Roper Technologies Inc (ROP) 2011 Q3 法說會逐字稿

The Roper Industries' third-quarter 2011 financial results conference call will now begin.

Just a reminder, today's presentation is being recorded.

At this time I would like to turn the call over to Mr.

John Humphrey, Chief Financial Officer.

Please go ahead.

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

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

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

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

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

If you will please turn to slide 2, 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 more fully in our SEC filings.

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

Now if you will please turn to slide 3, I will turn the call over to Brian Jellison, Roper's Chairman, President, and Chief Executive Officer.

After his prepared remarks we will take questions from our telephone participants.

Brian?

Thank you, John.

Good morning, everybody.

We'll start off with a quick overview of the Q3 financial results and then talk specifically about the segment performance and outlook for the fourth quarter, update you on our guidance summary, and then open it up to questions and answers.

So the first slide.

If we look at the Q3 financial results, once again they were an all-time record for any quarter in the history of the Company, not just a record third quarter.

Orders were at the highest level in history.

Sales the same.

Backlog highest level.

Net earnings, the highest level.

And operating and free cash flow in the quarter set a new standard for the Company.

Our total sales in the quarter were up 18%; and organic sales were up 13% which was, frankly, better than expected.

Our book-to-bill was greater than 1 for the ninth straight quarter.

And our record backlog of $876 million is up $106 million from the third quarter a year ago.

Operating margins were terrific throughout the enterprise.

They were up 230 basis points, so that operating margin was 23.5% of revenue in the quarter.

Our EBITDA was $203 million in the quarter, which is a fairly astonishing number by any standard.

EBITDA margin was 28.6%.

Our operating cash flow was 23% of sales at $167 million, and our free cash flow was 22% of sales at $157 million.

Next slide.

If you look at the income statement, you can see that bookings again were above 1, at 1.01.

Net sales were, as we said, up 13% organically.

Gross profit picked up 50 basis points from a year ago.

Our operating income was up 30% from $128 million to $167 million; and margin, at 23.5%, up from 21.2% in the third quarter a year ago.

Our tax rate was actually a headwind in the quarter.

In the third quarter last year it was only 25.9%.

As most of you would know, third-quarter results tend to have whatever rollover there is in the FIN 48 calculation for filing tax returns.

This year our tax rate was 27.7%, a 180 basis points increase over the prior year, which took a couple pennies out of our results.

Net earnings were $110 million, up 31% from the prior year.

Our diluted earnings per share were $1.12 versus $0.87.

Next slide.

Free cash flow in the quarter was truly spectacular, 22% of revenue and 142% of net earnings.

This will be the 14th consecutive year that our free cash flow has exceeded net earnings.

Really we had very strong execution throughout the family of businesses.

You can see the comparison to prior year here on the graph.

Next slide.

We had quite substantial EBITDA growth.

I am not sure people caught up to just how much our trailing EBITDA continues to grow.

We are up 33% in EBITDA over the prior year, and our trailing 12 months' EBITDA now ending the third quarter is $779 million.

That is up from $585 million in the corresponding trailing 12-month period ended in the third quarter of '10 and up from $507 million in 2009.

Part of the reason for that is continued margin expansion.

Our EBITDA margins in 2009 were 24.5% for that TTM period.

In 2010 they were up 140 basis points to 25.9%.

And this year they have skyrocketed to 28.5% from 25.9%.

Next slide.

Our asset velocity performance continues to be best-in-class.

You can see inventory has actually dropped to 7.4% from 8.9% just two years ago.

Our receivables are down 200 basis points to 14.7% from 16.7%.

Just a terrific performance by all of our field operating units around receivables.

And payables and accruals have actually come down, or our numbers would be even more spectacular.

So in total when we look at the inventory plus receivables minus payables and accruals, we finished the quarter at 6.5%.

That is 240 basis points better than just two years ago.

So our exceptional performance in that category continues.

Next slide.

Here we look at our balance sheet financial position.

We ended the quarter with $246 million in cash.

Our trailing 12 months' EBITDA is $779 million.

Our gross debt number is $1.174 billion.

If you take that $246 million in cash away, you've got net debt at $928 million.

Shareholder equity continues to be strong there, in excess of $3 billion, meaning our net debt to net cap number is about 23%.

Our gross debt to EBITDA is about 1.5 times, so we have very ample capacity inside anything we would like to do.

And our EBITDA to interest coverage is over 12 times.

Now, in the last two years we have invested $1.1 billion in transactions.

But as you can see, the balance sheet is stronger than ever.

Next slide.

So, here we will take a look at our segment performance and the outlook toward the rest of the year.

Next slide.

Our Q3 segment performance was remarkably similar.

You can see EBITDA margins in Industrial, RF, and Medical all were 31%; and in Energy they were 29%.

The OP margins continue to march forward, as we have revenue growth and we capture leverage associated with that.

Throughout the enterprise we are very happy with the margin performance.

Next slide.

If we go to the largest segment in the quarter it was RF Technology.

It had sales up 19%; operating profit was up 41%; and the operating profit margin reached 23.8%, up 380 basis from the corresponding period in the prior year.

Orders exceeded revenue.

If you look at the specific commentary here -- by the way, the leverage there on incremental revenue was about 44%.

So we had very strong growth throughout the segment.

Organic sales up 15%.

The software businesses had double-digit organic growth, with a particular tribute to CBORD, who continues to have a quite spectacular performance around integrated security solutions that we provide to universities.

That business has nearly doubled this year compared to last.

Our freight-matching business grew at a double-digit rate as we got more new subscribers.

There are very favorable dynamics occurring in the spot market due to volatility in gasoline prices and driver shortages and truck shortages.

Our toll and traffic solutions business -- which is less than half of the segment, we'd remind people -- did well as a result of an upgrade where we are converting Puerto Rico from a coin-based technology to an electronic technology.

And we had strong tag shipments in several locations around the world.

In the fourth quarter, looking forward, we are going to continue to benefit from this electronic tolling project in Puerto Rico.

Our iTrade business enters with a strong backlog, and we expect double-digit growth; and it will finally be showing up as organic growth here in the fourth quarter for us.

The CBORD backlog remains strong enough to assure double-digit growth in May the fourth quarter.

We expect to get continued margin improvement, even given what we had here in the third quarter.

We think we will do even a bit better in the fourth quarter.

Our Technolog operations in France, where we have been installing a system, we would hope that that gets completed in the fourth quarter.

Then in 2012, that will allow us to get our data services revenue, which comes in at lower revenue but much higher margins.

Next slide.

Here looking at the Industrial Technology segment, while we often focus on Neptune because it has traditionally been about half the segment, growth in the other areas is nothing short of spectacular.

Here, orders were up substantially above the sales revenue of $185 million.

The sales were up 15% from the prior year.

Operating profit was up 16%, and operating profit margin in the Industrial businesses was 28.2%.

Fluid handling continues to perform just in a very strong manner, driven really by all of the shale gas and oil activity that is occurring in Canada and the US.

Lots of new customers and a lot of new applications.

New products and strong endmarkets are also helping our material test business, which is off to a record year by a considerable margin.

And then in Neptune, the North American meter revenue was relatively flat, but we had strong growth in Mexico and Canada.

Surprisingly, the US order flow in the third quarter was up more than 10% in the US.

We had very successful launch of our low-profile leadfree residential water meter.

A lot of people have gone out and checked the Shed the Lead video that we have, and it's certainly created a lot of interest in our water meter business.

As we look to Q4 we expect strong seasonality.

Generally speaking, we have year-end buys from people in both this and the Energy business and we haven't seen any trends that would indicate that would not occur again this year.

Neptune is going to get double-digit growth, led by the Toronto installation activity, which is going to start to pick up in the fourth quarter and be substantially stronger in 2012.

Then our favorable endmarkets are pretty much generally true in this -- so just no one not doing well.

And the 30% plus leverage we got in Q3 we would hope will improve even a bit more in the rest of the year and next.

Next slide.

You look here at the Medical & Scientific Imaging segment, it was up 16% in revenue.

Orders actually exceeded sales, and orders were up sequentially from the second quarter.

Operating profit was up 24% compared to the sales increase of 16%, so we had strong leverage here, about 34%.

The OP margin increased 150 basis points to 24.7%.

Our high-end imaging solutions, driven largely by Gatan Quantum and direct detection camera lines, are continuing to perform in a fantastic way.

We have a new product out there that is processing frame speeds at 83 gigabytes a second.

I'm not sure anybody can relate to just exactly how fast that is, but it is leading-edge technology for the most supreme applications in the research area and has added substantially to our growth this year.

The Medical platform continues to perform well.

Adoption rates for both BladderScan and GlideScope continue to escalate.

We continue to gain ground internationally in terms of consumables in our ultrasound business.

And our couch top patient positioning technology for the MRI processes is beginning to gain momentum.

A lot of favorable papers, write-ups, and comments about this; and we think it will be a long-term winning proposition for the enterprise.

In the third quarter on an order comparison basis we had very tough comps because of two things that happened last year.

We do report our rugged mobile business in here, which is certainly not key to the enterprise, but it had a particularly strong Q3 order for long-term delivery last year which, of course, wouldn't have been repeated in any one quarter as it was a new initiation of an order.

And then we had very strong dosage delivery business last year, and this year was more normal.

So both that created a bit of a headwind in terms of the comps.

But if you mask -- take that away, the book-to-bill was above 1, sequentially higher than second quarter.

And our backlog is strong, so we don't expect any difficulty here.

In the fourth quarter we wind up, of course, with record backlog entering the quarter.

So that kind of assures our shipment pattern should be fine.

We expect to have continued growth in Medical, because the patient treatment technologies that we are involved in are continuing to grow.

We have a higher fourth quarter because Northern Digital, which was acquired, will begin to kick in.

It has traditionally strong seasonality in the fourth quarter, and we haven't seen anything that wouldn't suggest that will occur here.

Next slide.

Here when we get to Energy Systems & Controls, you can see once again very strong performance.

Sales were up 22%.

Orders were just slightly ahead of sales, up 12%.

Operating profit was up 35%, and our OP margins expanded 250 basis points to 25.7%.

Growth again is led by the continued development of the diesel engine safety system technology.

That continues to get this US and North American shale activity.

We have got some new engine OEMs that are building the technology into their platforms, and that helps as well.

We had a record Q3 in terms of our instrument sales around the refinery business.

So that seems to be picking up steam.

It had been slow -- it had been much better this year, but still relatively slow.

One of the very few businesses that is not back to 2008 results, and now that is largely there.

We had an expansion in our Alpha and Viatran and Dynisco family of businesses around sensor technologies.

They have been up for over 30% here for instrumentation to measure composites in process manufacturing.

And just excellent execution throughout the segment, with the exception of our nuclear test business, which has been very soft due to the nuclear plant shutdowns around the world.

But fortunately it's not a big piece of the total.

In the fourth quarter, we will benefit from an acquisition that we made right at the end of the third quarter called United Controls.

United Controls is a small business in the Midwest which has a large OEM component with Rolls-Royce.

It has got great field service technical support, and its technology is very complementary to our Compressor Control business.

We have done very little historically with Rolls-Royce, and so this gives us a new partner in effect to provide field service and aftermarket application for technology improvements.

And it certainly expands our OEM channel access.

In the oil and gas area, the trends just continue to perform exceptionally well and there's no downturn of any kind expected this year or early next.

Seasonality here has always been very important in the fourth quarter; there is a lot of MRO purchases that tend to get done in the fourth quarter with residual budgets.

We expect that would continue this year.

We also think margins in the segment will expand in the fourth quarter over where they were reported in the third.

Given all that, we look now at the guidance update.

Next slide.

The guidance -- we are increasing our full-year guidance from $4.20 to $4.30, to $4.29 to $4.33.

We started out this year with guidance of $3.82 to $4.02.

When we look cumulatively we have actually now increased our low-end guidance by $0.47.

So at $4.29 to $4.33, that results in Q4 at $1.18 to $1.22.

And our full-year operating cash flow will exceed $575 million on that revenue.

Next slide.

If you look at the summary here before we get into the Q&A period, what we have is the best quarter in the history of the Company.

It's the highest level of sales orders, backlog, net earnings, operating and free cash flow ever.

Organic sales came in at plus 13%, largely driven by new products and new applications to existing customers and then favorable niche markets.

We are really not seeing any slowdown in any activity and any things that we might consider to be bellwether items that would say things are getting slower.

We are just not seeing that.

Very broad-based momentum as we entered the fourth quarter, which has allowed us to increase our guidance.

Gross margins at 53.7%, certainly best-in-class.

Operating margins at 23.5%, with 36% overall leverage on new revenue; again I think probably best-in-class.

Operating cash flow at 23% of sales is nothing short of spectacular and really a new milestone for us.

It is just as we said.

I don't think people are focused on just how much our EBITDA is growing.

But our operating cash flow now in the last two years has exceeded $1 billion for the first time in our history.

You think about those acquisitions in the last two years at $1.1 billion and cash flow over $1 billion, it would give you some idea about our capacity in transactions looking forward and the cash machine that we have created here.

So, with that, I think we are ready for questions, John.

Okay.

All right, Vicki, so if you'll start the question-and-answer part of the call.

(Operator Instructions) Matt Summerville, KeyBanc.

Just a couple questions.

First, Brian, how are you thinking about the businesses, whether it be in Imaging or RF Tech, or Industrial Technology, that touch areas that are at least in part funded by public sources, municipal sources?

How are you feeling about those businesses heading into 2012?

I guess what risks, or conversely opportunities, do you see in those businesses?

Well, certainly in Industrial, you got Neptune that is selling product to municipal water facilities; but we are not really seeing any slowness at all in that arena.

As we said, orders are -- in the US for them were up over 10% in the third quarter, so that is really not a problem area for us at the moment.

In fact I think municipal funding is starting to pick up a little steam with community bonds.

So we were worried about going into the year, and it's certainly outperformed our fears.

It is not as robust as it was in the past, but new products and applications and selling some software along with data collection helps that.

In the image area, you have the NIH situation in the US and then a similar situation in Japan, both of which people fear is a little slow.

But the technologies we have launched for research scientists are so compelling that they really have blown through any of that risk.

We are not seeing anything that would be measured as softness that would be driven by the National Institute of Health funding or really the Japanese.

You see a little more of that actually in Europe than you do here, but nothing that is much of a headwind.

So that is actually better than we would have expected.

In the radiofrequency arena, again the applications we have tend to be cash registers for people.

So they are not really viewed as capital spending.

I think if they weren't delivering sort of immediate paybacks for people we would be more worried than they are.

We certainly performed better in the third quarter on an order and sales basis than we would have expected.

Because we do occasionally listen to the news; and man, if you looked at all the externalities you would be scared to death.

But fortunately our businesses are so niche-y and so specific and value-added that those externalities haven't had much effect on us at this time.

So we are not seeing nor does anybody feel fearful about the fourth quarter or, frankly, next year.

Okay, Brian.

Then just one more follow-up.

Can you talk a little bigger-picture about what you guys are seeing from an M&A standpoint?

It sounded like you closed on -- it sounded at least like a relatively small transaction here within the last couple weeks.

How are you thinking about M&A activity over the near to intermediate term?

How are multiples trending?

What size transactions or businesses are you looking at?

How healthy is your pipeline?

Well, there's a bunch of different questions in there, Matt.

Thank you for that.

The United Controls is a small deal; it is less than -- it is about $25 million.

But strategic, nonetheless, and very strategic for Compressor Controls, so material to them.

Pipeline remains very full.

We have continuing activity and a lot going on there.

I think you are finally seeing a little breakdown in Europe, where the European Banks aren't offering very much support, whereas not too long ago we were seeing 6.5 times debt staples from those folks; and now you're not seeing any debt staples from those folks.

So that has an effect both on the reality and the attitude of people.

Debt staples in the US have dropped.

I think it'd be hard for most people to get a debt funding for a transaction more than about 5 times EBITDA.

So that trends the multiple down, as they are not going to put in a whole lot more equity than they would have before, when the debt staple was much higher.

Furthermore, the spreads for them and the blended cost of their interest to get a deal done are higher now than they were, as spreads have gone up a bit on the mezzanine portion of the debt.

So we are seeing multiples come down a little bit.

Sellers are still -- their expectations throughout the year were too high.

That is one of the reasons that, with our disciplined approach, we haven't done a large transaction.

But we continue to look at a number of large transactions.

And sometime -- I think in the foreseeable future -- we will execute on something.

Most of the deals we are looking at are relatively large, and I wouldn't expect that there is always this kind of United Controls situation.

We could have two or three of those, but we are kind of patiently waiting for the right balance here.

People still are worried about CMS reimbursement on medical, so that is an area you have to be exceptionally careful in.

And the software side, we have got things going that we like a lot; and it is just a price gap kind of discussion.

We are patient, and ultimately it is better to be patient.

We don't need to do a deal because a deal is available.

We need to do a deal because it makes sense for our institutional holders and our shareholders.

Thanks, Brian.

Deane Dray, Citi.

Thank you.

Good morning, Brian and John.

First question, for price costs in the quarter; can you take us through that?

Be very interested in how much of that 13% organic was helped by price?

Well, Deane, I will take that one.

It's -- the way we always look at the price-cost equation, rather than looking at each of those in isolation -- those always have to be looked at in combination with each other.

So what we always track is our gross profit margin.

The fact that gross profits came in at 53.7% and up 50 basis points from where we were at this point last year gives us confidence that our businesses are doing the right things with respect to pricing and heading off any material cost push inflation.

As you know, the only real exposure that we have to any type of raw material input cost is in copper, and it goes into our Neptune business.

And Neptune has really done a couple very smart things.

One, with the redesign of the residential water meter which reduces the amount of material content, as well as improves the quality for the customers, which is a real positive thing.

So that mitigates some of that exposure.

Then we also just enter into supply agreements that are usually six to nine months out, which gives us a little bit better visibility into what the cost structure is going to look like on the input side, which allows us to still be able to manage the price equation in a way that doesn't really jerk the customers around all the time in that endmarket.

So those are the things that we look at.

So we are confident that our businesses have done the right things on price cost, as long as we continue to have the gross profit margins where we see them.

Okay, that's helpful.

Then just over on the businesses, Brian, I hope you can expand on the point regarding the shale gas opportunity.

I trust this includes the fracking phenomenon that is going on.

If I am not mistaken this opportunity crosses both the Industrial business as well as the Energy business, the dewatering pumps and the diesel engine shutoff.

So what is the opportunity for Roper in aggregate?

And do these two businesses within Roper combine to have more of a, one, go-to-market strategy or is it just an individual selling of components?

Well, all of our pump businesses, Abel, Cornell, and Roper, have a different reason to be involved with fracking and movement.

In addition Abel does a lot of other things that are related to municipal water.

It is a German company largely involved in India and Australasia for the most part.

Our Cornell and Roper businesses are dewatering and also directional drilling and support for the speed in which you can move a drill through the geological issues that are in front of that.

Then the diesel shutoff valve is really making sure that all these diesel engines in fact do shut off instead of continuing to run after somebody thought they turned it off.

Now we also have a couple other businesses -- Viatran in northern New York which is a sensor-related business that goes into oil and gas and supports some of the technology they need to know about reading information on sensors.

So there is really about six different businesses.

They don't go to market under one common salesforce because it is not how that business works.

So they share customers and talk about things with people, but generally different influences are making buying decisions about it.

So you have to call through a channel, mostly direct, to the end-user or mine itself.

But it does get us closer and closer to mining applications, which is increasingly interesting to us.

Can you aggregate what the revenue opportunity is for this market?

Well, I think in total the family of businesses you are looking at are somewhere in the $200-million-plus of revenue, growing quite substantially.

But in the 20% range, not the 5% range.

The thing to keep in mind on that, Deane, is this family of businesses is truly $200 million, maybe a little bit more.

But of course, not everything that they do is solely related to the oil and gas shale activity.

It has been the key driver.

It has been a key driver for each of them.

But none of them are solely focused on that.

These are niche applications that oftentimes will have other types of end uses.

But as we have gone through in the detail that we do each quarter with our businesses, the shale gas activity and the fracking activity continue to come up as one of the drivers for each of them.

That's real helpful.

Thank you.

Mark Douglass, Longbow Research.

Good morning, gentlemen.

If we can look at fourth quarter, John, it looks like the orders and backlog support appears to me double-digit organic sales in 4Q.

Is that the right way to think about it at this point, with maybe minimal FX?

Probably closer to high single digits, but never totally about the revenue for us; it is about the margin discipline and cash.

Right.

Then, Brian, you are continuing to drive down working capital to pretty impressive levels.

How much is left there?

It looks like you are reaching an asymptote.

Is that true?

Or what do you think it is (multiple speakers)?

There can't be a lot left, because years ago what we said to everybody -- and they used to throw ball bats at us -- we said, look, you got to have your payables equal to your inventory; and then receivables is really a function of pricing and investment with your customer.

And nobody believed it.

Everybody believes it now.

So when you look at where we are, getting the receivables down to 14.7% of sales is really a level of performance that is with us never good enough, but pretty freaking spectacular.

So when you have got 40% of your business not in the US, to get receivables down to those kind of levels is comforting.

I think we have got better quality people doing that work down in the clerical and administrative arena.

I think there is a real learned knowledge about where you want to invest in collections and the software and technology you use to keep real-time data on the customers.

And all of that has paid big dividends for us.

At 6.5% of sales, we are pretty happy.

We were happy at 6.8%; but we only like things to improve.

Thank you.

Jeffrey Sprague, Vertical Research.

Thank you.

Good morning, everyone.

Brian, could you elaborate on what is going on in CBORD?

You said the security offering has kind of doubled.

Is that a comment over the last year?

And could you give us a little more color on what you are doing there to integrate some of your other RF applications with CBORD, to bring a broader suite to that endmarket?

Well, a couple things.

I mean year-to-date this year it is about double what it was the same year-to-date period of a year ago.

Got a major job at Miami University that we just completed the installation on.

There is a whole lot of publicity, white papers that have been written about this.

We have worked both with [Shlay] and with ASSA ABLOY and different deployment strategies, so there is a lot of revenue that comes through the locking piece.

We generally are at the front of the whole system solution, so we are providing a lot of different things to different people.

I will have John talk a little bit about overall integration.

We bring Inovonics in here with sensor technology.

We do things with parking control that come out of transport.

So it is a leading-edge solution to people we love at the university level, but not everybody can work with those people.

It is not the easiest sale.

There is a lot of sweat equity and a lot of customer service post-sale.

In fact, integration is the right word.

That is really what CBORD provides for their customers.

It is a single, integrated across a diverse campus set of software solutions.

So you have access control.

You also have the ability to have payments in foodcourt, etc.

And all of that ties back to a single database, single integrated real-time database about what a student or a doctor or a nurse has access to at any given time.

In fact, we have had some opportunities to bring together a variety of the businesses, one of them at a major university in the Big 10 area, both for -- and in fact in their healthcare solutions.

So using CBORD as well as our CIVCO business, as well as Inovonics, in a way that allows all of those to talk collaboratively together, which is a future opportunity which we may be able to do more of.

But it really gets to the heart of what CBORD does so efficiently, and we look forward to being able to grow that going forward.

Is there a way you can give us just some idea to get our head around the scale of the opportunity?

If you think about maybe your most holistic, complete application -- whether it is at Miami or somewhere else -- what your potential value per student per year is?

Or some kind of framework of reference so we can think about how to model this or get around the ultimate opportunity there.

Maybe you might think about that in a way to give a little more crisp answer -- the problem in answering the question is that if you look at where we get like the -- I wouldn't think of it as a revenue per student.

Because let's say you are doing Michigan State University, which is a big application for a variety of things at CBORD.

You have got -- it's a Big 10 school with thousands.

But it's not -- the incremental cost of a student is exceptionally low, and the dollar that we gain per incremental student is very low.

So it is really how much of the suite of services and data collection technologies they buy that is critical.

So if it is a turnkey installation, where somebody is putting in electronic locking mechanisms and parking control and food management and nutrition management, they are generally going to start out with a portion of the activity, or try it in an area, as opposed to putting it in the entire university.

So the system grows over time into a full, mature suite of applications and becomes very valuable.

So it is really how many new things can you win to get your foot in the door with these people as they build it out.

Now we have been very fortunate in the last two years to displace another competitor in several locations, and we look forward to continuing to do that.

We have an awful lot of sweat equity activity and involvement.

We just finished a CBORD user conference within the last couple weeks with hundreds and hundreds of people in attendance.

There was over 500 different kinds of people who attend this conference that are thinking about ways to use our software and system data collection technologies in a variety of ways around the campus.

So it's a mind-share thing that drives the growth more than -- gosh, I've got the largest university in the country.

It could be that the smallest one would get you more revenue than a large one, because the amount of seat activity you are purchasing and the number of cards and applications that they are applying it to.

It is sort of a long-winded answer, but it is the truth.

Thank you.

That's helpful.

Just a final housekeeping one for me if I could.

John, just thinking about the 3 points of consolidated M&A and 2 points of FX, I believe the M&A is Northern Digital.

Is there anything else in any of the other segments?

Can you give us a little color on where the FX landed?

There is a little bit in iTrade (multiple speakers) RF, and then Northern Digital is hardly -- just a very small piece there.

So it's mostly iTrade?

Well, inside RF it is iTrade; and inside our Medical and Imaging business it's going to be Northern Digital.

The other part of your question around the FX, just to go through quickly the FX by segment -- where it was 2 on a consolidated basis, it was 1% in RF; it was 2% in Imaging; and then 3% in Industrial; and 3.5% in Energy.

So really reflective of the more global set of businesses inside Energy and Industrial, whereas RF and Imaging really don't have as much exposure there because of the larger medical footprint, which is still largely US, although a lot of growth outside the US in the RF business, with a large amount of recurring revenue out of our toll and traffic business (multiple speakers)

Thank you.

Just because of where it's going.

Christopher Glynn, Oppenheimer.

Thanks.

Good morning.

Had a question about the iTradeNetwork buildout in Europe, just how that is progressing.

If you want to put the opportunity into some context, we talked about the shale, the CBORD opportunities developing elsewhere in the portfolio, just to get some framework on that opportunity.

Well, we got our first trading office deployment in Europe with this large contract completed successfully in the quarter.

So that is the kind of critical turnkey nature of what happens.

Then now that that is in place we will start to see some deployment activity in Q4, which will help drive our double-digit growth there in that business in the fourth quarter.

And then a much, much more revenue in 2012 now that you have got the first trading deployment underway; they should start to roll it out to other vendors.

So I think that will be very helpful to us next year.

We still aren't allowed to talk about who it is because of the sensitivity of the customer.

But it is among the most significant people in Europe, so we expect it to be long in the tooth for benefits for us.

Great.

Thank you, Brian.

John, just what would we expect for the tax rate in the fourth quarter?

Tax rate for the fourth quarter and for the full year will probably be somewhere in the 30% range.

As Brian mentioned the rolloff up FIN 48 always happens in Q4, and we will have to see; there may be another small portion of that in Q4 as well.

So I think from a planning perspective, maybe 30%, maybe a little bit below in order to bring the full year to a 30% rate.

Okay.

Thank you.

Alex Blanton, Clear Harbor Asset Management.

Good morning.

Could you -- I missed one figure.

What was the initial guidance this year?

Could you repeat that?

$3.82 to $4.02, Alex, is what we established when we had the year-end earnings and (multiple speakers)

$3.82 to $4.00?

$4.02.

$4.02, okay.

Now, you mentioned during your opening remarks that CCC, Compressor Controls, has an arrangement with Rolls-Royce.

Is that right?

We just acquired this company called United Controls.

That will be married up with Compressor Controls.

So United Controls has been doing significant work for Rolls-Royce for some time.

Yes.

And Rolls-Royce, when United Controls was available for sale, Rolls-Royce had a great deal to do with whether or not it could be sold and who would be allowed to buy it.

So we were able to do that, and that gives us a venue to work with Rolls-Royce, which is fundamentally different than what we had from Compressor Controls, were we have had some work with them and some fieldwork, but nothing like United (multiple speakers).

So that is going to give us very interesting buildout around things in 2012 that are already committed to United Controls.

And then the field service follow-on with that will be quite significant to us from a recurring revenue viewpoint.

So it's a really very material transaction for Compressor Controls.

Well, yes.

Could you just give us a little more perspective on that?

Because when you acquired Compressor Controls in 1992, it was doing almost all its business in the aftermarket, upgrading compressors that had been sold by OEMs with the OEMs' controls on them.

It was thought at the time that there was a very large market for Compressor Controls in actually working with OEMs to put the controls on initially rather than retrofitting them later.

But that really never developed because most of these compressor makers wanted to make their own controls and sell their own controls.

And it was only 1% or 2% of the cost of the compressor.

Anyway, so I think Compressor Controls continued to operate in the aftermarket.

Now, is this a change?

Is this a wedge into the OEM, putting the controls directly on the compressors when they are shipped from the factory?

Well, I wouldn't -- there is that possibility, but that is not the core of the activity.

Basically, United Controls has been doing for Rolls-Royce what we do for other people we can't name.

So they are primarily an aftermarket business, but they can provide OEM technology.

We provide more OEM technology today than we ever have in the past.

(multiple speakers) large company that can't be named.

I think over time -- who knows?

But at the core these are really aftermarket upgrades for people (multiple speakers) can get dedicated algorithms that are meaningful to the end-user of the product, where they can lower their speeds or increase the speed, manage energy much more efficiently with the use of the turbine, and get more throughput at the end.

United Controls has -- I wouldn't say had a total lock on Rolls-Royce, but certainly been very significant player for them.

So by acquiring them we get actually some additional algorithm and specific controls that are useful for Rolls applications, just like the other ones that we do for many other people.

Okay, so it continues to be the situation that the OEM compressor makers really aren't providing the most efficient machine that they could provide, and you come along and make it that way.

Right?

We can improve on what is out there.

What they provided for its period of time, we would never argue against them.

We love them as our customers and are prepared to sell even more to them sooner.

Okay, thank you.

Richard Eastman, Robert W.

Baird.

Yes, good morning.

Brian, could you talk just a minute or two about just the tone of business in medical-scientific and maybe the outlook there?

If I do the math with the FX and make an assumption on Northern Digital, we had low single-digit core local currency growth this quarter.

We talked about a strong backlog maybe entering the fourth quarter.

But how do you feel about the tone of business there going forward with some of the funding issues?

Well, it has really been not bad at all.

The situation is the -- if you looked at the life science CapEx-type companies out there, from those that have reported, they have been up about 4% in the third quarter.

We are doing better than that.

The reality is that we had a very large order for rugged mobile, which reports in this segment.

That was a turnkey situation.

If you take that out of both equations -- and then we have one particular customer in medical that buys our dosage pumps.

Normally this is not -- it is a lumpy business, but every once in a while you get an exceptional order for multiple months, and that happened in the third quarter last year.

That is masking the strength there.

The strength in Medical is really a bit better than you are able to see in the aggregate numbers.

So we also have a really important family of products around couch tops which we have been launching throughout the year.

They are in a bunch of different trial applications.

People are quite bullish about that for 2012.

So it is a little slower than it was.

It has consistently been in the low double-digit arena.

Now it is closer to sort of 10% growth.

But it is nothing that -- we are not seeing any megatrend that would say there is a real problem in Medical.

The camera businesses grew modestly; so they also pulled down a little bit.

The Gatan business was spectacular.

Okay.

(multiple speakers) All right then also on the industrial tech side, just to clarify your comments about Neptune, we had -- the business was flat in the US, but strong in Canada and Mexico in the quarter.

And the orders were plus 10% in the US.

Is there a reason that you saw for the flatness in the third quarter in the US?

It sounds like -- is this a funding issue where orders were better than sales in the quarter, or --?

No, I don't think it is a funding issue.

I think it is just a question of timing and the comparison to the prior.

If you take a little bit of a wider lens to this, Neptune -- just if you exclude -- so we have had some very nice wins with both the Canada Project, which is continuing, which will get us in the neighborhood of $15 million, maybe a little bit more, this year and double that next year, so that will continue to ramp up.

We also had a nice win with some Mexico meters.

Those meters -- more standard meters going into Mexico, which have a slightly different margin profile but still a nice win for us.

But if you take a wider lens and look at just the US for Neptune, really on a year-to-date basis revenue was up in the mid-single-digit range, and orders continue to outpace sales.

So it is just a question of the comp that they have against a very strong third quarter last year.

But on a wider lens looking year-to-date basis, we are still in a pretty good position there.

Okay, very good.

Thank you.

Ben Elias, Sterne, Agee.

Thank you.

Good morning.

I have a question that's slightly out in left field.

You guys have done a great job managing through the '08/'09 recession.

You can see the working capital turns; we are looking at strong organic growth.

If we are going into a sort of slow-growth environment, could you just walk us through the succession planning that you guys have at Roper?

Are there anything on your contracts that limit your term in office for Brian and for John?

Thanks.

You mean long-term contracts that we have with all of these customers?

No, no, management contracts.

Oh, yes.

No, we generally don't have contracts for people.

We have long-term compensation programs for people.

They're all involved with different forms of stock option and other stock criteria and then their cash bonus programs are related to improvement year-over-year in operating income.

So if you think about going into any kind of slow-growth environment, one of the reasons our people are so nimble in our opinion is that the only way they earn a bonus to drive continued performance is to get better in the new year than they were in the prior year.

There is no forgiveness for the fact that the market is difficult.

So all those guys are prepared to be quite nimble.

They have very strong operating people in all of those units.

Those people are -- they understand their compensation better than any of us do, and I think we understand it quite well.

So they are highly motivated about that.

They have a very strong view of how stuff happens.

In the enterprise level, we are somewhat compensated the same way on a cash basis, so that sort of focuses attention here.

We continue to add modestly to our corporate staff.

We have got -- we strengthened our legal area, our tax area; we brought in a couple new executives this year that are dedicated to corporate development activity in software and medical orientations.

So we've really have the strongest team of people that we have ever had.

For myself, I have got a long-term vesting program on all my equity, so that continues out to -- geez, I don't know, 2014 or '15 or something.

And I would expect that my program of one-year updates would continue just like Walter Alston for quite some time.

So there are no mandatory retirement ages for senior executives?

One of the things about a company like us, we don't have a pension plan.

So when you don't have a pension plan, it is pretty hard to have a mandatory retirement program.

So we do not have a mandatory retirement program.

I think the only thing that speaks to that is our Board has a mandatory retirement at age 74, and most of them are not yet in their 70s.

Okay, but that is not for the CEO, CFO, and anyone else?

That's correct.

None of us here are aware of a mandatory retirement program that would affect us.

Okay, thanks.

Thanks for that.

Second question, on the diesel engine side.

You mentioned you are working with some OEMs; they are installing the safety systems on platforms.

Could you tell us who some of the OEMs are and what the lead times on those diesel engines have been?

Well, I think you wouldn't be surprised to learn that when you are a technology company like we are and we are providing OEM technology to people, people have no interest in us telling them that it is Intel inside unless they want to do that.

So they guard their own endmarket brand situation carefully, and we are there to protect them in that regard.

So we don't provide information about who is incorporating our technology.

It's almost always part of the agreement we have with anyone anywhere.

So that's -- our algorithms are the guts of a lot of people's businesses that you talk to routinely.

Okay, thank you.

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

I would now like to turn it back over to Mr.

John Humphrey for any closing remarks.

Thank you, Vicki, and thank you all for joining us today.

We look forward to talking to you again in late January or early February as we finish up the year.

That does conclude today's teleconference.

Thank you all for joining.