Roper Technologies Inc (ROP) 2012 Q3 法說會逐字稿

The Roper Industries third-quarter 2012 financial results conference call will now begin.

As a reminder, today's conference is being recorded.

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

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

Joining me this morning is Brian Jellison, Chairman, President, and Chief Executive Officer; Paul Soni, Vice President and Controller; and Jason Connelly, who heads up planning Investor Relations for us.

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

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

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

Now, If you'll 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 in our SEC filings.

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

Now, if you'll please turn to slide 3. Today, we will be discussing our income statement results for the quarter primarily on a non-GAAP basis.

A full reconciliation between GAAP and non-GAAP measures was included in our press release this morning and is also a part of this presentation, which is available on our website.

The difference between the GAAP and the non-GAAP measures, as we'll be talking about them today, is really made up of the following three discrete items.

First, a fair value adjustment to acquire deferred revenue at Sunquest.

For the quarter, this impact was $3.1 million to revenue and operating profit.

This adjustment represents revenue that, absent our acquisition Sunquest, would have recognized.

We believe showing our results on this basis provides additional insight into the ongoing and recurring results of the Business.

Second, we incurred $6.3 million of acquisition-related costs specific to Sunquest.

Finally, we recorded a $1 million non-cash charge to earnings in the quarter for the early termination of our credit facility.

We believe discussing our results excluding these three discrete items provides investors with additional insight and improves understanding of the trends in our business.

Now, if you'll please turn to slide 4. 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 telephone participants.

Brian?

Thank you, John.

Good morning, everyone.

We will go through the Q3 enterprise financial results, which were really quite good.

We will look at the segment detail, and then take a look at our Q4 guidance and what the implications are for the full year.

I will give you a summary, and then take questions from people.

Next slide.

We look at the Q3 enterprise financial results, we had an all time third-quarter record for most everything in accounts; most orders in the history; highest level of revenue sales; biggest level of backlog, $1 billion almost again; net earnings were an all-time record, as was EBITDA and cash flow, both on an operating and free cash flow basis.

Our revenue was up 5%, but that included $0.02 headwind on foreign exchange; otherwise, revenue would have been up 7%, with organic growth up 3%.

If you look at the operating margin expansion, it was really remarkable at 220 basis points up from what already were best-in-class operating margins, to 25.7%.

Our operating leverage was beyond remarkable.

I would have to put this in the spectacular category.

If you look at incremental sales and incremental OP, operating leverage in the quarter was 67%.

This really is a tribute to the nimble business model that we have with breakeven analysis and various analysis.

When we get to the end, we will talk about, year to date, just how well our operating leverage is going, and why that is so important for the fourth quarter and 2013.

Our EBITDA in the quarter was $231 million.

EBITDA margin was also up 220 basis points to 30.8% at the enterprise level.

Our GAAP operating cash flow is $205 million, or 27% of revenue, and it is also up 23% from the third quarter last year.

And, our diluted earnings per share were $1.24, up from $1.12 in the prior year.

Cash conversion was spectacular.

We will talk about that when we get into the balance sheet and cash flow.

But, really exceptional margin expansion throughout the enterprise.

Next slide.

If we look at the income statement in Q3, I start out with orders being basically flat to the prior year, up $1 million.

And, the reason for that is -- and we've had a lot of variability in book-to-bill over the last 2.5 years, almost always due to product push outs or coming in, plus we have that difficult GAAP-to-proj comp that finally goes away in the fourth quarter.

Year to date, book-to-bill is the same as it, generally, is.

And, these quarterly variances, we don't read much into as long as they're only driven by what happened with project bookings, which we rarely have any control over.

So, orders were probably better than they really look in this chart.

Revenue, at $751 million, was up 3% organically.

Our gross profit moved from the to 53.7% up to 55.9%, a remarkable 220 basis points improvement.

Our operating income went up from the same, 23.5% to 25.7%, another 220 basis points with that 67% incremental leverage.

Tax rate was worse in the third quarter than last year.

It cost us $0.03 a share, compared to last year's baseline numbers, because we had fewer [10-40] roll offs in the third quarter of this year than we did last year.

Our reported $1.24 includes about $2 million of restructuring expense and energy that would have added $0.01 if we would have excluded that to hit $1.25.

Sort of a note too, July was quite okay and September was strong, with August being down within the quarter.

We will talk more about that when we get into the segment.

We actually feel better today than we did in the middle the quarter.

Our Q3 operating reviews were much more optimistic, when we held those in October, than our mid-quarter discussions in August.

Next slide.

Our EBITDA growth trend continues, as you see.

Our Q3 trailing-12-months EBITDA back in 2010 was $585 million.

We have added $287 million to that to reach $872 million on a trailing-12-month basis, now.

Questions that we always get are, well, how are you ever going to be able to hold this 25% EBITDA margins?

And, our answer to our people and to everybody is that we are not going to settle for 25% EBITDA margins; we do not have to settle for that kind of a number.

And here you see, we are up another 390 basis points in the last two years to 29.8% EBITDA on a trailing-12-month basis, up 49% over the last two years.

Next slide.

On our Q3 cash flow, it is just simply spectacular.

$205 million of operating cash flow represents 27% of revenue.

Our $197 million of free cash flow represents 26% of revenue.

It is the 15th consecutive year where free cash flow has exceeded net earnings.

You can see we have moved up, here, from $437 million of trailing cash flow in 2010's third quarter to $618 million, now.

Year to date, our cash conversion is quite strong and will have an even stronger performance in the fourth quarter.

Our cash conversion in the third quarter was 176% on a GAAP basis, it was 166% on a non-GAAP basis.

All of these numbers are all-time record numbers for cash flow.

Next slide.

If we look at the Q3 balance sheet, you will see even after absorbing the $1.4 billion acquisition of Sunquest in August, we still have an exceptionally strong balance sheet.

Cash has improved, our undrawn revolver is less than it was -- or it is about the same as it was, down a little bit.

Our trailing-12-months EBITDA, that we are showing here at $779 million at September one year ago, $872 million now, that excludes any pro forma from Sunquest, which would add dramatically to that number.

When you look at the statistics around gross debt to cap, they are 37%; if we did net debt to net cap, it would be 32.8%.

Our gross debt-to-EBITDA is only 2.4, and if you pro forma to Sunquest, of course, it would be much closer to 2. We really have ample capacity to do any kind of transaction that we would like to do, and we still see a number of things in the pipeline that we are discussing that look attractive to us.

Next slide.

We will get into the specifics around segment details, here.

Next slide.

In the third quarter, our segment performance was, again, remarkable.

Across the board in all the segments, you can see gross margins at 52%, 52%, 55%, and 66%.

You can see EBITDA margins, within each segment, they were all above 30%.

All of those are leaving us with a tremendous amount of flexibility with our balance sheet and ability to reinvest for growth in our existing business.

Next slide.

We start with RF Technology, which is our largest percentage of revenue, at 29% within the quarter.

You can see, on an organic basis, it had a modest falloff, 0.8% in revenue, which was really due to a specific push out in a job we have in Texas that we expected to start to deliver in third quarter, which looks like it might even move to the first half of next year.

We had great margin expansion, as you can see, operating profit was up 10% and operating profit margins were up 280 basis points.

We had some project activity that we expected to come in that really cost us between $5 million and $10 million against what we thought was possible that we're assuming is going to come in the first half of next year.

Some chance that it could move in to the fourth quarter of this year, some of that.

Overall, the growth is really masked by 5% headwind from Q3 projects last year that were unusual, the one-time install in France and a very large installation project at Miami University for CBORD.

Our SaaS-base businesses continued to grow in this quarter, led by our freight matching subscriber base increase, which was quite substantial.

These push outs that we have had, we have very high confidence that they're going to be entering our order book within the next six months.

Once again, we feel a bit better about orders than that book-to-bill flat-line number looks like.

In the fourth quarter, we have growth expected to improve in our Toll and Traffic project activity, based on the timing that we have.

We know that our margin expansion as the SaaS businesses continue to grow, as a portion of this business, will continue to give us improved margins.

We have got an important job in the Middle East with one of the airports.

Most the other things we have going on, unfortunately, we can't talk about yet because they're not public.

Next slide.

On Industrial Technology, we had organic in Industrial Technology at 10%, so it continued perform, frankly, better than our expectations.

It did have 3% of foreign-currency headwind.

The operating margin there is, it's amazing.

Our operating profit in the quarter was 30.8%.

That is an all-time operating profit margin, which was driven in a terrific execution, as people are prepared to take out costs if there's any kind of downturn and on top of every one of their variances.

The Neptune Toronto project rollout continued.

We are now about 25% complete, with several years ahead of us.

We have over 100,000 units installed in the field in Canada.

Now, our fluid handling business remained very strong in the quarter.

The oil shale activity that we have around directional drilling with some unique technology there, offset the expected reduced demand we had on pressure pumps in the natural gas application, so that really came in stronger than we might have guessed.

Our material test businesses continued to grow, both in North America; and actually, had modest improvement in Europe.

Europe as a whole, for the Enterprise not just Industrial Technology, actually on a organic basis, was flat in the third quarter, whereas many people are reporting organic negative growth in Europe.

In the fourth quarter, you'll see our outstanding margins in Industrial we expect to continue.

We do have some growth comparisons that are going to become difficult for us in the fourth quarter.

At Neptune, we get a benefit, possibly, from modest improvement in housing starts.

However, in the fourth quarter that tends not to help out much.

That's going to have to be more of, once you have a turn to better client activity in 2013.

But, that is going to be offset by a four-year-long program we have had with an individual customer that is rolling off, and that is going to be about a $5 million revenue headwind within the quarter.

Then we have, of course, the falloff in shale activity for pressure pumps in the natural gas application.

But, the rest of the activity in Industrial looks strong in the quarter.

Next slide.

The Energy Systems and Controls segment, it had organic growth of 4%.

But we've got, of course, being it, generally, in a lot of non-US activity there.

F/X hurt us by 3%.

We had very solid margin expansion, despite taking a $2 million charge in two of our businesses in Energy for a little bit of retention.

Even through it cost us $0.01 a share, it's certainly a good investment, might be a tiny bit more of that, here, in the fourth quarter.

Revenue was up 5%, operating profit was up double digits at 11%, and the operating profit margin came in at 27.1%, up 140 basis points.

The compressor controls business, which has always been project oriented and still is project oriented, is growing its field service activity at such a fast clip that the field service is beginning to change our book-to-bill ratio dynamics in this segment because the field service is, while it's not subscription-based, it certainly is a continuous input around activity.

Then, a fresh benefit is that we had nuclear plant inspections added to growth, there, in the third quarter, which is the first time we can say something positive about VTEC in a long time.

Refinery instrumentation demand, though, remained very weak, and a lot of that is European business activity.

In the fourth quarter, we expect to have strong seasonal Q4 demand.

The nuclear inspection activity is going to continue, as it's already scheduled, and we expect to get margin expansion from both growth and some of the benefits of these cost actions that we have already taken.

Next slide.

In the fourth quarter -- I'm sorry, in the Medical and Scientific Imaging business, you can see here, this is where you're beginning to see the initial affect of Sunquest coming in.

It will be -- you will see that it in a much larger way, of course, in the fourth quarter and in 2013.

But, even given that, you can see revenue in the quarter was up 12%, operating profit was up 28%, and the operating profit margin was up 340 basis points to 28.1%.

Now, acquisitions are 16% of that.

We had, actually, a negative organic growth of 3% in the segment because of the academic research markets being down double digits.

The good news for us is that medical already represents more than two-thirds of the revenue in the segment, and medical is approaching much higher percentages in total operating profit in the segment as the imaging business has become far, far less important to our overall portfolio.

The Sunquest acquisition is completed, off to a very good start around administrative and financial processes.

It's absolutely been the easiest transition we have ever had with any acquisition in our history.

We have very gifted organization of employees, not only from a marketplace and customer delivery perspective at Sunquest, but the administrative functions and processes are the best that we have seen in an acquisition any time in our history.

We have mid-single digit organic growth in medical, driven mostly by OEM Systems revenue out of our Northern Digital acquisition two years ago and the Verathon Glidescope demand, which continues to be quite substantial.

I mentioned the weakness that we had in the academic research markets, which primarily impact the camera businesses; but photonics, in general, down double digit.

In the fourth quarter, those research markets are going to remain weak; but we finally lap them, so the comparisons become easier.

And, some of those businesses will actually have increased revenue in fourth quarter over, both the third quarter and the fourth quarter of one year ago.

We will have continued strength in the medical platform.

We get the full-quarter benefit of Sunquest acquisition coming in there.

And, quite a nice boost from Northern Digital on OEM products that we have introduced and arrangements that we have made with important large-brand heat manufacturers.

We get a little bit of benefit from our Ascension acquisition, which is getting nested inside Northern Digital, and then a modest, continued improvement out of Verathon.

We will have very dramatic margin expansion in the fourth quarter, as we get the benefit of some things we have done in the core businesses and then the much better margins that will be added to us as a result of Sunquest.

One little noise factor that we have seen in the academic research market is around some people concerned about China, with the Japanese and Taiwanese customers, who frequently export there; and the noise around that is something that is hard to calibrate, but does appear to be real.

Next slide.

Here, here we will talk about the 2012 guidance and where we stand.

Next slide.

We look at the full year.

We have initiated a full-year non-GAAP diluted earnings per share number of $4.91 to $4.97.

This raises the midpoint to $4.94.

The midpoint had been $4.92 on a $4.84 to $5 number.

Last year, our non-GAAP EPS was $4.29 a share.

You may remember we had a re-measurement gain of $0.05 that brought the GAAP number from $4.34 down to $4.29, so that midpoint represents more than a 15% increase in EPS.

But of course, the real story for us is going to be the cash.

Our Q4 non-GAAP DEPS number we have established $1.43 to $1.49.

That gives us an improvement over last year's $1.23 of somewhere between 16% and 21% in the fourth quarter.

That midpoint, at $1.46, is higher than consensus; and if you only did the midpoint, you would be about 19% above last year on a non-GAAP DEPS measurement.

And again, cash flow being more important, in our opinion, than the DEPS measurement.

A very exciting thing about the fourth quarter for us is that we are going to hit a new milestone for Roper that we have never seen before; where in the fourth quarter, our EBITDA will exceed $250 million in the quarter.

Meaning, we will have in excess of a $1 billion EBITDA run rate in the fourth quarter, which we are quite excited about.

Next slide.

If we look at the summary of activity in the third quarter, you can see that we now demonstrate all these records that related to orders, revenue, backlog, net earnings, EBITDA, and cash flow.

We had across-the-board margin expansion in all four segments, which was very comforting for us given the uncertain economic environment.

Organic revenue at plus 3%, we would have liked to seen that a little bit higher; but when you adjust for the Technolog Gaz de France in the core and a little bit of a push out in tolling, I guess it was better than most.

Gross margins, spectacular, hit 55.9%.

Our operating margins at 25.7%.

Year to date, if you take the first nine months and you look at the revenue and you look at the OP, you do that calculation, and you will see that our operating leverage, throughout the year, is now above 50% of revenue.

We used to talk about 25% to 30% leverage out of EBITDA; and then occasionally, we would get up to say, well maybe 30%, maybe it could be 35%.My goodness, it is above 50% throughout the entire year, at this point.

Our free cash flow of $197 million was 26% of revenue.

I don't think there's many people that could point to a stat like that.

Sunquest, we said, very smooth transition, lots of exciting opportunities.

We are already looking at some bolt on things in that arena and doing some things we think will have big payoffs for 2013.

Our balance sheet remains very strong.

We have ample capacity to continue to invest in transactions.

We have got, not only a record year that we know we'll deliver in the 2012 year, but I think we can now say we are positioned for another record year in 2013.

With that, I would like to open it up to questions.

(Operator Instructions)

Jeff Sprague, Vertical Research Partners.

Brian, first question, pick up right where you left off, you've bravely broached 2013 in a pretty uncertain environment.

Obviously, you have got the Sunquest accretion, which would basically get you there.

But if you think about the other businesses, could you elaborate a little bit on the trends you are expecting as you exit the year into next year?

We're not going to provide any real guidance until we have closed out the year.

We generally do that with the year-end report, but I do think we were really taken by the -- we have a very formal quarterly review process.

We talk to every one of our P&L people, and when we talked to them in August, we were actually down 9% in orders in August and we were up, take July, September, there were positive, obviously, or we wouldn't have the kind of performance you saw.

People were really apprehensive, I guess, and that is behind us.

People aren't worried about that.

All the customer contacts, relatively favorable.

Europe's performed a little better than we might have expected.

The industrial businesses with 10% organic growth in the third quarter, which kind of comforting.

We know what our challenges are in 2013.

We will have some struggling activity in less housing starts picked up in Neptune that we need to overcome.

But, our toll and traffic businesses are going to be more robust next year than they have been.

The medical scenario is going to be better, we have some great clarity around various things we are doing there.

CBORD is going to win a major northeastern university that we can't yet announce; it is a very important, large opportunity for us.

We have some things that are going on in projects that we know are going to come to fruition, so with all those things that are negative, we have those scoped out, in our opinion, unless there's some kind of much more precipitous falloff.

So, we do feel more comfortable, I would say, going into 2013 than we have at any time this year.

Great, thank you.

Could you elaborate a little bit more on what you see on the scientific and research side?

You indicated the comp is easier in Q4, but do you have some thoughts on what sequester looks like for the business; for example, if it happens next year and what actions you might take?

We are taking some actions, but I don't think that the sequester would have much effect because these are not really defense-related businesses.

They are really research applications going mostly to university markets.

I think that the US is a fairly small part of where those businesses serve.

It's less than 0.33 of their revenue.

The sequester wouldn't have any effect as it relates to Europe and Asia, which is where the lion's share of our revenue for those camera businesses resides.

The other thing is that they are, of course -- while they are better than other people's businesses, they're the worst portion of the margin side of our OP in the Company; so if they are down, they don't have a negative spin.

It's not like having any of the other businesses have negative variances.

They are really getting to the point where they have very little effect on the overall Enterprise.

Finally, and I will pass the baton, since you were kind enough to give us a specific August order number of down 9%, can you tell us what September was, and what you're seeing in October?

With a gifted statistician such as yourself, we'll leave that to you to back into it, but they were modestly favorable.

Our overall book-to-bill for the year, by the way, is 1.01.

When we are preparing for all this, we are looking at that saying, gosh, you know, in the last five or six quarters, we have been all over the map.

We used to say that our book-to-bill would be 0.97 to 1.03; so certainly, on a trailing basis we are right in that sweet spot.

But, we've had a number of quarters in the last six, where we have been outside of margin, so the projects stuff -- if we stop reporting orders, we wouldn't have to waste time talking about it.

Things are fine; they're going to continue to be good.

Great, thank you very much.

Mark Douglas, Longbow Research.

Looking out in the fourth quarter -- well first of all, what were the organic orders in the quarter, in 3Q?

Organic orders were down 2%, so we had the same 2% headwind on F/X.

So, you don't get that --

Okay.

What are we thinking as far as organic sales in fourth quarter, similar to what you saw in the third quarter?

Our guidance is based upon low-single digit organic growth in the fourth quarter.

Okay.

If you can talk about the medical segment, much higher operating profit than I think a lot of us thought, how much of that is really due to Sunquest?

Also, did you have some pretty aggressive cost actions?

I know medical now are above 0.66, but still when 0.33 of the business is down double digits, to have margins expand that dramatically is pretty good.

Can you dive down to that a little more?

I do think you're right as far as the relative mix that we continue to grow in higher-margin areas.

Sunquest comes in above the Company average operating profit margin, so that is giving us a little bit of a tailwind.

But even absent that, we still saw margin expansion in the segment as we continued to grow in medical versus the lower margin camera businesses.

And, the nice thing about those, or at least one of nice things about those camera businesses is that they do have a pretty variable cost structure, so there isn't a large amount of fixed costs that need to have restructuring actions.

So, they are able to flex some of their operating expenses and revenue.

Okay, thank you.

Deane Dray, Citi.

I would like to get some color regarding the restructuring actions taken in energy.

You said it was a couple of projects, and then suggested you could do some more in the fourth quarter, can you expand on that?

Yes, that is largely severance-related actions.

It was right at $2 million in the quarter.

Once again, with the asset-light business model, we don't really have the larger restructuring charges that take an awful lot of time to -- a, implement; and b, realize the benefits from.

So, those are severance-related actions with a couple of the businesses.

Great.

Brian, I know you can't name names, but your comment about CBORD having a big northeast university win, these are always pretty important; and especially, if you are displacing an incumbent.

So, maybe give us color, to the extent that you can, regarding the context of the win?

What the opportunity was, the value that CBORD is bringing that the incumbent was not able to provide.

This is somebody we have been working with for a while, and this is a much larger rollout than would normally be the case.

In terms of the size, it should be apparent when we finally get around to announcing it because it is not a small-campus environment.

There will be a lot of connectivity point.

We continue to grow at the expense of the competitor in this arena, and anyone that's close to those market spaces know that we have been gaining share and expect to continue to gain share because our folks are really focused on the space and aren't compromised with other possible things that this one competitor seems to be involved with.

It's really a beneficial, competitive environment, if you will, for CBORD that they are seizing on.

And, we continue to beef up our delivery capability at CBORD.

We've added quite a bit of talent in the project management arena.

We have promoted somebody into a key role there, and we're quite happy with the way they're focused.

I think our new software executive and we have a business development, a chief architect, that can help people think creatively about how to expand their existing product offerings, as well.

So, I think it is going to be a long-term continuing contributor to the Company.

Would that be, in terms of timing on that order, would that be in a -- would that be a summertime delivery?

That is typically when the CBORD does those transactions.

I think that is still in our future to determine exactly what the rollout and the implementation schedule will be because there are different parts of the CBORD project.

There will be the software portion, which of course, has a large recurring nature to that.

Also, in many cases, security systems will have installation that will have to be scheduled around other activity in the campus environment.

So, I think the implementation schedule is still in front of us to be able to determine that with the customer.

Great, thank you.

Steve Tusa, JPMorgan.

Really impressive margin results, RF Tech up 300 basis points versus last year.

Could you parse through the dynamics there, and what drove that?

Sure.

A couple of different things.

One, very good tag shipments, which always help our toll and traffic business, but then also the addition of our, and the growth in, our software businesses.

Not only do they have a lot of recurring revenue, but they also come in, generally, with a little better than the margin performance than our toll and traffic, and particularly, the project side of our toll and traffic business.

It's a combination of mix; plus also, some cost actions and some other things that we had that were more expensive last year than they are this year.

So, we have had that tailwind through the first three quarters, and expect that to continue into the fourth as well.

Europe was down 20% in energy in the second quarter.

Can you talk about how those dynamics changed in the third quarter?

Has there been any change in customer behavior, any problems in financing or credit terms, anything like that?

No, but our -- the things that we are delivering are not highly expensive.

They are really, we don't even think of them as capital items at all.

It might be a capital project that's driving the purchase of the instrumentation software that we sell.

But Europe, in total for the Company not just energy, it's down to 15% of Q3 revenue, so the US was just a little over 60%.

Actually, Europe -- we include some, what other people would call, Middle Eastern markets, some of that goes through Europe because of arrangements we have in Italy with some people.

I don't have that absolute number in front of me.

John, I don't know you've got a better number --

Yes, I just checked, Steve.

As far as energy is concerned, just for that segment, Europe was actually up almost 10% on an organic basis.

But remember, we do have some OEM in there, so it was still generally weak on some of the refining end markets, but we have some OEMs there that serve a global marketplace.

So, our destination revenue goes to Europe, but their destination revenue, we're fairly confident, goes all over the world and has continued to be driven by North American and Middle East activity, more so than Europe.

So Europe, when we look at it across the entire Company, was flat on an organic basis versus last year --

Right --

And, we still have the F/X headwind of 5% or 6%, so on a reported basis it was down.

But, you strip out that F/X impact, we were the same as last year.

And, we still are fighting the headwind, of course, from Gaz de France.

Our view would be that Europe was a little bit better than what we saw in the second quarter.

Having said that, second quarter was a pretty low bar to be able to jump over.

Right.

One last question, it's on the compressor control stuff.

It has been pretty good on the LNG-related demand.

Some of the orders slipping, I think you said it was going to ramp in the fourth quarter.

Any other details there to help paint a more visible picture around what's going on there?

I mentioned in the segment commentary, the thing that is really changing in our compressor control business is that, in addition to the project work, we are getting this very high level of field service, which is becoming more of an annuity on a continuing basis.

And, we have way more resources that we ever had to do that, that actually depresses the, what you perceive as organic growth, of course, because it normalized in here, more like one of our software businesses.

Other than that, we have not seen any falloff in what people want to do around compressor controls.

We continue to have a couple of bolt-on acquisitions.

We did United Controls and Trinity software that had one of our customer (inaudible) they could be doing more rolls than they have in the past.

And, I think we will see some spike up and that will help us, too.

We would probably expect a little better orders over the next six months than we have had in the last six.

Okay.

Congratulations on a very good quarter, thanks.

Richard Eastman, Robert W Baird.

Two questions, I guess a little bit follow up on that last one.

But, both the, what we think of as the shorter-turns businesses, the industrial tech and also the energy systems business, in general, had the book-to-bill in the quarter for both of those business was below one, and certainly, below a seasonal pickup -- the seasonal expectation.

Is the way you are thinking about that, that the damage was done in the month of August; and again, shorter-turns businesses but we saw recovery in September?

Yes, I think that is generally the case, Rick; but also, as we look at the book-to-bill ratio inside the Company, the major drivers were really our project-driven businesses, not the things that were more book and turn inside of a shorter window.

As you know, we always keep a close eye on some of our, as we think of them, our leading indicator businesses, our Struers material test business, our Dynisco business serving a number process industries, as well as a couple of the other sensor businesses in energy.

Those continue to perform well.

Their book-to-bill ratio was solid in the quarter.

And, other than -- August was tough, but September was better for them.

So, I think that that commentary that Brian was talking about is largely around the book-and-ship businesses, and then we have the project timing things that will overlay against that.

Then my follow-up, there was some -- I think, Brian, you had mentioned that there was some project activity in the RF Tech segment that was pushed from the second half of this year into the first half of next year?

Where did that fall, is that the tolling business, or where is that?

Toll stuff in Texas.

We had a very large contract that we won in the second quarter, and we expected we would have been doing some delivery by now, and there are some things going on with the tolling authority that are moving things around and they are not ready for delivery yet.

So, that is getting pushed out to, probably, first quarter of next year, tiny chance we might get a little bit of that, here in the fourth quarter.

But, we are assuming it is more of a 2013, actually, a benefit to us because it helps inflate any falloff that might occur in 2013 in some of these other areas.

The push out, I think you had mentioned $5 million to $10 million, is that an annualized number, or are we suggesting that was pushed out of the back half of this year?

This is just what -- when we were are preparing our guidance for the third quarter, we were thinking we would get $5 million to $10 million out of this particular project, and we didn't get anything that we could --

I see, okay, thank you.

Thank you for the clarification.

That is why we're not at all worried about our book-to-bill at 0.96.

Okay, understood.

Thank you.

Christopher Glynn, Oppenheimer.

Heard the comments on tolling being a little stronger next year, but trying to think about how to frame up the segment in RF, longer term.

It looks the traffic and tolling side is a flat-line business.

You get some growth out of the software side, so it low-growth longer term, but a margin melt up on mix shift, is that -- anything wrong with that thinking?

If that's what happens, then you are right with respect to the margin benefit.

I'm not at all going where you are as far as toll and traffic being a flat business.

I think they have a lot of opportunities in front of them.

They have the number of solutions that they continue to deploy.

People around the world are looking for ways to reduce congestion and generate revenue from their existing infrastructure.

I think that the trends in their business are favorable.

That's all a question of whether austerity overwhelms that, but I don't think it does.

I'm not going where you are as far it being a flat business.

Yes, I wasn't necessarily there, just wanted to bounce that off you.

That was very helpful.

Then on the regions, John, did the US deviate at all from the monthly trends that you talked about?

Not materially that springs to mind, no.

Okay, thank you.

Matt Summerville, KeyBanc.

Brian, you mentioned some dynamics with China, Japan, and Taiwan.

Can you talk a little bit more about that?

And specifically, how it's impacting your business, or how you expect it to impact your business?

It is really more in the academic and research arena, where we have a lot of our sales ultimately are going to China, but through Japanese and Taiwanese distribution or technology companies.

Certainly, the political situation that has escalated on the rhetoric basis between the Japanese and China is less than helpful for people.

We're curious as to whether that is going to get resolved anytime soon.

If it doesn't, it makes us a little more cautious about some of our end markets in that particular area.

But remember, Matt, as you know it is a very small part of the overall Company, but we do like to point out things that seem to be trend changes.

And, that is something we had not heard prior to the third quarter from people that I think are insightful.

So, we're just alerting you that it could be a headwind.

Got it.

Then, I wanted to spend a moment on your CCC business.

It sounds like you have excellent visibility there, so please -- first, correct me if I am wrong in thinking that.

Then, I want to make sure I understand, what dictates the momentum and timing around your field service activity?

And, is this a business that is going to require some incremental internal investment, near term?

It doesn't really need -- it's people related, so it's just a matter of -- we have seen an opportunity to expand our field service business for a lot of reasons.

Their people want to focus on capital equipment, which is very lumpy, and they are leaving behind an opportunity to do a lot of field service in these arenas, which we are picking up at a fast pace.

So, that requires a little bit of investment for people but not a massive one.

They are expensive people because of where they are physically located.

Then, in terms of the order processes, they're always lumpy in CCC.

There's not anything you can do about that.

People order their technology from us with a long lead time, so it's not unusual to get an 18-month-out order.

We only book things that are shippable within 12 months, so we don't create a massive backlog of stuff that isn't going to hit our next forward-12-months of activity.

We have a very strong knowledge about who we are working with in various CCC projects and what the likely outcome is going to be.

Those tend not to be so much sweat-equity projects.

You are working with somebody from a design viewpoint, where you're likely to get the order.

We would not lose many orders that we're involved with.

Lastly, one quick one.

Does [Capsha's] decision to open-source their technology, does that do anything to the tolling space at all?

No, I don't really think that's a change versus the status quo.

Those are -- I believe our understanding of that is it is a number of patents that have already expired.

And frankly, we have been on the leading edge of an awful lot of this interoperable solutions.

We were the first people to entrench; we were the first people to introduce multi-protocol readers so a tolling authority could have the opportunity of having their choice of the best TAG technology, and we'd be able to read anyone's available.

So, I don't think that that recent announcement really affects the competitive dynamic.

I think it is a reflection of today's environment, already.

All right, thanks, John -- I'm sorry --?

I think it speaks to the strength of our business.

Appreciate that.

Thanks, Brian.

Thanks, John.

Alex Blanton, Clear Harbor Asset Management.

I wanted to ask what your GAAP estimate would be for the fourth quarter?

You have got $1.43, $1.49 for the non-GAAP.

Yes, the --

(Inaudible) different, the deferred revenue is probably (multiple speakers).

So, it is $0.04 difference.

$0.04 below that.

Okay, so we can calculate the --

Yes, that's exactly right.

That $0.04 is related to the deferred revenue fair value adjustment.

As revenue, absent the acquisition, we would have recorded.

(multiple speakers)

I was away from the call for a minute, so I do not know if this was asked; but you mentioned in your opening remarks that August dipped down a bit and you were concerned, and then things strengthened.

What is the reason for that?

That is an odd fluctuation.

Because we got the (multiple speakers).

I think August was an aberration.

When you smooth it out, the third quarter was maybe 2% below what we would have hoped for, and we actually know that that was more project oriented.

But in the middle of the quarter, we were apprehensive because we thought, well maybe there is some kind of falloff, and we hadn't really seen that.

We are back to a reasonable September and a reasonable July.

There has been an economic falloff, since then, that's pretty dramatic going into the fourth quarter, here.

With a lot of companies reporting weakness and things below expectations, but you experienced that apparently in August and then recovered from it, I think that is --?

Remember, only a few of our businesses are going to bounce around like that.

The medical businesses are more secular in nature, most of our app other than the lumpy side of the projects is pretty secular in nature with growth.

So, if you have a falloff in industrial energy, it almost always rebounds in the fourth quarter in energy, anyway.

We will have a lot of things that people want to invest in with their RO budgets in other arenas.

Alex, the other thing I would add to that is that -- we don't report on -- there's some companies that actually report their orders and their activity on a monthly basis because they're really a better gauge and more tied to near-term macroeconomic activity.

That's never really been our business profile, so we're not really a good indicator for the macro world because of the niche markets that we serve and many of the things that have the secular-growth tailwinds that Brian was talking about.

The only reason that we mention it, it was little bit different than what we normally see, but we're not looking at month-to-month activity or week-to-week activity.

We are not that type of macro business.

Right, I realize that.

And in looking at next year -- right now, investment is lagging.

Investors are really on strike.

Capital goods investment I'm talking about, could even be down here in the fourth quarter --

Mr. Blanton?

Looks like his -- he disconnected his line.

Alex, we will follow-up with you later on today.

Thank you.

Ladies and gentlemen, that will end our question-and-answer session for this call.

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

Thank you.

Thank you, all, for joining us this morning.

As always, we look forward to talking to you next quarter.

Thank you.

Ladies and gentlemen, this does conclude today's presentation.

You may now disconnect.