Roper Technologies Inc (ROP) 2013 Q4 法說會逐字稿

The Roper Industries fourth quarter 2013 financial results conference call will now begin.

I would now like to turn the conference over to Mr. John Humphrey, Chief Financial Officer.

Please go ahead.

All right, Mary, and thank you all for joining us this morning as we discuss the results of our fourth quarter.

Joining me this morning is Brian Jellison, Chairman, President and Chief Executive Officer, Paul Soni, Vice President and Controller, and Rob Crisci, DIrector of Planning and Investor Relations.

Earlier this morning, we issued a press release announcing our 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 on our website at www.roperind.com.

After you 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 the risks and uncertainties as described on this page, and as further detailed in our SEC filings.

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

Now, if you would please turn to slide 3, today we will be discussing our fourth quarter results on a GAAP basis.

Results from prior periods are presented on an adjusted basis for comparison purposes, primarily related to revenue recognition around our Sunquest and MHA acquisitions.

Reconciliations between these prior periods GAAP and adjusted results are included in this presentation as attachments.

Now if you will please turn to the next slide, I will turn the call over to Brian Jellison, Chairman, President and Chief Executive Officer, and after his remarks, we will take questions from our participants.

Brian?

Thank you, John.

Good morning, everyone.

Let me start here with sort of an overview.

I will give you a fourth quarter enterprise financial result discussion, and then look at the segment detail that happened in the quarter and what the implications are for 2014, and then close out with the Q1 guidance and the 2014 guidance with what is going on.

We have some tax headwinds in 2014 we will talk about that.

You will find our guidance a lot more robust than some early notes indicated.

All right.

So we have the Q4 results.

Next slide.

If you will look at enterprise financial results, we had a record across-the-board for any quarter in the history again.

We achieved record orders, record backlog, record revenue, record net earnings, record EBITDA, and the orders as we will talk about were really terrific.

$900 million in orders, $889 million in revenue with a book-to-bill of 1.01.

Gross margins hit 60% in that quarter.

Wow, 60%, up 210 basis points.

EBITDA was up 12% to $307 million in the quarter.

Our EBITDA margin was up 80 bps to 34.5%, and an EBITDA margin of 34.5% is really another example of Roper's transformation that has occurred over the last several years.

Our DEPS were up 11% to $1.65 in the quarter above our guidance, and our operating cash flow was up 11% to $236 million, getting dangerously close to a $1 billion run rate there.

We are very well-positioned as a result of this quarter for 2014.

So it is really a great momentum item for us, as we move ahead.

Next slide.

On the fourth quarter income statement here you can see orders were up 16%, 10% organic orders, while double-digit organic growth is a phrase that we haven't heard for a long time.

Revenue was up 9%, with organic 4%.

Gross profit was up 210 basis points from 57.9% to 60%.

Operating margin came up from 28.3% to 29% or 70 bps.

Interest expense was about the same.

Tax rate was a 10 bp headwind in the quarter, but not really material.

And net earnings then came in at $166 million versus $147 million in the corresponding quarter, up 11%.

Next slide.

If we look at the EBITDA growth and margin expansion, we want to point attention to the fact that just three years ago, our trailing 12-month EBITDA was $638 million, and we closed out this year with a $1.074 billion.

So EBITDA in the last three years is up 68%.

And our EBITDA margin in 2010 was 26.7%, and people were always challenging us about whether we would be able to hold on to this margin.

So fortunately, we were able to improve them dramatically.

So we picked up 610 basis points in our EBITDA margin to hit 32.8%.

That is kind of an internal interesting number for us, because the S&P 500 industrials, I believe, had gross margins of 32%, and we now are at EBITDA margin for the entire year of 32.8%, and our EBITDA leverage from 2010 to 2013 was about 49% over those three years.

Next slide.

We look at the cash flow results.

You can see cash flow reached $803 million.

We had guided to over $800 million as you may remember.

Cash flow was up 61% in the last three years.

And in fact, just in the 2011, 2012 and 2013 period, we have generated $2.1 billion in operating cash flow, which really was nearly enough to fund both the Sunquest and MHA acquisitions for $2.4 billion in that period.

Our cash flow profile, when you think about going forward, you can kind of trend that out.

We are going to tell you later that we think we will have cash conversion numbers that are somewhat similar to the ones you see here.

You multiply that against your earnings assumption, and you can see there is going to be a whole lot of money and cash here for us to invest.

In the fourth quarter, the operating cash flow was 142% conversion there over net earnings, and our free cash flow of $227 million gave us cash conversion, free cash conversion of 137%.

Next slide.

If we look at the balance sheet here at the end of the year, cash was up from $371 million to $460 million, a lot of that is outside the US.

Undrawn revolver, you put the two together, and our cash and undrawn revolver was a $1.7 billion at the end of the year, almost the same as it was a year ago at a $1.771 billion, even though we spent and invested over a $1 billion in acquisitions.

You can see the trailing 12-month EBITDA goes up to $1.074 billion from $925 million.

So the gross debt to EBITDA is 2.3.

Net debt to EBITDA is 1.9, and of course, we intend continue to drive cash immediately this year.

Next slide.

Here, we will take a look at the various elements of the different segments, so next slide.

First is -- and these are just listed in an array of smallest to highest revenue.

The Energy Systems and Control segment, their organic orders in the quarter were up 14%.

So that was pretty spectacular.

Organic revenue was up 3%.

We had a lot of strength in compressor controls, and actually some renewed strength in our petroleum analyzer control unit, which has several different instrumentation businesses in it.

We did a small acquisition that we announced the last time, called Advanced Sensors, which is an offshore play on communicating information about the wellhead activity.

And it's a small business, but it's very attractive for future growth, and Zetec actually corrected itself.

So it was as weak as we expected, but they had orders that tell us that really the worst is behind us in that business, and that order flow in the fourth quarter will continue nicely into 2014, we believe.

If you look here at the 2014 orientation, we are saying we ended the year with a record backlog, so that certainly helps the momentum for energy going into 2014.

We see a lot of continued strength, both in LNG and refinery applications for our businesses that focus on that.

We think we will have modest increases in some of the oil and gas markets, which help some of the other businesses in energy, and the nuclear activity headwinds are behind us.

So that is an easy comp for 2014 performance, and we are confident that this segment as a whole, will have record performance in 2014.

Next slide.

We look here at Industrial Technology.

Orders were up 3%, really spectacular operating performance for these businesses collectively.

The EBITDA margin these guys generated in the fourth quarter was 32.2%, and these are industrial businesses.

So the 32.2% is pretty great, and gross margins for these businesses were at 51.2%.

So they still are very unique in the industrial world.

We celebrated Neptune's 10th anniversary in December, very proud to say that it has certainly been one of our more incredible acquisitions over the years.

Ten years into it, the leadership team is still in place with the exception of one retirement, and looking up, we have generated about $3 billion in revenue during that 10-year period with Neptune at very, very attractive margins.

We saw improvement in our material analysis business at Struers in Denmark.

They are actually much improved in Europe, and doing pretty well everywhere as global industrial production picks up.

Our Cornell business continues to capture new customers and had a very strong quarter around orders, given rental companies picking up once again, and applications for dewatering pumps and irrigation, and the oil and gas activity which affects Roper pump remained pretty soft in the quarter.

As we look at this current year of 2014, Neptune continues to benefit for the Toronto project, and we expect some growth still out of US home building, which pretty much gives us incremental growth, because we have a high percentage share of the installed base in North America.

And as people build homes, they tend to use the same water meter that is already in that area.

Roper pumps, large diameter directional facility is actually up.

It is going to ship its first product this -- in the next two weeks.

We are visiting it as a kickoff thing here in about two weeks.

So they expect a much stronger year in 2014 than they just came off in 2013, so, half the capacity for these larger diameter directional drilling outfits that they are putting in place.

We had modest growth in industrial production which continues to support the material analysis side of our business, and the cash flow in these businesses we expect to continue to be remarkable.

I mean, these businesses collectively, and the way we measure cash return on investment are up about 50%.

Typical industrial business is around 18% to 25%.

So they are a wonderful group of businesses.

Next slide.

In RF technology, you can see orders were up 11%, revenue is up 13%, and operating profit is up 23%.

We indicated before we thought it would be a strength in the fourth quarter.

It certainly was.

Project activity continues pretty much as we expected around Texas and Virginia and Florida.

The software businesses all had relatively good quarters with kind of mid single-digit growth on the revenue side for them, which is pretty good because of all of the recurring business they have inside their platforms.

Continued strength in the product side of radio frequency products, and some strong growth in our UK water business.

For next year, we enter -- in the case of TransCore with an absolute record backlog and strong product -- project pipeline.

One of the things that is neat again is, we will be celebrating TransCore's 10th anniversary in December of this year.

Like Neptune, 10 years after it, we got the margins up, the growth sorted out, and we will probably complete about $5 billion in revenue during that 10-year period.

So those have been two really spectacular acquisitions with longevity.

Same story here, other than for a couple retirements, the leadership team is in place.

We got George McGraw, and Kelly Gorrell, and Tracy Marks, and Joe Grabias, and a very strong leadership team.

The next point here is modest increases in the UK gas and water utility business, that it is better than 2013 was.

It is going to help our Technology business in the UK a bit.

And then the software businesses all continue to see sort of mid single-digit growth.

They do have exceptional margins.

And it is important I think to point out with the kind of cash margins they have, that they really drive our overall enterprise growth quite substantially, because they support so much of the acquisition investments we could make with the cash these people generate.

Next slide.

Medical and Scientific Imaging here, is -- just again, sort of long time since we have been able to say what we have at the beginning of this slide, that the imaging orders were up double-digits.

It is not a misprint, they actually were up double-digit.

Organic orders in the overall segment were up 12%.

Organic revenue was down just a little bit, with the strength in medical offset by the revenue decline in imaging.

But the order situation will remedy that, as we go into 2014.

Sunquest had very strong orders.

Their implementation capacity continues to improve, which is going to help us a lot in 2014.

Demand is still high, with people trying to get in front of the Meaningful Use requirements.

MHA was very strong across all of the alternate site healthcare locations, with long-term pharmacy being out in front.

We are seeing a lot of potential acquisitions in the MHA space.

We have spent most of the second half of this year working with MHA on various acquisition opportunities, and haven't closed on any.

But they, there are certainly a lot of exciting things to do out there.

In 2014, we expect imaging to improve with modest growth and easier comps, which will make the overall segment easier to talk about.

Double-digit revenue growth at Sunquest.

We have got record backlog now, and as we can continue to implement and build capacity given a strong sales pipeline, we think we will really outperform pretty dramatically with Sunquest.

Verathon is going to pick up in 2014 from a flattish year.

This year, they have got new and enhanced products, dramatically better quality processes that allow us to differentiate our products a little bit better, and we got a lot of confidence in the management team.

We brought a new leader in there in the second half of last year, and we have got really quite a fine group of people.

And we have structured that business around product lines now, so people will have P&L responsibilities at lower levels in the organization, which is always good.

MHA growth continues with new customer additions, and very favorable market conditions.

I think as confident as Mike and his team are around that it, the growth has been really quite spectacular.

Next slide.

So here we get into the guidance arena, next slide.

So for 2014 guidance, the full year we establish at $6.05 to $6.25.

Our assumption is that revenue would be up 6% to 9% in 2014, and organic revenue would be up somewhere between 4% and7%.

Pretty much all the businesses are up mid single-digits, but we have double-digit growth at both Sunquest and MHA that will move us up to the higher end of that range hopefully.

Operating profit leverage, we are assuming is going to be around 35% to 40% next year for that new revenue.

But we do have a headwind that is quite an issue, with tax.

So you have got the tax rate, it looks like it's going to come in between 31% to 31.5% versus 29%.

If we just look at last year's results, that is a $0.20 headwind on tax.

So if you look at $6.05 to $6.25 and common-sized it with the tax rate of the prior year, that would be $6.25 to $6.45.

But we can't tell you $6.25 to $ 6.45, because we're going to pay $0.20 more tax.

So it is $6.05 to $6.25, folks.

Foreign exchange is assumed to be the same as it was on 12/31.

Diluted share count is about 101 million, and first quarter guidance, we are coming in at $1.30 to $1.35.

That gives us sort of linearity in the year that is consistent with normalized stuff in the past.

Last year in the first quarter, we had a very, very low tax rate and we will have a more normalized tax rate in the first quarter this year.

You know about the R&D expenses and various things John can talk about.

Okay, next slide.

We go to the 2013 summary.

Certainly, one of the most important things is acquiring a new growth platform in MHA, which is creating a lot of opportunities for us, and it is another $1 billion addition to the continuing transformation of the Company that we feel very good and confident about.

We achieved record annual results for the enterprise, just across-the-board orders, backlog, revenue, net earnings, EBITDA, operating and free cash flow.

For the year, orders were up 13%, revenue was up 9%, gross margin was up 260 basis points to 58.6% for the year.

Operating margin was up 130 basis points to 27%.

Our EBITDA was up $148 million to a $1.074 billion, and EBITDA margin was up 200 basis points to 32.8%.

We had record cash flow performance.

Operating cash flow for the year was $803 million which is 25% of revenue.

Now usually when we tell people that, they look at you like, well, that can't be right, no.

Well, it is.

Operating cash flow is 25% of revenue.

Free cash flow of $760 million.

That represents a cash conversion of 141%.

And while, we think about cash flow guidance for 2014, I think our view would be that our cash conversion on operating cash flow should be somewhere around 140%.

So you can take that 140% conversion on whatever earnings number you think we have, and that gives you a pretty good idea of how we are starting out on our cash flow assumptions for 2014.

So we thought it was a great year.

Our operating people really outperformed.

Had some very unusual headwinds that are all gone and behind us, and our transformation is certainly on track, and we are looking forward to 2014.

So with that, we can open up for questions.

Thank you.

We will take our first question from Joe Ritchie with Goldman Sachs.

Hello, good morning, everyone.

Good morning, Joe.

So for my first question is -- well, first, nice quarter, and my first question is really relating to the guidance on the incremental margins.

It seems like the 35% to 40% is slightly lighter than what we have seen in recent years, and yet you have continued to acquire software related asset-light businesses that have higher margins.

I would have thought the margins would have been a little bit higher, so there seems to be a touch of conservativeness there.

Can you comment on the incremental that you are expecting, and why 35% to 40% is the right number?

Well, in the fourth quarter, I think it ran 37% for operating leverage.

There is a lot of amortization and these are non-cash.

And so, I think John can kind of walk you through the forward model, but we may be conservative.

I hope we are conservative, but it is what it is.

I think I am still flummoxed by the tax rate, because we have got Sunquest and MHA which are our fastest growing business paying sort of 40% tax so.

All right, John.

Go ahead.

So it is true that Sunquest and MHA are our fastest growing business, but as you know their revenue base isn't all that large.

So on a fee basis, there, - it is definitely nice, and of course, on a cash basis it's even better.

But we also do expect to have growth across the enterprise, not just in our software businesses.

So we are expecting to see continued growth in our RF segment, particularly in the first half as we complete some of the projects that we have going on.

Of course, the project revenue comes in a little lighter than some of our product revenue and definitely lighter than our software revenue.

But I think that the 35% to 40% is kind of right down the middle, with respect to kind of what we have been able to demonstrate, and what we see as far as the backlog and the growth, and where it's coming from for 2014.

Okay, fair enough, and I guess one follow-up question.

Perhaps Brian you can comment on the acquisition pipeline.

Clearly, it is an important part of the story.

It seems like you are well-positioned in the first half of the year to do another large acquisition.

And so, perhaps you can just comment on what you are seeing in the pipeline today, and what your thoughts on the market are?

The -- there is a -- everything is for sale at the moment.

I don't think I have ever seen as many properties that are for sale.

Also I have never seen private equity as aggressive as they are on pricing.

I mean, they are still getting 7, 7.5 times DEPS staples on everything out there, and they put in a little bit of equity, and it winds up with pretty high stuff.

We remain really disciplined.

I think that we will do, we would expect to do a large acquisition in 2014.

I mean, we never have a timeline established about whether that is any particular point in time.

But we are sitting here with a net debt to EBITDA like 1.9., and we are already going to generate what, $800 million or $900 million or more of new cash.

So we are very well-positioned to be able to do a $1 billion plus type acquisition.

The -- in the last several months, we have actually looked at a number of things that we thought would be call it, $400 million to $600 million arena, but it is remarkable what some people have paid.

I mean, we walked away from two deals, one that looked attractive, but somebody paid 22 times trailing for it, and the other one, somebody paid 23 times trailing.

I don't think that is a new kind of standard, but it just shows you the kind of assets we are looking at are highly, highly sought after.

So they have always have to fit through this perfect hole we have.

So the management team needs to want to be part of Roper, and we need that management team to -- we want to have them be part of Roper.

We have looked at a couple very large transactions, larger than we have done previously, and I wouldn't rule that out.

So I think the pipeline is more than adequate.

It is a more competitive process than it has been for a long time, and as long as high yield debt is, in our view misspriced, that is going to be a headwind for everybody.

Okay, thanks, Brian and John.

I will get back in queue.

Okay.

We will take our next question from Deane Dray with Citi Research.

Thank you.

Good morning, everyone.

Good morning, Dean.

Brian, I think you may have answered this question, and I would like to hear some specifics from John, but the issue with the tax coming up.

You said, I believe it was the Sunquest and MHA being taxed at a 40%.

So was it a mix issue that is driving the higher tax rate, and is there any opportunity for any other tax strategies throughout the year?

So the second part first, yes, there are always things that we are looking at, nothing we've baked into the guidance for 2014 yet.

Let's kind of break down the increase in the tax rate.

About half of it -- so with going from 29% up to call it, 31% to 31.5% range, about half of that increase is just changes in US tax law, which is the R&D tax credit not being extended into 2014.

And combined with last year, we had the benefit of not only 2013 but also 2012 for R&D tax credit, and a variety of other things that were extended on January 1 of 2013 so they rolled into 2013 instead of being in 2012.

So that is about half of the increase.

We did have some tax planning initiatives that benefited 2013, that are not expected to continue, and the rest of it is the mix that Brian was talking about.

We are just growing faster in the US, and that is where we expect to see the growth coming from in 2014.

And marginal tax rate in the US approaches 40%, and so that pushes our tax rate up a little bit also.

Now we have things that we are looking at.

We have projects that we are evaluating and ways to -- obviously always in compliance with the law, but to be able to minimize taxes wherever we can, and we will update you as some of those are successful.

Great.

And then, over on the businesses, the two areas that have been softest in past couple quarters, Zetec and imaging both sounded a bit better.

And maybe take us through the next level of detail on Zetec, what were the orders in the quarter, and has there been any pricing give back, as you try to reload the backlog for this business?

Well, not for Zetec.

I mean, it is -- a lot of Zetec is service work, and the rest are probes that are used and those are reasonable margin business [things] anyway.

It is just that we had things that were going to start up that didn't, of course that really caused us to change our view in the third quarter.

Orders came back stronger than we expected even though they are kind of flattish, but they aren't going down, and we had a one-time large thing that happened in the fourth quarter with Zetec.

So to be able to recover from that which was a sale in the prior year of some assets, it was a big deal.

On the imaging front, the orders being up 12%, was a pleasant surprise.

So a lot of things changed about the government investments, and what is going to happen in academic research, and changes within NIH, and more funding perhaps in 2014, it's hard to say.

But all those businesses appear to be past their worst performance pattern.

We have made a couple of people changes inside those businesses that hopefully are paying off already, so we will see.

But it should not be a drag on 2014.

Great.

Thank you.

You're welcome.

We will take our next question from Matt Summerville with KeyBanc.

Good morning, Brian.

Out of the $3.3 billion or so in revenue you did in 2013, how much of that would you say is from -- in two buckets, software plus SaaS in one bucket, and then other recurring revenue sources in the other?

Well, software, the -- (Laughter) -- I have to find it in the question -- I mean, if you look at the application software businesses, I always -- l put TransCore into this activity.

Because all of the ITS stuff, is just like we had a press release, we announced that we are doing special traffic analytics, and controlling all of the red lights in the huge area around Sunday's Super Bowl.

I mean, you can't do that without software.

Now there is human involvement too.

So you are not making a disc and sending it out but it is application software, and ITS is probably our higher dollar revenue business.

So I tend to include it in there, John, hence did not include it in there.

So it depends who you ask, but as far as I am concerned.

I think you asked Brian, so he will give the answer.

(Laughter).

If we look at just like the SaaS business as a pure software business, we get more than a fourth of the Company's EBITDA out of that.

But in reality, you really look at all of our application software businesses -- compressor controls, for instance, is an application software business.

It would be much closer to half or more of the total family of activity.

Here -- what -- you didn't ask, but it is a more interesting thing.

We have been looking at these [GICS] codes for a variety of reasons, and we have a GICS code established, which is electronic components -- electrical components.

So we looked at that.

We don't have a single Roper business in that category, not one.

So, Forrest ranking them, our biggest area is application software, our next biggest area is healthcare systems, and our next biggest area is healthcare products.

And then, sort of an equivalent thing around electronic instrumentation, that would be more like the adjunct type of activity, and not much of that goes into industrial activity.

And then, we have got about somewhere between 11% and 13% that goes into energy equipment, because really our fluid handling businesses are much more oriented around energy activity, and particularly with fracking now than they used to be.

And so, the core industrial concept of making stuff for OEMs or making a industrial product is less than 5% of the enterprise now.

And then, just one easy follow up.

John, there was a little bit of a spike in corporate expense in the fourth quarter.

Is that sort of the run rate to think about, or did you have a couple million of M&A related expense in there?

And so, I would probably say yes to both of those things.

Got it, okay.

We will always be looking at some level of acquisitions -- like that is a part of our normal ongoing corporate activity.

It will go up and down though, so it may not always hit in every single quarter.

So I think building that in on an annual basis is fine, but being able to predict when that is going to happen on a quarterly basis is not quite as easy.

Now also a piece of the growth on a year-over-year basis, more so than on a sequential basis is the increase in our stock price, and the associated increase in equity expense associated with that.

Got it.

We hope to continue that as well.

Exactly.

Thanks.

We will take our next question from Steve Tusa with JPMorgan.

Hello, thanks, good morning.

Good morning, Steve.

Just thinking about the kind of sequential dynamics, and what happens seasonally here.

You had a pretty weak first quarter last year on organic, down 3[%].

There is lumpy businesses in your portfolio, at least with last year and since 2013, there were a few lumpy ones.

How do we think about the kind of organic growth dynamics in the first quarter or the first half versus the second half?

I would assume that with an easy comp, the first half would be at the higher end of the range?

Well, I mean, it is a good question.

The -- last year, Q1 was negative organic of 3% on orders, and Q2 was plus 1%, and Q3 was plus 3%, and Q4 was plus 4%.

So I think we view our organic ought to be in this 4% to 7% throughout the year.

It's plus or minus 5% every quarter, so we don't see a massive trend change.

We do have, we should have a decent first quarter with some of the project work that we are doing.

So I don't think there is a huge seasonality variance there, versus whatever seasonality we have, we would expect it to be up 5%, 6%, 7% quarter-over-quarter throughout the year.

Okay.

So the easy comp doesn't help you.

You are kind of -- you are not going to be at the high end, or above the high end of that range in the first quarter despite the easy comp?

Yes, I think that is true.

So, look, let's think about that easy comp for a second.

So that easy comp really was our Neptune business, which had a lost customer.

So it showed the decline, particularly in the first two or three quarters last year.

So we do expect industrial to be very good against a relatively easy comp in the first quarter.

Other parts of our enterprise, particularly as we are building capacity around implementations at Sunquest, introduction of a couple new products at Verathon, as well as continuing to build momentum in the project work in our energy systems business, particularly in the CCC application software business.

So those areas are probably a little bit more toward the back end.

So we have the easier comp on the industrial in the first half, but more of a ramp up that we see towards the back end on energy and medical, specifically.

Okay.

So that kind of balances out.

One last, just to follow-up, any mix considerations either positive or negative from the moving parts of this year on an organic basis?

Better margin or worst margin businesses coming back?

I mean, margins are remarkably similar, other than the pure software businesses.

I mean, they are all pretty good.

It is like EBITDA in the industrial is 32%, right?

So the lower margin business would be imaging, which is a relatively small part of the total.

But you are still looking at mid 20%s in imaging.

So as things grow -- the big issue with mix is if we have done, instead of software or hardware applications and radio frequency with TransCore, you get into design issues and some actual human labor in getting things installed which is all bad margin business, but it is sort of part of the price you pay for the total.

So some of those are really teens type margins, and others would be Roper type margins.

Sorry, one last very quick one.

Looking back at 2013, it was obviously a little more choppy than a lot of us would have expected, especially from you.

Does that change -- has that changed your view at all on -- let's kind of get back on the horse here, and so let's kind of set an appropriate, be a little more appropriate in setting the targets this year?

Or you kind of view 2013 as really a non-issue, and just when thinking about kind of setting expectations for the -- for 2014?

Well, 2013 had these three unusual things.

And so, we had the customer issue at Neptune, that non-recurring multi-year contract, and we have gotten through that, so it's no longer a negative.

So that helps organic for this next year.

We had Zetec, which was a second half of the year negative that was impossible to predict.

That -- it can't get worse literally, so we are in pretty good shape there.

And then, we had a vendor issue in the second quarter, which we have never had in the time that I have been here, and that is behind us.

We have eaten that.

So that will, on a GAAP basis, I think we are going to look quite strong in 2014 versus 2013.

I -- we are -- we kind of had most of our business reviews for 2014, and I think we all walk away feeling like there is a lot of optimism in the field.

But I don't -- our guidance is conservative because of this $0.20 tax hit there.

Right?

So $6.05 to $6.25 is the equivalent of $6.45.

So it's the tax that is causing us the angst going into 2014.

Okay, great.

Thanks a lot.

We will take our next question from Jeff Sprague with Vertical Research.

Thank you.

Good morning, everyone.

Good morning, Jeff.

Good morning.

Congratulations on the 10th year anniversary on those big businesses.

I was also wondering though, that is often kind of a cliff point for some level of amortization.

Is there a significant inflection down in amortization in, either or both of those businesses here in 2014?

Jeff, there is -- no, not really.

Most of the amortization associated with those things is, -- that was kind of either customer related or technology related that was amortizing has already rolled off.

We have a modest amount that will give us a slight pick up at the Neptune business, but not very much.

Okay, thanks.

And I was just wondering, Brian, just when you look across the healthcare businesses here, as we are just kind of in the teeth of Obamacare rolling out and kind of all of this various uncertainty.

Is there any -- obviously, you have the order pick up in the imaging businesses, but is there any discernible change in the behavior in the marketplace you are seeing from your customers, or through the supply chain or anything?

Vitriol has gone up, customers are, the gentleman you mentioned, the healthcare program, but for business, it doesn't really affect us that much.

I mean, our products are all going into situations that are not Affordable Care Act-driven behaviors.

And Sunquest situation is an enabling technology for compliance with regulations, in addition to helping hospitals run better.

So actually, we are not really seeing anything there.

We had the Medicare tax or the cost taxes (multiple speakers) products, but we tried to keep that neutral inside the business, which has been a little bit challenging, but generally come out okay.

So I don't really think there is anything -- if something changes with us in the next two years, it shouldn't really have a positive or negative affect on our results.

And then finally, on the Zetec, maybe isn't worth two questions on a conference call, but the outlook there?

Do you see anything coming out of Japan?

Obviously, there is a lot of debate about whether they start the nukes or not.

Is that any part of your view of the business there, and how significant could that be?

You got to -- this is a really small business.

I mean, this business is well under $100 million in total revenue, and half of it is sensors that get used in different kind of stuff.

So it -- there is very little materiality in that.

It really is just -- I don't think there is much that would happen globally, that would have any material effect on Roper in any way around Zetec.

This year, for the full year, it certainly pulled down the energy segment quite a bit.

But Zetec is less than 10% of the energy segment, and half of it is really sensors that could be used in all kinds of other industrial activity, and half or 60% of nuclear.

So it's just not material.

Okay, great.

Thank you very much.

You're welcome.

We will take our next question from Christopher Glynn with Oppenheimer.

Thanks, good morning.

Good morning.

So Brian, you did the walk by the quarters for Steve on how the organic growth range transpires through the year.

I was wondering if we could do that walk by the segments, how they stack up against one another?

Yes, so I can do that for you.

In general, our expectation is for about the same amount of full year growth out of each of the segments, but a little more out of medical and scientific imaging.

And so it -- from that standpoint, medical and scientific was, because of obviously the backlog at Sunquest, the continued growth there around compliance with some of the regulations, and as people are just wanting to have upgrades and better functionality.

And so, I don't want to put too much on to the regulation.

It is also about increased functionality.

And so, we see that, plus the continued growth on the MHA side as new product introductions.

So we do expect more growth out of medical, than we would see out of the other three, and the other three are about the same.

Okay.

Interesting that -- to hear that industrial tech would be grouped in as about the same.

That is encouraging.

And then on RF, you have had four quarters in a row now with record operating margin.

Just wonder if you could put a little narrative behind that.

Do you still see kind of runway in that segment in the margin performance?

And I am sorry, Chris, what segment was that?

RF.

Okay.

(multiple speakers).

It -- so once again, with our expectation around leverage of being somewhere between 35% and 40%, that gives continued opportunity for margin expansion.

Now that is not necessarily true for every single business.

Right?

Some of our businesses are operating at 60% plus margins.

We are not looking for margin expansion there, we are looking for more growth.

But for those businesses, they are operating a little below our average.

As they continue to grow, they bring the margin profile up accordingly.

And that is really where we see most of the opportunity on the leverage and margin expansion side.

Great.

Thanks for the help.

You're welcome.

We will take our next question from Mark Douglass with Longbow Research.

Hello, good morning, gentlemen.

Hello there.

Looking at the double-digit orders growth in medical and imaging, I think you have probably already answered this, but how is that playing out in sales?

Are a lot of those orders going to come in first half, or is it pretty even throughout the year?

Well, in -- as it relates to Sunquest, they are continuing to build capacity, human capacity to help people with their implementations.

And so, those implementation things are directly related to how quick the client can get it installed.

So they are less time-sensitive, as opposed say it has got to get done within a year types of projects, because it certainly involves manpower in the hospital.

It involves manpower in us, and we have been building those teams very, very fast.

So I think if the clients are ready to start implementing off those orders, this is a year we will have double-digit revenue growth, and order growth may or may not reach that.

So the backlog is really what provides so much safety around Sunquest's double-digit growth this year.

So would you say, as your portfolio has shifted with the increased number of software companies -- it sure seems like maybe in the past, you had been more of a book and ship on the orders, that it is fair to say your orders are lumpier, but sales are still relatively even -- that fair to say?

Yes, we were looking at that, preparing for the call.

I mean, we have already entered the year with about a third of the full year backlog accomplished.

So you would still have to book and ship two-thirds of the full year's guidance on the revenue within the year itself.

We do have a lot more recurring revenue.

So what we don't report on -- we only report orders, if they are going to ship within a 12 month period.

So there is a lot of backlog that we never identify as backlog, until the cycle has come up for the year.

So we know there is a lot of recurring revenue, particularly in radio frequency and in medical.

So the book and ship is more around industrial and energy.

And in the application software side of the business in energy, we can look very easily at six months out, maybe even eight months out.

So it is the rest of those business which are maybe 35% of the enterprise that are book and ship within a quarter.

Okay, thank you.

You're welcome.

We will take our next question from Richard Eastman with Robert W. Baird.

Hello, just a couple things, and good morning, Brian and John and Rob.

Hello, good morning.

Just a couple things.

On the industrial tech side, I presume given your segment kind of walk up on the growth rate, John, you are kind of expecting industrial tech to grow maybe at the 4% number, maybe the lower end?

And I am just curious within that business, is it kind of a macro expectation?

I mean, obviously, we have all seen industrial production numbers kind of trending higher.

That is kind of the material side of the business.

Is it mainly just a macro driver there, home starts, IP, for that industrial tech business?

So for those two portions, yes.

The fluid handling portion is not as much macro, as it is specific around oil and gas and some new product introductions, and expansion of our own capacity, in order to meet the customer demand that has been there for awhile.

So I think it is more in our control on the fluid handling side, more on the industrial production and housing starts at the margin, for the Neptune and instrument side.

And your guys in the fields kind of expect that front-end O&G business to be healthier for 2014?

Modestly, particularly around directional drilling.

Not as much around rig count increase, but around feet drilled, and the horizontal drilling.

And that is really where more of our applications are going, whether that is on the water side for Cornell, or it is on the actual power section side for Roper pumps.

Okay.

And then just, within the energy business, when I look at the gross margin which was fantastic, now for not just the quarter but for the full year, does that continue to have an upward bias, given that more of that is compressor controls, software applications, is -- should we just continue to expect that to see -- drift higher, the gross margin there?

Well, the fourth quarter is always the best margin performance for our energy segment.

Particularly as instruments are sold, we still have some customer buying behavior which is more year-end budget consumption activity, where they were trying to make sure they use all of what was budgeted for the year.

So the fourth quarter is always disproportionately high, in terms of instrument sales, and the volume associated with that helps the gross margin as well.

Even though we don't have a lot of factories, we do get a little bit of absorption benefit as the volume goes up.

So that is really what is driving that margin expansion.

In addition, to just some of the new products that are being introduced are a little bit higher margin than the things they are replacing.

But I would say, that is incremental growth on the gross margin side, and the operating leverage that we get from that growth is going to drive the bottom line performance.

Okay, all right, and just the last question.

John, could you provide us the GAAP EBIT contribution for MHA in the fourth quarter, either in dollars or percent?

It is somewhere -- there is really no difference on a GAAP and non-GAAP basis for MHA at this point.

I think we disclosed when we acquired the business that it was a very healthy margin, kind of two times the Company average on EBITDA basis.

I will have to get back with you on exactly how much of the amortization is associated with that.

But I think you can probably get there, just in terms of the change in amortization from Q2 to Q3.

But we will follow-up with you on that specific question.

Okay.

Very good.

Thank you again.

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

We would now turn the call back over to Mr. John Humphrey for any closing remarks.

All right.

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

We look forward to talking to you in another three months.

That does conclude today's conference.

We thank you for your participation.