next year.

Our backlog supports very strong first half in the segment.

The DuraTorque products that we're selling for drilling technologies continue to gain share rapidly and our dewatering pump sales are growing very sharply here in 2011.

Next slideEnergy systems and controls, it was up organically 26%.

You can see orders up 26% as well.

Again, we had double digit growth in every business in that segment.

Very strong performance for any global activity that was related to oil and gas, and we have several businesses in this segment that are, and then we had very strong continued momentum in our sensors and analytical instrument businesses.

For 2011, we see favorable end markets, particularly in upstream oil and gas, all the process industries and our turbine control business, which is performing at a spectacular level.

And we see growth and operational execution across the segment in 2011 actually improving the margins from where they are today and we have very solid detailed bridges as to why we think our margins will be better again in 2011.

Next slide Here, if we look at medical and our scientific imaging technology businesses, just again driven by the Verathon acquisition, orders up 41%, sales up 34%.

Verathon just performed in an outstanding way both economically and with growth that they've demonstrated in the fourth quarter and the full year as a whole.

We had very strong sales of our small dosage pump business that really has performed at all time record levels in 2010 and we would expect more of the same next year.

Medical consumables been very strong here in the fourth quarter and we've had quite strong continued growth in the OEM solutions we provide for video conferencing, things like telepresence and the like.

Our full year 2011 to us looks again like a double digit growth year.

Medical continued to do really well with the investment we've made on a global basis and adding sales talent.

We've got new product launches that will occur mid year in Verathon with three new products and we have a better global reach to be able to launch these things around the world instead of just here in North America.

We've got a record backlog as we enter 2011 for Scientific Imaging, so we really think that should insulate us from what we would worry about being softness in research funding as the year unfolds on a global basis, although we haven't seen that yet.

Next slideIf you go beyond just the quantitative numbers in the businesses, these were some critical things we feel we learned this year.

The recovery really continued throughout the year in almost all of our end markets, which is why we went from negative 3% to plus 5% to plus 14% & 15%.

The worst performing end markets we have all seemed to have bottomed and while some of them are bouncing off the bottom much, they are all trending a little bit more favorably.

And we have fewer downside risk concerns going into 2011 than we did '10.

We're about finished with all of our 2011 through '13 planning and struck by the confidence level that all of our business leaders have about 2011 compared to where we were last year at this same time.

The businesses we thought would do well this year really dramatically outperformed our assumptions.

Some of these businesses were up 50% and we would have expected small double digit growth from them.

Our niche businesses held or gained share during the downturn.

We had been worried that some of these would be attacked by larger companies that aren't in the space today who would try to enter.

I think some of that happened and they were really thwarted.

Our entry barriers proved to be quite significant against anybody trying to enter these markets in which we participate.

And our growth investments in R&D and product development and sales channel development are really helping drive this organic growth you've seen in the second half of the year and why we have confidence going into 2011 on organic growth.

Our more cyclical businesses that had variable costs did very well last year in terms of decremental margins and they've done spectacularly well this year in terms of incremental margins that we've grown.

Our restructuring benefits from fourth quarter of '08 first part of '09 along with this organic growth drive have really brought us to margin expansion to heights that most people thought were never attainable.

Our United Toll Service Technology customer acceptance in the year was really a wonderful development and allowed us to shift a number of projects that would have been supplied by other people to our own UTS technologies and have created a number of new bid opportunities for us and programs we're working on throughout the country for people to deploy this much improved technology in the tolling arena.

Verathon exceeded our expectations.

The integration benefits have been more substantial than we had forecast at the time of the acquisition.

The investment in sales coverage and global channel reach and product development, they've been able to turn around immediately into measurable growth.

Next slide So with that, we'll get into our 2011 guidance.

Next slide Here you'll see we're establishing full year guidance on a diluted earnings per share basis of $3.82 to $4.02.

Just to talk a little bit about how we make that up.

We see sales up on the year between 11% and 13%, which would be organic growth of 9% to 11% in 2011, and then about two points from acquisitions.

Our iTrade acquisition will roll over in the second half of the year, so we really don't have a lot yet from acquisitions to add to those numbers at the moment.

Our foreign exchange rates would be the same as they actually were on January 1 of 2011 as you model what we're doing.

A tax rate is an important thing this year, in 2011 we think we'll be at around 30% tax.

This past year we were able to close out at 28.1%.

The difference in tax is it gives us about an $0.11 a share headwind in 2011 versus '10, so when you're looking at $3.82 to $4.02 that's in the face of an $0.11 headwind.

Our diluted share count of 98.5 million is what we would expect throughout the year is up from the 2010 number of 96.7 million and our primary share count closed out the year December 31 at 95.1 million shares.

Probably would reach 97 million shares at the end of the year and I do think there are some people that have share counts that are lower out there than what's reality.

So again, diluted share count for the year 98.5 million, primary share count 95 million now and still DEPS at $3.82 to $4.02.

First quarter we're seeing $0.83 to $0.87 in the quarter which represents about 21.5% of the full year, slightly better than normal.

Usually we're in the sort of $0.18 to $0.21 range for Q1.

And then full year operating cash flow should exceed $550 million with, once again, very, very modest CapEx for 2011.

Next page.So in summary, what we have here is just a wide variety of all-time performance records that were established in 2010.

We had $500 million in operating cash flow, 20% in free cash flow to sales, really quite outstanding margin leverage as the growth continues and then broad-based momentum throughout the enterprise, which gives us the belief that we'll have a strong record year in 2011 and with that I think we can open it up, John, for Q&A.

(Operator Instructions)And we'll take our first question from Christopher Glynn with Oppenheimer.

Question on energy.

You had some very strong orders, talked about the oil and gas markets really picking up, so just looking at the leverage to the cyclical versus some of the seasonal lumpy, would we be looking at a little more level loaded year for that business than normal?

In 2011 you mean?

Yes.

Well, we dropped margins in Q1 this year at energy with some things that were self-inflicted and we don't expect that to happen.

So, yes, I think you should see more level margins throughout the year as opposed to down in Q1 and catching up in the rest of the year.

And what about from a demand perspective?

Oh, that, a lot of the energy businesses had a little longer lead time than the rest of our book and ship businesses and we're seeing very strong backlog and lots of activity, so we wouldn't see any fall off during 2011 in terms of our sales.

If there was any order softness -- we're not seeing anything that would indicate order softness in the upstream area.

But, Christopher, in terms of the fourth quarter activity where we normally see stronger performance out of a couple of those businesses, as they are in the markets and their customers spend what's in their budget, that returned.

So that seasonality returned in 2010 and we would expect to see that continue in 2011 as well.

Okay, great, and then just my other follow-up, on the timing of the Verathon new products and the adoption curve and ramp of that business, obviously pretty impressive.

Could we get a little color on what's coming through the pipeline there?

Well, I think they prefer to let their customers know rather than their competitors at the moment, so we'll stand down on that and we'll talk about them when they're launched.

I think they will be noticed by the marketplace.

Understood, I'll hang around, thank you.

And next we'll go to Deane Dray with Citi.

Brian, be interested in hearing some further color around the comment that state and local municipalities having a more of a challenging budget outlook.

Not surprising there, but just in terms of is this affecting tolling bidding projects and is there any of the easy pass delays involved in that as well?

Well, this past year we would have been off in those areas in excess of $30 million and yet, you can still see the performance we've generated.

So, its been a drag throughout the year in terms of actual sales and its been certainly frustrating.

The Easy Pass thing is beyond unbelievable and I can't say a lot more about it.

Some people have written recently that well maybe there will be a decision in August of 2011.

We saw another article from somebody whose talking to somebody else saying well maybe they won't decide then, then it could rollover to August of 2013.

We have a lot of questions about what's going on there, but we have very little influence in it.

We just offered them the best technology in the world at the lowest price and continue to pay money to get it tested and sometime somebody will decide something.

Now, as far as other projects are concerned, the decision-making around projects has been very slow.

We thought we might get some benefit in 2010 as just the stimulus situation went away, but in fact there's just very slow decisions.

We solve a lot of questions.

We got a lot of people who are wanting to convert to our United Toll products and so that's given us kind of a leg up, but we're not assuming any kind of real spike in 2011 on that portion of the business.

Now remember in that segment for us, it's now finally less than half of the segment.

So, we've got a lot of other things in the segment that are really driving margin and driving cash and driving economic performance.

I do think that our results in terms of revenue have really bottomed on the items in the transportation and traffic arena.

We've got a meeting later this week of refresh where we are and I know people are starting to develop a little bit more confidence.

And then just a clarification on the copper headwind for Neptune.

Yes?

Does Neptune do advanced purchasing and how much of that additional copper prices just can be passed through to the customer?

Well, it's certain we do some advanced purchasing.

We do several things here, although we've never found it meaningful to hedge because we don't have enough volume and it's just that the sharp rise in copper is pretty overwhelming.

So, we model it against our mix of things in the copper content we had.

We've been very successful in reducing the copper content inside the water meters itself, but on a residential meter basis, it's not easy to get pass-throughs the way we can in our pump businesses.

We generally are maybe six months ahead of what we think consumptions going to look like, so we have a pretty good idea around that.

But, at the end of the day, we're going to have some leakage.

We try to do surcharges on material.

We try to certainly do pass-through on bids, but it's a challenge.

Great and just an observation.

I see that the segment is now medical and scientific imaging and how you present it really reflecting the whole portfolio transformation with Verathon bringing you much more of a medical side of the story.

Is that will become an official reported segment as well?

Yes.

Well, the real reason is that the medical is now over half of the segment, so the imaging continues to wane as a portion of the total segment.

Still critically important, but it's mostly medical now.

Got it.

Thank you.

And next we'll go to Mark Douglass with Longbow Research.

Brian, you talked about that the growth investments you made during the downturn.

What's your R&D spend like right now and has it been trending a little higher as a percentage of sales given the growth in some of your, maybe called higher tech in gross margin businesses?

The R&D spend in 2010 was a little over $100 million, so that was up sharply from 2009.

2009 and '08 are about the same, in the mid $80 millions, I think, and 2010 was $102 million.

But, what happens that's important to understand is remember you think about a little less than half of R&D is an administrative services that we do, revenue, management for people and stuff like that, there's not a lot of R&D in there.

So, R&D spend as a function of revenue is very high in medical and scientific imaging, reasonably high in energy, quite modest in industrial other than in Neptune.

And then mixed in RF and software businesses, most of that stuff we don't treat as R&D and then we've really spent quite a bit of money in adding to our global reach and sales development, Marcom and Web Access and things like that for each of the divisions.

Okay, that's helpful.

And then with that are you comfortable at your current investment rates or with your record margins right now you think you will use some of that to maybe boost your investments even more to maybe you can pick up more market share in '11 looking out into '12?

Well, I think that we have an aggressive internal measurement that the field people use.

It would be rare that field people would come in with spending strategies that we wouldn't embrace.

Product development and product management is kind of a critical skill set within the Company, so product managers always like to have more, but they have all that they really need.

I think you'll see our excess cash that we throw off likely to get reinvested in acquisitions, as we've been doing for a long period of time and the opportunities in the pipeline are pretty interesting.

Okay, thank you.

You're welcome.

And next we'll go to Wendy Caplan with SunTrust Robinson Humphrey.

One of your most successful strategies, I think internally has been to lower the breakeven across the Company.

Can you give us some examples of what you see as potential -- some ideas about how you might potentially continue to lower the breakeven as we go into 2011?

Well, certainly, the breakeven for us continues that dropped in 2010 as a function of revenue, the nominal breakeven number for sales went up a little bit in 2010.

Our breakeven as a function of revenue is probably at the lowest point in our history.

I'd have to say if you get back to the early 90s or something, I'm probably not sure about that because that kind of wasn't collected that way and I don't know how you could really segregate the fixed and variable cost components, it would be a pure guess.

But in the last 10 years, we're at the best position we've been and I think IT technology continues to improve and while we don't believe in enterprise wide IT strategies, we do believe in look, here is four we're willing to go with and people get to pick the one that best suits their business, so you have a couple of different CRM opportunities here and you have different things related to how you're going to pull things through the factory operations.

All of those are very good.

John, you might want to take a swag at that.

No, I think what you said it covers it.

For us, Wendy, it's as much around making sure that our operating leaders are always focused on the leverage ratios.

And I think you've seen our leverage on incremental sales actually get a little bit better as we have moved from the 2008 range in through 2010 looking into 2011.

So, we look at that fixed cost leverage and the breakeven point as a key input and one of the things that all of our businesses need to manage to make sure that the leverage on the growth opportunities that are there really delivers to the bottom-line.

And along with that, John and Brian, you've done a great job with your working capital.

Do we get to the point where, I feel almost foolish saying that this is good as it gets given that it's so amazing, but do we think there's still a little room there?

Well there's a little room.

There's always a little room.

We're blown away at this 5.4 number, I'd have to say.

One of the things we do, we pay bonuses on incremental operating profit performance and then there's quite a big kicker for asset velocity.

We're paying a lot of bonus money this year for the asset velocity kicker in our industrial and energy businesses.

They've really performed remarkably.

I don't see anything that says they get any worse, I would think they get a little bit better.

They've gotten dramatically better in receivables management in their global businesses.

They've gotten dramatically better inventory and then we have also the last several acquisitions we've made, Verathon is just, man, you get a lot of turns here in Verathon, as we really put that stuff through quickly and then the software businesses don't really have any inventory to speak of.

So, we're getting mixed variances that have to do with our strategy of the kind of assets we want to own versus people that are in full line integrated manufacturing.

And speaking of that, finally, the M&A environment has clearly been improving.

You have notably bought high margin kind of asset light businesses that generate a lot of cash with an emphasis on the SAS businesses most recently.

Are there any other factors or nuances that you're seeking in terms of acquisitions and can you say something about what's out there for you?

Well, there's a lot of stuff that for sale last year, a lot of private equity transactions wound up not getting into the sale category as they were really able to refinance at extremely attractive rates and kind of had an opportunity to double dip, if you will, where they get the refinancing take-out fees and then they can go ahead and sell them again later in 2011 or '12 or whatever.

So, as long as the finance arrangements in terms of what people are willing to staple on transactions remains as high as it is and it's at frankly ridiculous levels in our opinion.

There's a lot of bid ask spread variances that are still there, but I think people want to make sure that they do exit their positions that they hope to exit in 2010 in 2011.

We've seen an awful lot of activity.

Certainly, there's so much opportunity, Wendy, the challenge is that we don't want to do something that's good at the expense of something that's substantially better.

And so, I think you'll see us be slow in the first months of the year because there's just so many different things that we're currently doing diligence on.

Okay, that's helpful.

Thank you very much.

You're welcome.

And next we have Matt Summerville with KeyBanc.

A couple questions.

First, can you give a little more color.

Brian, was the amount of the Houston tolling project that pulled from '11 into '10 substantial?

Could you quantify that and then similarly talk about what the incremental ramp looks like with Toronto and Mexico City in '11 versus '10?

Well, I think we were kind of assuming we would be in the $40 million range for Houston in 2011 and about somewhere like $10 million pulled into the fourth quarter, I think, or a little more maybe, so that what it does is it gives us a little bit harder incremental comparator and it gave us a little more income in Q4.

The problem is that these projects like Houston don't carry the kind of margins that you're accustomed to seeing with us.

They accrete to us eventually, but boy at the beginning of these they are relatively low margin projects.

And then on Toronto, we had some revenue kind of mid single digit revenue for that in 2010 and that will start to ramp up in 2011.

So, we're counting on that for, oh, somewhere in the $20 million to $30 million range for 2011 and then reaching that level and maybe a little bit above that going into 2012.

Of course, we're talking in $200 million or so over a five year to six year period, so there will be a ramp up and then we'll come down a little bit on the Toronto side.

And then Mexico City is also going to be adding to us for Neptune somewhere in the mid-teens of millions of dollars for 2011.

Thank you and then just one follow-up.

On the oil and gas business, how much would you say today is being driven by upstream versus downstream activity and can you just provide a little more granularity into your thoughts regarding the growth outlook in those two buckets, if you will, for 2011?

Well certainly, the V-shaped bounce we got out of energy was really upstream, so there's quite substantial upstream activity.

Now, in the case of our directional drilling business, that's a different situation, right.

So, they have reintroduced a proprietary technology that's really clearly superior what people have used in the past.

So, it's growing really well and I think would do that because it's less around the economy and more about a disruptive technology we've introduced that allows people to drill deeper faster with much better performance.

But in the other category of energy it's mostly upstream.

The refinery business that we have in instrumentation is the laggard in our segment, but it's still up and it's going to continue to be up, but just not at the pace of favorable change that the rest of the segment has.

Thanks, Brian.

You're welcome.

And next we'll go to Richard Eastman with Robert W.

Baird.

I just wanted to circle back for a second.

When you say you've won Mexico City at Neptune, is that meters and RF and automation and can you just give maybe a scale and scope of that project?

It's meters.

It's meters.

Periodically from time to time, we get those and the reading technology that goes on them is variable based on what's happened.

It's not the first time we've gotten an update for Mexico City, so this is not like a system win that you're going to have $100 million over four years.

It's a pretty much a 2011 throughout the year draw against something, as John said, that is in the low teens of millions of dollars.

Okay, okay.

And then when I switch down to the RF tech segment, what do you think, Brian, that the margin profile looks like there through calendar '11, because we've got iTrade that's accretive, we'll have certainly Houston that maybe pulls that in a little bit.

Can we work off of a 23% EBIT margin as a floor here going forward?

Well, let's do a couple things here.

Part of it is the mix of what happens in a quarter, right.

So, if you look there's a reconciliation, two reconciliation pages that are in the appendix that show you by quarter and we've tried to make this really granular this time where you'll see a reconciliation in OP line, the amortization line separate and then an EBITA number.

And then the depreciation added for EBITDA we gave you the revenue number, we gave you the Calc on EBITA margins.

So for instance, in RF in the fourth quarter the EBITA margin was 29.7%.

EBITDA margin was 31.2%.

In the fourth quarter I think our intangible amortization was about right at $25 million.

Our full year intangible amortization for '10 was about $86 million.

So clearly, you're seeing the effects of the intangible amortization on iTrade, which is quite sizeable, and the A portion, which has nothing to do with reinvestment, CapEx or anything else, is going to be like $100 million.

So, that tends to pull-down operating profit margins and it is in our view a foolish way for somebody to think about how well the Company's performing.

So, you'll see continued growth in iTrade, it will add significantly to ERP, to our cash performance, it will add less aggressively to the OP margin.

So, that's an important distinction.

And then the tolling traffic business is less than half the segment.

It comes in at dramatically lower gross margins.

We're not talking 50% and 60% there.

We're talking very much less than that.

And then its operating profit margin is relatively good given its low gross margins.

Then the rest of the segment, let's say, gets to be 55%, 60% or more, it's going to have the highest gross margin profile, higher than imaging does, and it's going to come in with EBITDA higher than any other portion of the enterprise.

So, it's a hard question to answer and say well, use a 23 plug.

I don't think I'd do that, but it's easy to put a plug in on a cash performance basis quarter to quarter.

Okay.

And then just maybe just lastly when I look at the four segments of the business and I'm kind of looking at it relative to your calendar '11 core organic growth guidance of 9% to 11%, so it appears as though there's a comment about RF being double digit.

I assume that's for the whole segment?

Yes.

Energy systems double digit--

Basically, they're all quite similar, Rich.

You look at them and they are all, we're going to say, plus or minus one, they are 10% growth in each one of the segments organically in 2011.

Okay, very good.

Thank you.

You're welcome.

And next we go to Terry Darling with Goldman Sachs.

John, wondering if you could talk a little bit about how you see organic in the first quarter relative to the full year guidance given a very strong fourth quarter run rate.

Obviously, the comps get tougher in the back part of the year so you figure first quarter starts a lot higher, but maybe you could help us with some color there.

No, you're exactly right.

The comparison does.

We continue to ramp up our organic growth in 2010.

The comps do get a little bit tougher in the second half.

The way we're thinking of this is that the first half should be in somewhere in the call it 13% to 17% range.

So, mid teens performance in the first half with kind of mid to high single digits in the back half.

Okay, that's helpful.

And then maybe that's partly the answer to, Brian, your comment that the first quarter you're pegging it more like 21.5% of the full year versus that 18% to 20% range, but any other factors we ought to think about there?

No, I think we've got like this Mexico City thing, Toronto thing, continue to rollout on [Gaster Bronson], those things.

We have just very limited effect on when people take shipments, so it's really hard to say much about that.

This year, if you go to organic growth, I think I said before, we're getting minus 3%, plus 5%, plus 14%, plus 15%.

It's going to be a little better next year, but it probably ramps down the same way this year ramped up, so I heard John say 13% or more.

I can understand 13%, the more I'm frowning at him a little bit.

That would be nice, I don't know but clearly the first half of the year is going to be in the low teens organic growth.

The second half of the year is going to be more like the average we had for 2010 is my guess.

And I think if we have upside in the year it's probably going to manifest itself in the fourth quarter.

I think that our field people are forecasting light in the fourth quarter versus what we would think and I don't really blame them for that.

It's hard to envision you could have double digit organic growth every quarter in 2011, but it's certainly possible.

Okay, that's helpful.

And then just a couple of other clarifications.

On the RF margins you're not suggesting down margins for the year for the segment.

You're just saying there's a element of headwind there on that Houston piece, right?

Yes, I think that's a fair assessment.

Okay.

And then on the comment that medical see double digit growth, you're talking about for the total segment or just the medical piece within the overall division?

Actually, for the entire segment, both and medical, specifically.

So, medical will be leaving the growth profile for the segment and that brings the segment up to kind of the average for the Company for 2011.

Okay.

Thanks very much.

You're welcome.

And that will end our question and answer session for this call.

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

Okay.

Well, thank you and thank you all for joining us this morning and we look forward to talking to you at the end of the first quarter,.

And that does conclude today's conference and we thank you for participating.