Roper Technologies Inc (ROP) 2012 Q4 法說會逐字稿

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

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

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

Joining me this morning is Brian Jellison, Chairman, President, and Chief Executive Officer; Paul Soni, Vice President and Controller; and Jason Conley, Head of Planning and Investor Relations for us.

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

Press Release also includes replay information for today's call.

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

If you'll turn to slide 2 we begin with our Safe Harbor Statement.

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

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

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

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

To detail that, for the fourth quarter the difference between GAAP and non-GAAP is a fair value adjustment to acquire deferred revenue at Sunquest.

For the quarter this impact was $6 million to revenue and operating profit.

This adjustment, to remind everyone, 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.

For the full year, the difference between GAAP and non-GAAP is comprised of three discrete items -- one, the fair value adjustment to acquire deferred revenue; second, acquisition-related costs specific to Sunquest; and the debt extinguishment charge we recorded in the third quarter.

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

And 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'll take questions from our telephone participants.

Brian?

Thank you, John.

Good morning, everyone.

So we look at the Q4 enterprise financial results, it turned out to be the best quarter in our history in virtually every measurement category -- orders were at the highest level; revenue the highest; net earnings, the highest; EBITDA, and both operating and free cash flow were all-time records for us.

Revenue was up 10% in the quarter, organic growth was 3%, and all four segments really participated in our record fourth quarter.

We ended the year with $953 million in backlog, which is 15% higher than it was this time last year.

And our gross margin was really spectacular, it came in at a remarkable 57.9% for the quarter, which really speaks to the quality of our businesses and their ability to execute.

So, gross margin up 300 basis points above levels that most other people never even see.

Our operating margin expanded 300 basis points to 28.3% because operating leverage in the quarter came in at about 57% on new revenue.

Our operating leverage throughout the year has been above 50%; we'll talk more about that throughout the discussion this morning.

And remember that we have a lot of non-cash amortization charges; our operating margins if you look at them on an EBITA basis would be substantially higher, another 4 points.

Our EBITDA in the quarter was $275 million.

You might remember at the end of the third quarter we said we'd hoped to hit a run rate in the fourth quarter of $1 billion or more, and we certainly achieved that.

Our EBITDA margins were up 370 basis points, even higher expansion than our gross margin, and reached 33.7% in the quarter.

Our GAAP operating cash flow was $212 million in the quarter, which represented 26% of revenue, another record for us.

And our diluted earnings per share, even though revenue was up 10%, our earnings were up 20% to $1.48, and that brought the full-year earnings to $4.96 a share versus $4.34 last year.

And it really was broad based, as you'll see this morning.

Next slide.

If you look at the income statement in the quarter, our orders were up 12%, organic was up 4%, our revenue was up 10%, and organic was up 3%.

For the people who look at kind of book-to-bill relationships, our book-to-bill in the fourth quarter was a little bit better than the fourth quarter of last year, and we finished the full year '12 at a book-to-bill of 1. Our gross profit was 57.9%, up 300 basis points.

I don't think anybody would have believed Roper would have achieved a 58% gross margin at this time, but we've done that and we think it's pretty sustainable.

Our operating income was up 23% and our operating margin was up 300 basis points due to that 57% operating leverage in the quarter.

Again, if you add non-cash amortization to that, that number would be another sort of 4 points higher.

Our interest expense was up from $15 million to $21 million because we had a successful $900 million bond offering, which closed on November 15 in the fourth quarter.

That bond offering set records for execution in terms of spreads on our rating.

There were a number of very favorable things about that bond offering, and of course it sharply reduces the rate at which our interest costs will be coming in, in the future.

Our tax rate was a little higher in the fourth quarter; it was 30.1% versus last year's 29% and that actually cost us $0.02 in the quarter.

And you can also kind of just think of that in terms of an amortization, that if it was $0.02 in the quarter it would have been $0.08 for the year.

So a point of tax reduction for us is worth $0.08 a share, so let's root for governmental tax reform.

Net earnings, as you can see, up 21% and debts up 20%.

Thank you.

Next slide, we go to EBITDA growth.

Here you'll see we closed out the full year at $925 million of EBITDA, which is up 45% just in the last two years.

And our EBITDA margins just continue to move up; you can see they're up to 30.8% for the full year, that's 410 basis points above where they were just two years ago.

Most importantly about this slide is that while our gross margins are already at 30.8%, we're going to tell you that, in 2013, we expect them to expand still further.

Next slide.

Our cash flow performance was $212 million in the fourth quarter, representing 26% of revenue and cash conversion of 147%.

On a free cash flow basis you can see it was 25% of revenue and 141%.

And while our cash flow is already best-in-class, our ratios continue to improve, as you can see, here on the right hand side of the chart our free cash flow reached $639 million, up from $471 million two years ago.

But if you look at the percentage at the bottom you'll see that, in 2010, our free cash flow to revenue was 19.7% and this year it was 21.3%, up another 160 basis points in just two years.

Next slide.

If you'll look at our asset velocity performance, there are a couple of very important things about this slide.

Our inventory was actually down at the end of the year to 5.9%.

Payables were about 4.3%, by the way, so remember our goals are always to try to get inventory and payables to be close together so that it's just receivables that are investment around pricing in the way we think about things.

So we closed out the year with inventory plus receivables less payables and accruals at 4.8%, truly a remarkable number.

What's really interesting and encouraging to us -- you can see in 2010, '11 and '12 -- we now have a sustainable level of performance that says we need less than $0.06 of working capital to create $1 of revenue and that's really an exceptional result, and sustainable.

Next slide.

If we look at the financial position of the Company and the balance sheet, you can see, even though we invested over $1.4 billion in 2012, our balance sheet is still in terrific shape -- cash slightly higher, our undrawn revolver of course is much higher, and our cash and undrawn revolver powder are up here at $1.771 billion versus $1.088 billion.

So after investing over $1.4 billion, we've still got about $700 million more powder than we did last year.

And you can see our trailing 12-months EBITDA at $925 million, when you then do the debt ratios, gross debt-to-EBITDA is about 2.2 but net debt-to-EBITDA is only 1.8.

And, in addition to that, we'll generate we think well in excess of $700 million in free cash flow in '13 to go on top of that, so not impossible to envision us having $2.5 billion to invest soon.

Next slide.

Here we'll look individually at the various segment details.

Next slide.

This is probably the most remarkable slide in the deck in my opinion when you think about execution.

Every one of our segments is doing spectacularly well.

You have 4 segments and you have 4 quarters; and you'll see here we were a perfect 16 for 16 in execution, where every segment increased its margin over the prior year in every quarter.

If you look at the Industrial Technology you can see revenue for the year was up 8%, operating profit up 15%, and operating margin reached 30% was up 190 basis points.

If you look at Energy Systems, here revenue was up 8%, operating profit up 14%, and operating profit margins up 140 basis points.

In Medical, revenue was up 17%, operating profit up 35%, and OP margin up 380 basis points to 28.1%.

And then, finally, while revenue was about flat in our largest segment, in RF, operating profit was up 10%, and our operating margin was up 250 basis points.

And lastly on this slide where you can see really we were up 8%, 8%, 17% and then flat, the overall Company came in up 7% in revenue and up 55% in operating leverage with our largest segment flat for the year.

So it speaks really well of the diversity of the things we have going for us in our businesses.

Next slide, we look at the Energy Systems and Control segment.

You'll see in the fourth quarter we were up 7% in revenue and 16% in OP, remarkable operating profit margin of 33.1%.

Organic revenue was up 6% in the fourth quarter.

Our margin expansion was led primarily by the leverage on growth of the incremental sales and then the benefit of some cost actions that we took in the third quarter in anticipation of some recessionary risks that we might have seen at that time, which have dissipated.

Compressor Controls growth was led again by our LNG projects around the world and certainly an all-time record in the field service activity associated with those products in the aftermarket that they create.

We had a double-digit increase in our Alpha Technology Company, which is really an instrument-based data-capturing technology that the tire company and latex OEMs use for measuring.

And we had a very strong seasonal demand in the fourth quarter, which we expected to have when we issued guidance.

In the 2013 year as we look ahead, we think Compressor Controls will continue to generate record levels of revenue with new applications for existing software, and the installed base of operations that we've enjoyed with our growth recently adds substantially to the customer service profile.

And we also have made several bolt-on acquisitions; we don't talk a lot about those but this year alone, we acquired a company called Cambridge Instruments (sic - Cambridge Viscosity), which helps our PAC business with online data collection.

And we acquired Hao Ying in China, just a small sensor company that goes in with our Dynisco product in the Shanghai area.

And then just on the last day of the year we acquired another small business that relates to our diesel engine shut-off valve technology, and those go along with the late 2011 acquisitions, United Controls and Trinity Software, for Compressor Controls, so these bolt-ons coupled with organic growth should continue to give us a strong 2013 for Energy.

Next slide.

If we look at our Industrial Technology segment, here you'll see it was actually down 1% in the fourth quarter, but operating profit was up a couple of points.

We had a favorable benefit due to an accounting thing that happened in the fourth quarter so the published margins are a little bit better than what we were discounting that as a one-time event so we're coming in at an operating profit at 29.9% versus the GAAP number of 32.7%.

In the fourth quarter, fluid handling continued to be very strong with our directional drilling operations at Roper Pump.

Everything related to fracking and oil shale was good except for lower demand for dewatering pumps and the -- basically in the gas arena.

Our Cornell company received a Product Innovation of the Year award for a new cutter pump technology that we introduced that breaks up debris and wastewater and reduces clogging, which we think will lead to strong growth for us in that segment.

Our material test business at Struers remained exceptionally strong as it related to consumables, although some of the equipment sales were lower than they were in the prior year.

Neptune is an interesting story in that overall it was flat in the quarter, but that's really -- belies the fact that Neptune had an all-time record year in 2012.

We had very strong distributer growth in the fourth quarter of this year and a little bit of incremental growth out of the Toronto project.

But, as we said at the end of the third quarter, we had lost one large customer and the impact of that came in the fourth quarter so that it negated what was actually double-digit revenue growth throughout the country.

We had very exceptional margin performance here at nearly 30% and it really was broad based throughout the segment.

As we look to next year in 2013, the fluid handling oil shale growth will continue.

We have a variety of new products that we continue to add to Roper Pump's directional drilling technologies.

We added capacity in 2012 to give us better throughput and faster turnaround at our Commerce, Georgia, operation.

And in 2013 something -- and I think no one would have ever expected us to say is we're actually investing in a new facility in Texas for a much larger diameter staters and power sections than we have today due to the growth and prospects for market share gains which are occurring quite rapidly in this segment.

In the second half of the year, we think we'll get better fluid handling rental market activity that ought to boost Cornell.

We think throughout the year the other businesses will have low single-digit growth in their industrial end markets.

And at Neptune, with a little stronger work out of Toronto's project in approved housing start here in the US, better distribution sales growth should largely offset the customer loss, which will be quite significant in the first half of the year.

Next slide.

In our RF Technology segment, here you can see revenue for the quarter was flat, but operating profit was up 8% and the OP margin was at 27%, which is quite good margin for that segment.

We had very solid execution in creating that margin expansion and most of that came out of a better management in the toll and traffic arena.

We've really made a number of people changes in that segment, have a new leader who has been with the Company for quite some time, he's doing an outstanding job in building a stronger team around execution.

TransCore received an important award for the Doha Airport for both access control and parking control in Doha, and we expect that it will generate in the high millions, single-digit millions of dollars for us next year.

TransCore also received a very prestigious award with -- they won what's called the International Road Federation Global Achievement Award that was presented by the Chairman of the International Road Federation, so the Mayor of Riyadh in Saudi Arabia, and that was for the work that we did that we don't talk a lot about and managing New York City traffic lights and traffic systems.

Our IPS project in New York this past year also won an award as the Outstanding Project of the Year.

TransCore won another award for what are called HOV lane activity supports and that was based really in California where they got the California Transportation Foundation's 2012 Project of the Year Award.

So our innovation and technological execution continues to be very strong in all these businesses.

Our SaaS-based subscriber base in the fourth quarter continued to grow and the software margins then expanded as a result, which helped the segment.

And CBORD which we indicated had won a major University in the Northeast, we can now tell you that, that actually was Northeastern University, and as you all know, Northeastern is quite a large campus footprint.

We're going to be doing integrated security projects for them for quite some time and our bid activity is exceptionally robust at CBORD for 2013.

As we look at next year, our backlog at project pipelines in this segment give us a lot of confidence around pretty good growth in 2013.

Our Technolog growth profile should return.

You may remember that Technolog is really what was holding back RF Technology's apparent organic growth in 2012 because we had over a $20 million project in France in 2011 which of course wouldn't repeat into '12 and was a headwind of more than $5 million a quarter.

Our software recurring revenue base we think will continue to expand as we get an increasing number of new customers, and we think our margin improvement that you see this year will continue and strengthen in 2013.

Next slide.

If you look at the Medical and Scientific Imaging segment -- pretty soon I think we can just call it the Medical segment -- this really became the largest segment in the Company in the fourth quarter, which is hard to believe, but you had organic revenue growth of 6% in the quarter which of course was led by Medical.

Our Northern Digital business delivered a record quarter as their OEM system sales for minimally invasive surgical placement hit an all-time high, and then Sunquest we had the benefit of for the full quarter.

Our integration is really very much on track here with Sunquest and the data it now kind of shows you just how strong a company Sunquest is and what kind of performance you get out of it.

We'll continue, I think, to demonstrate that as you see them in for a full year in 2013.

We also took a charge as we've made considerable changes at Verathon to drive faster product introduction and have started to discontinue some efforts around certain engineering initiatives and pare back the rate at which we roll out some of the products that were in their pipeline that we think, while they're interesting, are not as interesting as other new opportunities we're focused on.

So we took a $4 million charge in the quarter on inventory and tooling around a product line that we think may do okay, but not at the pace that we were prepared to continue to invest in.

As we look at 2013, you'll see we're going to get a significant benefit out of a full year of Sunquest contributions.

Our margins we think are going to continue to expand as Sunquest becomes a larger piece of the mix of the segment and we think we'll get operating leverage out of organic growth.

Our Medical businesses we think all have favorable end markets.

We've got a number of strategic initiatives that have been put in place under the fellows leading our segment.

Here, Neil that we brought on in at the end of the third quarter of 2011.

We think we'll finally get a little bit of modest improvement in our research markets that relate to the cameras.

Cameras this year has been a terrific headwind, down about 13% over the prior year, but came in sort of flat in the fourth quarter, which is finally a trend we've been looking for.

We think it will actually have positive growth on a modest level in 2013.

Next slide.

If you look at our 2013 guidance, next slide, we established guidance for the full year at $5.60 to $5.82 so that gives you a mid point of $5.71 versus $4.96 this year at the mid point.

We would be up 15.1% on a net earnings basis.

We're projecting revenue growth of 8% to 10%.

We think organic ought to be up 3% to 5%.

Organic in the first half of the year will be quite modest, particular stress on Q1.

We think we'll be up in the high single digits organic growth rate in the third and fourth quarter.

Foreign exchange, we're just assuming the 12/31 rates would continue.

Tax rate a little higher next year at 31%.

Diluted share count we think will come in at about 100.5 million shares.

And then if you look at our Q1 guidance we're saying $1.19 to $1.23.

Full-year operating cash flow we think will exceed $775 million, that's up about $100 million from what we just delivered here this past year.

I think what's really important is if you look at the power of our cash-on-cash return models now as they start to really compound, that $775 million for 2013, when we look out in the next three years, '13, '14, and '15, we would expect to generate over $2.5 billion in operating cash flow and that gives us, of course, an incredible amount of flexibility for investing in these businesses.

Next slide.

If you look at the summary then for 2012, you can see that we achieved really all-time record results -- total revenue was up 7% for the year, even though our largest segment had no revenue increase; organic revenue up 4%, our gross margin up 180 basis points to 56% for the year; operating margin was up 220 basis points to 25.8% on operating leverage that exceeded 50%.

On the next dollar of revenue, our non-cash amortization for 2012 was $117 million, which really understates the quality of our operating earnings.

So if you add the non-cash amortization back into the operating margin, or interest before tax if you will, you get an EBITA ratio of 29.6%.

Our EBITDA was $125 million up over the prior year.

And our EBITDA margins for the full year were at 30.8%; we've already told you we expect those to expand in 2013.

And our CapEx for the year was $38 million, which is exactly the same as depreciation.

And when we talk about EBITDA, we really need to get Roper to distinguish the awareness around other people's EBITDA has a lot of D and a lot of CapEx it needs to offset it.

Ours simply doesn't.

This is really all EBITA with just $38 million of D and $38 million of offsetting CapEx.

Operating cash flow for the full year at $678 million represented 23% of revenue and we hope to add over a $100 million to that for this year.

We invested over $1.4 billion in acquisitions.

Our deal pipeline now is exciting as ever.

We expect to capture additional opportunities in 2013, and we've already got over $1.5 billion of powder before we add another $700 million to that as the year progresses.

So, with that, we would like to open it up to questions.

(Operator Instructions)

Deane Dray, Citi Research.

On the Medical side, you're flat on organic revenue growth.

Did you see any pull in from some of the year-end business getting pulled in, maybe related to the pending tax increase or is there any budget flush?

No, we really didn't see that at all, and most our stuff is going direct so it's not like a distributer pull in with standard products that some other people might have.

And then Brian when you talk about the acquisition capacity approaching $2.5 billion for the Medical side, are you more apt to pursue adjacencies, new products, new platforms in SaaS like you've done in Sunquest or would you be looking more on the device side like Verathon, Northern Digital where you can drop a product line into your sales force?

We would and are doing both.

You just never know what you're able to negotiate in terms of what's the best use of funds.

So, we're always really looking at the asset velocity of things, so the software businesses have an easier hurdle, because they always have less assets.

If the product businesses are such that we think they're well positioned and have great defense mechanisms, we're not opposed to adding to that.

As a general rule, I mean, there are certainly some product transactions we're looking at now but most of the things we're looking at are related to software and service opportunities.

Great.

That's helpful.

And just one last one if I could, on the Neptune customer loss, give us some perspective, was this on pricing?

Is it a market share shift?

You said that there would be some impact in the next couple quarters?

Yes, it's a very large customer who has decided that they want to go to take the risk associated with composite meters and we don't think it says anything other than they're going to try something else.

We've had a long-term contract with them and they had a change in management, and we'll see how it works out; it will have an effect on first half of this year from a revenue viewpoint, I don't think it's indicative of anything.

In fact we were up nearly 20% in [stricter] sales in the fourth quarter.

You can't see it.

We wind up being flat because you got one large customer that's down.

John I don't know if you want to add anything to Dean's question around the customer situation.

I think it's a one off thing that--

Yes, I agree with that.

That sort of supply chain people make a decision instead of operating people.

I know the operating people aren't happy about it.

It's one of those things that it's important in terms of Neptune, but once it gets to the Roper level it really gets -- not as material for sure.

It will be an impact for the first quarter and first half.

Great, thank you.

Matt Summerville, KeyBanc.

Just a couple questions.

Brian can you talk a little bit about later in the fourth quarter and into the first quarter the kind of order dynamics you're seeing in your shorter cycle businesses like Dynisco and you mentioned Struers equipment sales down.

Has that trend changed?

Well I'd say -- what's important about the fourth quarter -- it's a great question, Matt, is that we have three businesses.

Dynisco which is always supplying things which frequently have to do with capacity utilization.

Struers which is somewhat similar to that in terms of their consumables.

And then our core AMOT business.

Those three were leading indicators for us in Q4 of 2008 when you went into the '09 downturn, so we're looking at those things weekly.

In the fourth quarter they did better than the concern level you would have had.

So, we haven't really seen anything in those businesses yet that would indicate that there's any forward indicator.

And in fact, December shipments were stronger for the businesses than October and November, which resulted in us having a little bit more receivables at the end of the year than we would have liked to have had.

But it's the year-end stuff that happens frequently.

So, I don't think there's anything that makes us nervous.

In the case of the equipment, it wasn't core equipment that we provide out of Struers for cutting technology.

We have a line of hardness testers that we sell and they were off in the fourth quarter and forced their lower-margin products, so it wasn't overly material but it's something we're keeping our eye on.

Just one follow-up.

Can you just talk about what you're seeing out of Sunquest in terms of pro forma organic revenue growth versus kind of your expectation going into the deal?

Sure.

I mean, they continue to do extremely well.

We're seeing high-single digit organic growth out of that business and we would expect to see that continue into 2013 also.

Thanks, Brian, thanks, John.

Mark Douglass, Longbow Research.

Looking at the expectations of expanded EBITDA margins in 2013, can you help break down a little bit how much you expect in gross margin improvement versus operating expense growth?

It seems like a lot I think certainly some of it will come from Sunquest but can you break that down?

That would be helpful.

I really need to follow-up with you on that.

We do expect to see gross margin expansion along with operating margin expansion, both because our faster growing businesses are also our higher-margin businesses, on the software side as well as on medical and the impact from Sunquest so probably not quite as much on gross margin as we're expecting on EBITDA margin but both of them we expect to be up in '13.

Okay, and then on Neptune again, Brian, it's still been a pretty strong couple of years.

Is there any ramp down in sales and projects, outside of the significant one that you lost?

And what are the expectations for the industry?

And then with Neptune, relative to the industry in 2013, and do you expect more people to go maybe even shift to the composite?

Well, I think as far as the situation is we would get a disproportionate amount of new meters associated with housing starts.

So, as housing starts are picking up, so are our sales through distribution in the US water market.

So, we expect pretty decent growth there, certainly high-single digits, maybe more.

And so other people who have lower shares than we do are likely to get some corresponding benefit in their benefit in their business.

I think it's a generally favorable or more favorable market than it has been for replacement water meters and for just installs for (technical difficulty).

But when it comes to the rest of the world, that's an entirely different story and our products really don't play in anything other than high-pressure water market.

Composite meters, nobody has had great success with those over time.

We don't see any shift to that at all except in people who come in who don't know the industry, don't know the products and think everything is uniform because they're staff people, and they can do things that will be proven to be a mistake later so we're not really bothered by it.

It's not the first time we've lost a customer, only to get them back a little bit later when they realize that value is more important than price.

Okay, thank you.

Christopher Glynn, Oppenheimer.

Brian just apparent liquidity notwithstanding wondering how you're looking at the short- to long-term acquisition pipeline, how you're thinking about the range of scale and breadth and if you see any scenario where an amount of share issuance would be appropriate or warranted.

I think we're pretty reluctant to want to issue any equity.

I really just don't see the need for that.

The reason that we do acquisitions is because we have great free cash flow and when you lever that, I'd say 3 times debt to EBITDA the acquired company, you can really make a material difference in your growth rate.

It's kind of in the perpetuity growth rate of the enterprise and that's what we do.

We just think that's the best way to create shareholder value.

If we wanted to increase -- I mean, I don't know why we would issue equity unless it's the most incredible, spectacular thing of all-time, and we did that in December of 2003 when we acquired Neptune and didn't have a really a high quality public Company balance sheet.

We did it again in December of 2004 when we acquired Neptune.

Those acquisitions represented 4 times the trailing EBITDA of the Company for heaven sakes.

In terms of what we had to do, with trailing EBITDA with a run rate well in excess of $1 billion, we're not planning on a $4 billion deal tomorrow at noon.

So, I think we can be quite satisfied with $1 billion plus a year in acquisition growth so I don't think we would issue equity.

Thanks, and then the other one would be just if you go a little bit more into the bridge from the current orders rates to the EPS target for next year, very strong but had some backlog run-off in the second half.

We've gotten some color but if we could just dive into anymore qualitative around that?

Sure.

I think as we went through our not only the planning activity that we always do, but also the fourth-quarter operating reviews that we go through with each of our businesses.

We look not only at their -- what they actually did in the fourth quarter, but their projections for the first quarter and the rest of the year and what's in their backlog, what's in their pipeline of opportunities.

And as we went threw that we saw a number of things, both on the new product introduction side but also on the projects that are currently being bid and currently in front of us, not yet in backlog, to give us confidence that the second half of the year we'll see a higher organic growth rate than what we're going to see in the first half of the year.

I think that that's going to be weighted more toward -- probably RF will be a little bit stronger than Industrial for the full-year basis but overall we expect to see full-year organic growth in all four of our segments.

Great.

Thanks a lot.

Richard Eastman, Robert W Baird.

Yes, Brian, just a couple questions.

On the Energy Systems -- in the Energy Systems business, the book-to-bill in the fourth quarter was maybe a little bit softer than we typically see seasonally.

Has anything again maybe slowed there or is that just comparison issue?

And then within that, the Compressor Controls the acquisitions you made these smaller ones sounds like they're bringing software into Compressor Controls.

Is that the right way to think about that?

I mean are these companies bringing customers or are they bringing code, how do these small acquisitions expand the business?

Let's take the latter and then shift back to the nature of the business orders.

Sure.

Each one of them is a little different but United Controls brought with it a very significant engine manufacturer that we were not doing business with.

That gave us a customer benefit and it also gave us some application engineering capability with that business that supports what we do, so that was good.

It also gave us some improved regional activity in some parts of the world.

The Trinity Software is an entirely different concept where it has some breakthrough code to use your term.

It really had breakthrough technology, it's in its infancy and it's going to be in maybe high-single digit millions but it's the kind of thing that can move up quite dramatically over the next three years.

So we're investing a lot of time in bringing our business processes to that group of people.

Cambridge is not in Compressor Controls, it's in petroleum analyzer.

We have some if not the best equipment in the world in analyzing different things for refineries, but we don't have a lot of online capability and Cambridge brings us an opportunity to have online capability and software.

So, that's an important growth venue for us.

Now, on the sort of order flow and seasonality of the fourth quarter, John why don't you take that.

Yes, sure.

In terms of the fourth-quarter orders for Energy they were actually in line with what we had expected.

What we're seeing of course is with many of the projects that Compressor Controls has already completed and now it's moving into field service, it changes the timing of those orders.

It's more of a book and ship, or a book and maybe ship two or three months later when you recognize the revenue associated with the field service.

As opposed to their larger projects which oftentimes would distort is probably not the right word but would effect the book-to-bill ratio in fourth quarters of prior years.

The other areas that we normally look for and did see a seasonal benefits both on the instrument side for Alpha Technologies and also on our petroleum analyzer business once again providing software and algorithms and testing solutions for refineries.

We did see a seasonal uptick in the fourth quarter, but that was bolt-on revenue and orders.

So, that seasonal uptick really didn't change the book-to-bill ratio very much.

Okay, I understand and then just last question on the RF Tech -- in the RF Tech business, we talked about some pretty nice wins on the tolling and CBORD side.

This RF Tech is always a little difficult to model out given the timing and the size of these projects, but when you think about '13 and project out '13 in your forecast, can RF Tech have a double-digit growth year for '13?

It can.

I don't think that that's embedded in our guidance though.

Okay, can but we shouldn't time this out to the point where we get a --.

Yes, our expectation with respect to 3% to 5% organic growth for the year like I said earlier it's a little bit more heavily weighted, RF maybe above that but we're not ready to say that's going to be double digit yet.

Okay, fair enough, thank you.

Although for our internal people listening we expect you to move along those lines.

With better margin?

Great, thank you.

Alex Blanton, Clear Harbor Asset Management.

I'd like to just address the guidance that you announced, as you said it's 15.1% increase over last year.

If you adjust for the higher tax rate, it's about 17.5% increase, but that's less than the Company's long term average growth of 20%.

I don't want to seem ungrateful, but 17.5% is still pretty good.

It seems that some of that is in the first quarter because that guidance is only up 11% from last year.

Are you being too conservative here on looking at a weak economy?

Just exactly what are the assumptions behind the guidance, because it isn't as strong as for example, you did in 2012.

Is it possible that you're getting so big that you -- or your margins are getting so high that you can't get the same percentage increase in margins relative to the increase in sales that you've gotten in the past?

Could you address all of that?

Alex, I think one of the factors when you're looking at our previous years' growth rates of course those always include the not only what we do on an organic basis, but also the effects of acquisitions and our guidance for 2013 as it always does, excludes any acquisitions that we have not yet completed.

So I think that is probably is going to be one of the differences you see between our guidance and the actuals as they roll in.

Sunquest being an example of that, of course that added both accretive earnings but more importantly accretive cash flow to us for 2012.

And we would expect future acquisitions although they're never in our guidance to be accretive from a cash basis also.

Whether they're accretive on an earnings basis is always going to be dependent upon the accounting ramifications of amortization and other things.

Right.

Well, yes, and when they come in the year--

That's also true.

It's possible you could have accretive acquisitions that really wouldn't add to 2015 if they came late in the year.

That's true.

But could you address your economic assumptions and why the first quarter is only up 11%?

Because that would not include, I mean that wouldn't be because you haven't added an acquisition, the first-quarter guidance, because you don't have time to.

That is correct, so as we talked about a little bit earlier we do expect the organic sales growth to be higher in the second half based upon what we're seeing from a project pipeline and execution of our existing backlog.

Relative to the first quarter we also have in the first half a little bit of headwind associated with the Neptune customer that decided not to renew.

So, those are things that we're seeing a little bit tougher comp against last year where we had 8% organic growth in the first quarter of last year, and it's a little bit of a tougher comp versus what we see for Q2, 3, and 4 as we go forward.

Okay, and then a follow-up.

Why is the tax rate up?

Well, Sunquest, as a US-based company, generates most of their earnings in the United States which is the highest tax rate in the world and so those earnings come in at a marginal tax rate of probably 38% to 39%.

It's just normal other normal tax planning activities which is probably -- definitely the smaller portion of the increase that we expect for '13.

We definitely need corporate tax reform, thanks.

I wouldn't say protection, I'd just say a level playing field.

Thank you.

That does conclude today's question and answer session for this call.

I will now turn the call back to John Humphrey for any closing remarks.

Okay, thank you all for joining us and we look forward to talking to you as we finish our first quarter.

That concludes today's conference.

We appreciate your participation.

You may now disconnect.