Roper Technologies Inc (ROP) 2017 Q4 法說會逐字稿

Welcome to the Roper Technologies Fourth Quarter 2017 Financial Results Conference Call will now begin.

Please note today's call is being recorded.

I will now turn the call over to Zack Moxcey, Vice President of Investor Relations.

Thank you, Jim, and thank you all for joining us this morning as we discuss the fourth quarter and full year financial results for Roper Technologies.

Joining me on the call this morning are Brian Jellison, Chairman, President and Chief Executive Officer; Rob Crisci, Vice President and Chief Financial Officer; Neil Hunn, Executive Vice President; Jason Conley, Vice President and Controller; and Shannon O'Callaghan, Vice President of Finance.

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

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

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

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 make forward-looking statements which are subject to 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.

And now please turn to Slide 3. Today, we will discuss our results for the fourth quarter and year primarily on an adjusted non-GAAP basis.

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

For the fourth quarter, the difference between our GAAP results and adjusted results consists of the following items on a pretax basis: a $215 million one-time net gain resulting from the Tax Cuts and Jobs Act; a $73 million adjustment for amortization of acquisition-related intangible assets; and lastly, an $8 million purchase accounting adjustment to acquire deferred revenue relating to software acquisitions; and $1 million of related commission expense.

This represents revenue and commissions that those companies would have recognized, if not for our acquisition.

And now, if you'll please turn to Slide 4, I'll hand the call over to Brian.

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

Brian?

Thank you, Zack, and good morning, everybody.

So we have sort of 4 categories here.

We'll look at the Q4 and full year 2017 financial results, and we'll look at the 2017 segment detail and how it sets us up for our 2018 segment outlook.

You'll see throughout the discussion, once we get into the segments, that the segments have really changed pretty dramatically over last several years.

They've become much more diverse, which creates some opportunity for us that we're going to try to exploit here shortly.

In 2018, we'll show you the enterprise guidance for the year and then take your questions.

So next slide.

If we look at the quarter, it really was a terrific quarter.

We had record results on revenue, net earnings, EBITDA and cash flow.

Cash conversion was spectacular.

Revenue was up 21%.

We had organic 5% growth in the fourth quarter, which was similar to what we enjoyed throughout the year and what we're likely to see next year as well.

Gross margin was up 30 basis points in the quarter to 62.6%.

This is keeping us comfortably ahead of any cost push inflation.

There certainly is some of that, that you can see, but we think we have that well in hand.

Our DEPS were up by 23% to $2.70.

And I'm sure this will be one of those quarters that will be fascinating to read headlines because good old GAAP, of course, incorporates the $215 million tax benefit, onetime for the fourth quarter.

So in GAAP, we did $4.27.

As always, we like the adjusted earnings because it paints a much more clear picture.

And in fact, we did $2.70 on adjusted earnings.

EBITDA was up 21% to $441 million in the quarter.

Our operating cash flow was remarkable.

It was up 36%.

We did $369 million of operating cash flow on a revenue of $1.23 billion.

Deltek and ConstructConnect had great fourth quarters, but actually, for the full year, beat all of our revenue and cash flow assumptions.

During the full year, we reduced $1.06 billion of debt, even though we did a couple of small deals.

So that deleveraging, you'll see how much that benefits us shortly.

Next slide.

Our Q4 income statement.

Here, you can see the nominal numbers that are available for all of you.

Importantly, the tax rate you can see in the fourth quarter was 26.9%.

Generally, I think we were guiding around 29%, maybe a little less in the fourth quarter.

So we got a slight benefit out of tax.

Net earnings were $280 million.

Next slide.

Here, we have all 4 of the segments for the fourth quarter on one slide here in terms of the numerical impact.

You can see it was truly a terrific quarter.

And most importantly, it supports a really good start into 2018.

So in the RF segment, it was up organically 4% if we exclude toll and traffic, which always has some lumpy characteristics.

So it looks -- it is down 1% organically, but it's of no consequence.

The acquisitions, of course, drove all of this terrific benefit.

So revenue was up 45%.

EBITDA was up 47%.

And I think some people missed the fact there was a stub period for Deltek and ConstructConnect in the fourth quarter last year.

It's important to understand that.

We treated all of the revenue and income as acquisition-related even though we could have called some of this organic.

On the Medical side, you'll see our revenue was up 4%.

EBITDA was flat.

We'll talk a little bit about why that is and why that might continue for another few quarters.

But Energy and Industrial, of course, had just spectacular results and unbelievable leverage.

Energy was up 12% in revenue and up 11% in EBITDA, 9% organic growth.

Industrial had 14% organic growth and was up, total, 16%.

So it was a really terrific quarter.

Next slide.

As we shift now to a discussion about the full year, which helps position us when you think about what our guidance is for '18.

Here you can see for the full year, we had organic growth of 5%.

We were up 23% on revenue.

Gross profit was up 90 basis points.

When you're running at 61.7% in '16, to be able to add 90 basis points in gross profit just says a ton about the quality of the management inside our company.

Net earnings, you can see, are up dramatically here.

And the $975 million of net earnings, of course, doesn't deal with how much better cash conversion we have.

And we'll talk about that.

Tax rate for the year was 28.9%.

We expected it to be somewhere around 30%.

With the new tax reform, as we talk about it later, we'll probably pick up 7%, maybe 8% lower tax rate for 2018.

Next slide.

So for the full year, and it really is a remarkable year, we were up $860 million on revenue from $3.8 billion to $4.665 billion.

So we continue to inch closer to a $5 billion revenue threshold.

EBITDA was up $290 million, and operating cash flow after last year for the first time in history just getting over $1 billion.

We added $233 million to that this year to bring it up to $1.234 billion.

Next slide.

On compounding our cash flow here at cash conversion, you can see on Slide 10 that our free cash flow closed out the year at $1.175 billion, up 22% from last year's $961 million.

So cash clearly remains the best measure of performance in a world of adjusted commentary.

So the cash is pretty clear.

It was $200 million more than our net earnings.

Our full year operating cash flow was 26% of revenue.

Our free cash flow was 25% of revenue.

That gave us a free cash flow conversion of 121%.

Of course, on a GAAP basis, it's dramatically higher.

And then we reduced our debt by $1.060 billion.

So that deleveraging, you'll see in a second, is pretty powerful.

Next slide.

Our asset-light business model continues to just plug along.

So we closed the year for the first time in our history with a negative working capital number.

You can see on this slide that at year-end '15, we had 4.3% net working capital.

And then in '16, it was down to 2.7%.

This year, it's a negative number, 3.3%.

I always like to look back and see how we're doing relative to 5 and 10 years ago.

And 5 years ago, not a long time, December 12, we were -- inventory was 5.9% of our revenue annualized, and now it's 4.2%.

Receivables were 18.5%, now they're 16%.

Payables were 11.6%, and now they're 12%.

Deferred revenue was 5.7%, and now it's 11.4%.

And when you add all those columns together, you go from 7% net working capital in 2012.

Push forward 5 years, and we're at a negative 3.3%.

10% of our revenue will be about $500 million that we do not have to have tied up in any way in these net working capitals.

So really, as we grow now, growth becomes a source of cash instead of a use of cash.

And that deferred revenue, you can see we closed the year out at $566 million.

By the way, if I look back 10 years ago, at the end of '07, our net working capital number when we started this process was 13% versus 3.3% now.

Next slide.

Wow, the balance sheet should be glowing neon for you.

You can see cash is $671 million.

And finally, that cash number, really, when you look at net debt to EBITDA, means something because that cash is no longer trapped outside the United States.

So we look at paying down $1 billion of debt.

So gross debt went from $6.2 billion to $5.156 billion.

If we didn't do any deals this year and paid down another $1 billion, it'd be down to $4 billion.

And you know the EBITDA is going to be higher than what you got.

We'd be down to 2x debt-to-EBITDA.

So you can be assured, we're going to be doing deals.

Our net debt number at $4.4 billion, divided by our already reported trailing EBITDA gives you a 2.8 debt to EBITDA number before we get any new cash this year.

And that compares to our close-out in '16 at $4.1 billion.

I doubt many people could do the kind of cash flow we do and maintain the discipline to drop in a 1-year period from over 4x debt-to-EBITDA to less than 3. It's really great performance from all of our leaders.

Next slide.

So tax reform is just a marvelous thing for us.

It benefits us in many, many ways.

First, our tax rate's likely to come in around 21% to 23% for '18, and this gives us more earnings and more cash flow.

We're going to be able to repatriate over $500 million rather quickly from our offshore cash, and that really adds to our acquisition capacity immediately.

The mobility of worldwide cash is a huge benefit because, in the past, 20% to 25% of our earnings and cash flow were coming from outside the U.S. from our great businesses there, but they tended to put pressure on you to invest in other non-U.

S. areas.

Now they no longer have that constraint, and we can deploy capital wherever we want to.

The way I look at this is, really, you have the lower tax rate, higher cash flow and then access to global cash is a perfect trifecta for Roper.

And we couldn't ask for more, and I guarantee you, we'll use it well.

Next slide.

Before we get into the segment detail, I want to tell you a couple of things we're doing here to kind of facilitate some things around the segments.

First, our segments have really changed significantly, and you'll see that as I talk about the 4 current reporting segments.

Those changes have created some structural oddities for us about who reports to whom and how did these things get done.

And there are some opportunities for us to do a better job in cleaning this up going forward.

This is really the optimum time for us to take a look at how we're structured.

And so one of the things that we're going to do to accommodate that is to appoint Neil Hunn, effective today, as the not only Executive Vice President but our Chief Operating Officer.

That's going to help us with a process Neil and I have been working on about how we think we might want to look at realigning these segments.

And while certainly it says a lot about Neil and our long-term succession, this is less about our succession and a whole lot more about getting the company structured.

So it's less opaque and easier for us to talk to investors about our growth over the next 3 years.

Next slide.

On the RF Technology & Software segment, here you can see, this is such a screaming example of why we need to do some things.

This segment has been dominated by Toll and Traffic for years.

It was always over half of the revenue.

Today, with the Deltek and ConstructConnect acquisitions, project management application software, the products that we have, that's over 75% of our total segment now.

And the toll and traffic business is only about 25%.

And while it will grow, it will continue to wither away in terms of its contribution to the segment.

We spent a very substantial amount of time in the fourth quarter of this year doing very extensive 3-year strategic plan reviews with all the people in this segment, and that they have widely diverse end markets, as you can see.

If you look over here for '17, Deltek and ConstructConnect exceeded what we expected on revenue and cash flow.

Deltek has great balance across their GovCon business and professional services.

And that little acquisition we did called Onvia is going to strengthen their market intelligence subscription platform and is off to a good start in that respect.

ConstructConnect's network grew dramatically, and it's going to continue to drive recurring revenue growth.

We had about 5% organic growth across all the software segments, with Freight Match and Aderant being the leaders in that.

Our RF products, which is RF IDeas, Inovonics, Technolog also had positive growth.

Toll and Traffic, on the other hand, with the -- while they had great project execution on the MTA project in New York and Saudi, we had very low tag shipments in the first quarter of the year.

And it improved throughout the year, but still was -- wound up with it being just pretty modest in terms of what it contributed for the year.

As we look at 2018, we -- Deltek, which will be totally organic in 2018, and ConstructConnect will certainly help our numbers in this area.

We think that the software businesses ought to grow sort of 5% to 6%, and they come in with very strong margin and cash performance.

And the RF products were sort of similar, a little less in gross margins, but quite good EBITDA performance, and they're growing pretty quickly.

On the Toll and Traffic situation, we think that's likely to be flat in 2018, although the pipeline for opportunities is the most robust it's ever been, just that the timing is difficult to forecast.

And lastly, you'll continue to see acquisitions in both the application software side and the project management software side in various niches.

I would imagine we'll add to both of our large platforms here, and you'll see some new niches that come in in application software.

Next slide.

If we look at the Medical & Scientific Imaging, here, again, you'll see some sector things that not everything fits together perfectly.

On the Medical side, we have a medical products business.

That's the largest business we have in the segment, and that, in terms of revenue, is led by Verathon, in terms of growth, it's led by Northern Digital and CIVCO.

A very successful product launch late in the fourth quarter on what's called GlideScope Go, it's a portable product, and then a new BladderScan product.

So we expect very strong second half of the year performance out of these launches.

Our alternate site health care business had another good year, broad-based growth in the long-term GPO segment and in our software businesses that support that.

Our Acute Care Software business, which is a family of independent businesses wrapped together here around the hospital software arena, had very strong growth from our division -- decision support SaaS business, which is Strata.

The diagnostic connectivity business, which is data innovation and international solutions, we won a very significant Queensland project for Sunquest's international lab business.

The good news about that is it's going to be somewhere between AUD 50 million and AUD 100 million over the next several years.

The bad news is, this year, it's going to require mostly upfront investment as we prepare to launch all of those things.

But the U.S. lab business continues to be challenged.

It's really been challenged now for 2 years.

And we introduced some new products.

And the good thing is the new products are being picked up, but they're getting picked up as upgrades.

And we're not having success in new suites being applied to the U.S. lab business.

And so as we've looked -- a great deal about that and spent -- actually had a board meeting out there in September, had a really deep dive in things.

What we think is that U.S. lab business, which is a high-margin business, probably declines sort of mid-single digits for another 2 years before rebounding.

In the Scientific Imaging business, we've had sort of a breakthrough.

The fourth quarter was just beyond spectacular in orders for our cryo-EM products, and that's going to carry over very, very impactfully in 2018.

So if we look at the right-hand side, for '18, you can see we're forecasting a 4% to 6% organic revenue growth for the segment, and we might do even better than that.

But the margins have probably come down 100 basis points.

And I want to point out that the margin for '17 was, far and away, it's the highest-margin segment.

It's just under 43%.

And we think in '18, it's going to be between 41% and 42%.

And really, everything in here is doing fine, it's just the drag for another year or 2 on the U.S. lab business with high-margin contribution sort of gives us less than wonderful looking leverage.

But we'll be up both in revenue and EBITDA in the segment in 2018.

Medical products and alternate sites are going to continue to have broad-based growth in '18.

And certainly, Strata and our international business growth is going to be robust, and then it gets offset a little bit by the U.S. Lab business.

Imaging will be strong because Gatan has record backlog and solid delivery projects for Q2 and Q3.

Next slide.

On the Industrial Technology area, you can see it, the performance is -- wow, if that's all you had, what an unbelievable thing.

Record year for Neptune.

They continue to gain market share despite what you might hear from others.

Excellent growth from our fluid handling businesses.

We certainly had a rebound at our Roper Pump business around upstream oil and gas.

Tremendous performance out of Cornell Pump with a lot of rental markets for dewatering activity.

And operating leverage in the segment was above 40%.

We expect to have 5% to 7% organic growth in 2018, and there are some people who think it might be even better.

On the Energy side, again, a great story, over 50% operating leverage from nimble execution with our leaders.

We have broad-based growth throughout the segment.

And frankly, CCC's declines were more modest than we might have expected.

Again, probably 5% to 7% organic growth in 2018, very strong leverage.

There's just nothing you can say, but good things about both of these segments.

Next slide.

All right, as we look at 2018 guidance, next slide, we established guidance for the year at $10.88 a share on the low end to $11.20 on the high end.

That gives us organic revenue growth of 4% to 5%, maybe a little more.

Tax rate is a little hard to plug in there.

Use 22%, you're probably relative safe.

But it could be down to 21%, it could be up a little higher.

In the first quarter, we established guidance of $2.44 to $2.50.

We'll have a little bit lower tax rate in Q1 than we will for the rest of the year.

So tax rate in the first quarter certainly will be less than 20%.

And then throughout the rest of the year, it will bring us up to this 21% to 23% average.

Next slide.

In terms of a summary around '17 and looking forward to '18, certainly, our asset-light niche market strategy continues to deliver outstanding performance, greater than 20% growth in all of these categories, revenue earnings, EBITDA and cash flow.

What was also encouraging is the consistency and broad-based organic growth that we had, and we see that continuing into '18.

Deltek and ConstructConnect exceeded our expectations for the year.

I think they had about $35 million in Q4 '16 stub revenue that you might want to go back and see.

So they really did well.

Our ability to compound cash has dramatically changed.

With the $1 billion debt pay-down, the balance sheet is pristine once again.

The tax reform is just going to continue to compound more cash flow and an ability of us to deploy capital.

And the net working capital is now a source of cash.

So it's pretty unusual to have a growth strategy in which you don't have to invest to capture the opportunity.

The CRI disciplines that we use in capital deployment, you can assure, will be continued to be deployed.

I think we told you the last time we thought we'd probably do around $6 billion over the next 4 years or so, but in reality, we're going to -- we'll be upping that because we're going to get at least a $250 million annual benefit in terms of how we can leverage the company with tax reform.

So we're now thinking we'll do $7 billion or more over the next 4-year period.

Hard to predict exactly when those numbers come to pass.

Certainly, we don't budget a particular number for a year, but we would expect to be above $7 billion when we look back 4 years from now.

And Neil and I have maybe done a little work on getting these structures a little easier to manage.

So I'm looking forward to that.

It was a truly remarkable year, and we enter 2018 with terrific momentum.

And with that, we'd like to open it up to questions.

(Operator Instructions) We'll take our first question from Deane Dray from RBC Capital Markets.

Congrats to Neil in his new role as COO.

Thank you.

First question, maybe take us through the dynamics in the fourth quarter in RF Technology.

It came in lighter, both top line and earnings, versus our expectations.

And I know there were some puts and takes in the quarter.

And you had called out, last quarter, there was some pull-in into the third quarter for Deltek.

I don't know if that was a factor and -- or this was that stub from a year ago.

But could you take us through that for starters, please?

Rob is chomping at the bit.

Yes.

So it was right in line with our model on EBITDA.

We actually were a little bit above our internal guidance model on EBITDA for the segment.

We were a little light on revenue.

I think we guided to low-single digits and it came in minus 1 just because of the difficult MTA comp versus last year and timing on some of the TransCore projects.

But it really was in line with our model.

So I think, not to speak for the analysts, but it seems like the analysts may have missed the fact that we did have this $30 million, $35 million-or-so of revenue last year.

And it seems like people weren't taking that into account when they were doing their RF estimate for Q4.

So from our perspective, in line and, more importantly, really exceeded in terms of cash flow.

So the cash flow performance in the quarter was better than we expected, again, driven by the new acquisitions, Deltek and ConstructConnect, and really good performance there.

So from our viewpoint, it was a solid quarter in RF.

And I just want to reassert that Deltek and ConstructConnect outperformed in the fourth quarter versus our model.

It solely centers on the intelligent traffic system side of project management at TransCore.

Got it.

And then how about just expand more on the tax reform impact?

And Rob, can you just kind of take us through the details of how you worked through the implications for Roper's tax position for 2018 and beyond?

What swings you from 21% to 23%?

We had been modeling 23%.

And what might be the dynamic in the first quarter that would be taking you lower than that?

Yes, sure.

So like every other company out there, there was a lot of work done.

And I commend our tax department, who've been working long hours all the month of January, to really get all of this work done in time for the earnings call and, of course, the 10-K coming up.

So yes, I think as Brian mentioned, we're probably -- if we had to give a point estimate, it's probably around 22% is our sort of long-term rate.

We want to give a range because there are some moving parts.

And so it's always difficult when you're under a new law here and to make sure you get everything ironed out.

But I think that we're pretty comfortable with that 22% number over the long term.

As far as Q1, there are some discrete items, particularly around the deductions for compensation that would drive Q1 a little lower, as Brian mentioned probably a little under 20%.

But on a full year, long term, certainly, if you want to take 22% in the model, it's probably a fine number.

Got it.

And then just if I can sneak one more question and maybe hear from Neil.

Just broad brush, you may be early in the process, but what might we be seeing in the way of a resegmentation?

And it sounds like that's one of the first orders of business for you.

I mean, I'll give him a second to respond.

But here's the -- the thing is that most of the businesses report to either Neil or myself.

And so if you look at the way we're restructured in RF, one of our key leaders is Tracy Marks that's over the ITS business.

Another really key leader is Mike Corkery, who's over at Deltek.

It's our largest business.

If you put -- the 2 largest revenue businesses really are the TransCore piece and the Deltek piece.

They have, as you might guess, absolutely nothing to do with each other.

And so we've got this segment, and there's a whole lot of other things.

The RF products piece, some of those report to Paul Soni.

Others report to Claude Pumilia.

And what we found over the last year is we've done some pretty significant talent upgrades.

And since we're interviewing people, shockingly, most people would like to know who they're going to report to and which businesses they have responsibility for.

And we would be embarrassed if -- when we try to explain how the labyrinth works.

And so I just -- I'd like to have a little -- some time here with Neil looking at how I've kind of viewed the company since 2016.

We have products that are divided really into a couple of large categories, and those subcategories are precision technology, fluid handling, medical products and RF products.

On the other side, we have our software businesses, and they really have kind of 4 subcategories.

You have our health care software business, you have our alternate site business, you have our application software business and you have our project management business.

And we've tried to maintain the same segment reporting for probably a little longer than we should.

This won't really have an effect on how the 50 P&Ls in the company work.

But it will have an effect on how Neil and I are looking at the forward structure and long-term executive leadership positions.

And so inside that, then it's all yours.

Yes.

The only thing I would add, Deane, is this is about how we organize ourselves, not how we operate the businesses, right?

So I'd just leave it there and look forward to unveiling more of that as Brian and I work through it in the next few quarters.

Moving on, we'll take our next question from Christopher Glynn from Oppenheimer.

Good to see the free cash flow conversion remains best-in-class after the switch to adjusted net income.

Relative to the 121% this year, is that kind of a good proxy for how the cash flow versus the A&I is structured?

Yes.

So I would say, long-term, an excellent year in 2017.

If I had to kind of give you 2018, we'd probably be 120% conversion on OCF, maybe 115% on free cash flow is sort of a framework.

I think the 2017 performance was exceptional.

And we might be able to do that again, but we'll certainly always be running at 120% OCF conversion to the new adjusted net earnings.

So I'm always trying to clarify.

We don't really report cash EPS.

We report adjusted EPS, and our cash is quite a bit higher than that.

Right, great.

Brian, since you brought it up, even though you downplayed it, how would you comment on the timeline around ultimate succession?

Yes.

Who knows?

I mean, 3 to 5 five years.

I think -- I have an obligation to notify the board 2 years in advance, and I haven't done it.

So this is not about succession.

What this is is an opportunity for Neil, who's worked at a yeoman way with everybody on our strategic planning process, for he and I to spend much more time together as we're developing what we're doing.

So I used to have to -- we used to be -- I think we were like 78.

I think the board recently was upping the retirement age to 80.

So I'll be here for some time.

Well, I expect to be here during the deployment of the next $7 billion.

I'll leave it at that.

Moving on, we'll take our next question from Robert McCarthy from Stifel.

Congratulations on a strong end of the year and the constructive guide for '18.

I think just 2 questions.

Back on the exploration of the segments, and I think I know the answer to this, it might be a high-decibel answer from Brian nevertheless, you guys were pretty clear that this is about how you organize not about how you run the underlying businesses.

But you are a collection of businesses, of high-quality businesses, that you've acquired over time with entrepreneurs or hard-charging execs in those roles.

And is this going to lead to potentially some consolidation of those roles or new faces?

In other words, do you think this changes how you're operating it from maybe more of a feudal system with some guidance above as to more centralized management of the businesses?

Well, I don't see anything around centralized management.

You have to probably educate me about the feudal concept.

We don't have any serfs, and you're right to describe our people the way you do.

We actually sent a note out this morning to the people.

And the note says, this probably will have nothing to do with any of your independent businesses.

I don't think it will have much.

I don't -- we've never found consolidating things and internal synergies are really that great.

We do think a focus on long-term growth is pretty important.

And I think that there are processes that we've been putting in place around sort of strategic deployment and strategy that Neil can be really gifted at working with all of our people with.

And so I'm sort of hoping for maybe a little bit better long-term sustainable organic growth [probably] with this, but it doesn't change anything for individual businesses.

It's not -- it's just better to have all the operating people ultimately reporting to one person.

And then I think long term, when you think about succession, I mean, knowing Neil as well as I do and our culture, my guess is that, at some point, Neil will say that that role doesn't need to exist.

So it's just a nice transition opportunity for us to get everybody on the same page.

So Neil, you may want to add to that.

The only thing I'd add is this business has been built over a long time with a system that's about the niche orientation, the resource allocation decisions being made at the field, the field operators being held accountable to the results.

And I don't see any of that changing for a very, very long time, if ever.

I mean, it works for us and will continue to work.

Yes.

No, thank you for that helpful clarification because obviously that's been a secret to your existing and continuing success.

A related question to that is, do you anticipate the output of this analysis or this process that you're putting together, could this lead potentially to, perhaps, identifying businesses that are non-core and, perhaps, would be better served as a separate entity?

I mean, obviously, this is the old chestnut of the breakup of Roper or spin of certain more cyclically or capital-intensive businesses of Roper.

Well, if -- we've talk about that, not -- I mean, not -- the company's not going to break up.

Period.

End of discussion.

We might divest some things or we might spin some minor thing.

Actually, what's happened is tax reform makes portfolio adjustment way more attractive when you think about divestment.

So as you know, these businesses have been around forever, so they have almost no tax basis.

So whatever you sell them for, if you're paying 35%, it's just hopeless.

But if you're only paying 21%, it might be a little less hopeless depending on what you're using with the cash you get out of that business.

So there's probably a little -- I'd say there's a modest uptick in our willingness to divest something than we would have had 3 years ago and further.

Most all of our businesses, if they aren't software-related, they still have firmware in their products, and they're communicating.

There are only a small number of our businesses that are not like that.

And so we will take a hard look at those businesses and what's the optimum use of them.

If I can sneak just one more in real quick.

You've made a comment about obviously, perhaps, an increased focus on U.S. M&A from the standpoint of the ability to redeploy capital here.

I think there was a comment on one of the slides, but could you comment on that?

And then just comment, has there been anything -- I mean, you look about what basically software has done for you in terms of creating a better, more fertile opportunity set of M&A because you basically have been able to find businesses that are around information domain management and then automate them through software or have a subscription business, basically the SaaS model.

Has there been any changes in technology in the last 5 years that creates even a more fertile ground for more opportunity for a different kind of software business, and comment on the relative appetite of businesses, perhaps, in the U.S.?

Well, the technology is not the driving force there.

The driving force is that if, say, 20% or 25% of your cash that you're generating each year is offshore, and you can't repatriate it without a big penalty.

Instead of having 100% of your cash flow generation being able to go to deployment activity, you only have 75%.

So now, we have 100%, and we're not constrained.

A lot of the software niches that we buy are U.S.-centric businesses as opposed to global businesses.

And so having 100% of your cash available to deploy on those U.S. niche businesses is very likely to lead to us buying more U.S. niche businesses that will get hooked up with Deltek and ConstructConnect and Aderant.

And that's the reason we're sort of raising what we expect to deploy on capital.

It could be the next acquisition we announce, a (inaudible) company.

But we're live on 4 things now.

And they're all software-related and most of them are U.S.-centric.

Thus ends this lesson.

There you go.

Moving on we'll then take our next question from Joe Giordano from Cowen.

I just want to start with your comments on U.S. lab.

And are we talking Sunquest specifically here?

And how would you categorize that dynamic now?

Is it more of a -- market-based?

Is it a share loss kind of situation?

Is it a combo?

Or -- and how does this kind of change your outlook onto bolt-ons to supplement that business?

I know you've made a few in the past.

And is that less likely now?

No.

The bolt-ons in the business are performing outstandingly well.

Those are all double-digit growers, they are doing exceptionally well.

It's just that the U.S. lab business is in a unique couple-of-year situation, where people are rolling out their ERP that they have acquired over the last x years.

So you went through a period of artificial stimulation with meaningful use at the beginning when we acquired Sunquest.

We knew that.

That wasn't a surprise for us.

And as that disappeared, what replaced it was the rollout of various ERP projects, in which Sunquest was oftentimes the niche lab provider, but isn't going to get renewed at some point in time when that ERP is put in place.

And that process started to hurt us 2 years ago.

It hurt us a little more last year, not going to be helpful this year or next.

We already know who all those are.

So we expect to attrit 5% or 6% of our installed base to the ERP people.

That will stop.

And then I think we'll not only continue to have some sort of modest single-digit growth, but we're likely to start selling and replacing some of the people who tried cumbersome ERP systems that are not good for the [laboratorium].

So we're going to just go through this period where the CFO is winning at the expense of the laboratorium guy.

But at the end of the day, the cost to the hospital, we think, is minimized with our technology.

Fair enough.

And then on the TransCore side, is there something that we have to think about from a structural margin perspective related to tags?

And like kind of we're seeing more of these systems go in that are camera-based, where you don't need a tag, and it slashes against your license plate.

Is that like a structural shift in the market that we have to think about the margin dynamics of that business a little bit differently?

Well, the tags are relatively high margin compared to any of the project work.

But all the other technology, we still lead in all the other technology.

So if you're looking at readers and cameras, we actually use our Lumenera brand cameras for a whole bunch of those things you're talking about.

And those businesses all have decent margins.

It's just that as the project business continues to grow, and it's growing at the expense of other public companies that I really shouldn't name, and all you have to do is read about their total malaise.

But the margins associated with our project business are the worst we have.

They're best-in-class for TransCore.

Their results are spectacular.

But for us, they're a drag on our margins.

I don't think that's going to change anytime soon.

But I would just add, even with the camera technology, right, you still need the tag.

I mean, that's the whole point, is the tag is -- allows the agency to properly collect the funds from the user.

The camera's just a back-up.

And so...

Don't a lot of the systems now just to take a print of your license plate and then mail you a bill in the mail.

And some of -- a lot of the ones in New York have now, right?

Yes, absolutely.

Some of them ones are license plate-driven, but it's still our collection technology.

And oftentimes, it's our collection administration.

Somebody gets a call for bill payment, it's actually our admin people masquerading as whatever the tolling authority in the area is.

That's the big administrative business we're talking about, which continues to grow at the expense of others, but is a little less exciting for us.

Its growth will always diminish our gross margins.

And then last for me.

The delivery of imaging backlog, we've been waiting for the cryo-EM stuff we've been talking about for a while, how much is that contributing to your lower-margin comments for the Medical segment?

I figured that would be kind of good on the top line but mix negative for you guys, I'd assume, right?

Yes.

So those are good margin products.

Their shipments are skewed towards Q2 and Q3.

So in Q1, the margin performance in the Medical segment is going to be lower than on a full-year basis.

It will be down more than 100 basis points because we have -- we're not yet getting those shipments.

Also, a lot of the start-up costs around Australia are hitting in the first quarter.

So once you get into Q2, Q3, I would say the margins are not -- it's probably in line with the segment.

It's not really a big headwind with the mix.

The margins -- the Medical segment margins are going to be 41% to 42% EBITDA, for heaven's sakes.

They're still going to be the highest in the company.

Moving on, we'll now take our next question from Steve Tusa from JPMorgan.

This is actually Pat Baumann on for Steve Tusa.

I just had a few questions.

I didn't hear it mentioned, but just wondering, did you guys see any impacts from -- or will you see any impacts from the revenue recognition accounting change, ASC 606?

Yes.

So we -- thanks for asking.

So we did go -- we are, of course, adopting that this year.

So the impact is less than we probably would've originally estimated before we did all the work.

So it will be a $15 million-or-so impact to deferred revenue on the balance sheet as of January 1 of this year.

But then the revenue recognized under the new standard will actually make up that number during '18.

And so, on a net basis, it really -- we don't see it having any impact to our earnings.

So it's going to be something that will, of course, flow through our GAAP earnings, but not something that we feel necessary to call out for any sort of adjustment because it really isn't going to be much of a net impact.

But that's the result of, of course, going through every single one of our companies' revenue recognition and really a project that's been going on here the last 6-plus months, led by Jason Conley and the accounting department.

So we feel very good about that.

Got it, cool.

And then for the other segments, outside of Medical, can you give a sense of the operating leverage target?

Is like 40% a good ballpark to think about year-over-year operating margin leverage?

The enterprise probably comes in in the 30%-plus leverage category, with Medical's leverage being less, and then Industrial and Energy, you can expect 40% leverage plus in those.

And then RF is kind of a -- I mean, they'll have high leverage, it's just how -- what the revenue is is tough to pick because of TransCore.

So probably more like 35% in RF.

Got it.

That's helpful.

And then lastly for me, just can give us a sense of timing or likely timing around when we're going to learn about some decisions around the segment restructuring?

Well, it could take a year.

Who knows?

We've been talking about this since 2016, and a lot of moving parts.

Plus, we have acquisitions that will be going on.

And so -- but part of it is just finding a better way to nest the acquisitions into segments that make a lot of clarity, right?

Moving on, we'll take our next question from Jeff Sprague from Vertical Research.

Just 2 quick ones from me.

Brian, is it inconceivable that you could do some M&A in Industrial or Energy when we think about kind of the technology overlap and infiltration that we're starting to see in new industrial markets?

Not inconceivable.

I mean, we're looking at one sort of a -- to the degree I ever did one, we're involved with one now that's pretty attractive.

I don't know that we'd get home on it.

But if it was less around a mechanical product -- I'd say we wouldn't do it with a mechanical product.

It would have to be something that had an algorithm associated with data collection.

And there are an increasing number of those.

So yes, I wouldn't rule it out.

It's just, unfortunately, Jeff, most of those come with more asset intensity than we like because if they need a factory as opposed to an assembly operation, then we probably wouldn't do it.

Great.

And then just back again to the reseg.

Not to minimize the complexity and the work you want to do, but it sounds like you have been thinking about it for a long time.

And you guys are pretty sharp guys.

I would think you've got a pretty good sense of what you really want to do.

I'm not sure what I'm missing on why it would take kind of a year to figure all this out.

Is there something more (inaudible)?

A lot of people things.

We've got a lot of -- we have spectacular people.

The recent addition of -- when you look at Aderant, we've got a terrific lady that's running that, Deane Price.

We've got Mike Corkery, who has terrific capacity.

Shoot, he could be running our company.

You've got Dave Conway, a lot of capacity.

It's really -- a whole lot of it is around where are we investing in human capital.

Moving on, we'll take our next question from Richard Eastman from Baird.

Could I just double back for a minute to the Medical & Scientific?

And I'm just curious, Neil, perhaps, could you just kind of define how much of Medical & Scientific or, in particular, the Medical software, Acute Care software, is international versus U.S.?

And perhaps, just as a follow-on, just kind of speak to the investment that is going into the business.

Is it going in to make the software more appropriate for the international market?

Where's the investment going that you speak to?

Yes.

So I would -- of the Acute Care software grouping, it's maybe 40% international, 60% U.S. The way that we think about the investment, as we've talked a couple times on this call, there is an investment in 2018 in the start-up in Queensland in Australia.

So we've talked about that.

In the U.S. market, it's less about incremental new investment.

We have -- we feel we have the right amount of R&D.

It's more about how you orient that and program the R&D dollars for the new products, and also how we have changed the way we attack the U.S. channel.

We've realigned people.

We've realigned the way they're going to the market.

We've added a few new managers in the business to think about that.

So it's more about reorienting what we're doing in the U.S. So it's not about incremental new investment there.

Okay.

And is any of that stepped-up investment going to med products or if we already funded that given some of the new products are now to market on the BladderScan side?

Yes, so there is -- in the medical products group, there is a fair amount of -- there is a little bit of product investment, year-over-year increase.

There's a fair amount of channel investment across 3 or 4 of our businesses there that's occurring in 2018.

That's a discrete item there.

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

We will now return back to Zack Moxcey for closing remarks.

Thank you, everyone, for joining us today, and we look forward to speaking with you during our next earnings call.

And that will conclude today's conference.

We do thank you for your participation.

You may now disconnect.