Roper Technologies Inc (ROP) 2018 Q1 法說會逐字稿

Ladies and gentlemen, the Roper Technologies First Quarter 2018 Financial Results Conference Call will now begin.

Today's conference is being recorded.

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

Please go ahead, sir.

Thank you, Abby, and thank you all for joining us this morning as we discuss the first quarter 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 and Chief Operating Officer; 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 is 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 quarter primarily on an adjusted non-GAAP basis.

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

For the first quarter, the difference between our GAAP results and adjusted results consists of the following items on a pretax basis: A $74 million adjustment for amortization of acquisition-related intangible assets and a $2 million purchase accounting adjustment to acquire deferred revenue relating to software acquisition.

This represents revenue 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?

Thanks, Zack.

Good morning, everybody.

We'll go through the first quarter, look at the segment detail, talk about the rest of the year and then take your questions.

So next slide.

We had a record quarter of virtually every kind of metric you can think about.

Revenue was up 9% to $1.2 billion and organic growth was up 6%.

It was broad-based across all the segments, they all grew mid-single digits or greater.

Gross margin was up, again, 30 basis points to 62.5%.

We'll talk a little bit about that later because in an environment where people are starting to worry about cost push, inflation or price cost issues, it's sometimes forgotten that the 62.5% means something really important, that our cost of goods sold is only 37.5%.

And in an environment where people worry about material, if you only got a cost of goods sold ratio of 37%, it looks a lot better than those guys that have gross margins of 38%, meaning cost of goods sold of 62%.

Earnings before taxes were up 10% to $332 million.

We put that in as a distinct reference so you can see what was unrelated to the Tax Act versus what's related to Tax Act.

So the 10% up is earnings before tax.

The DEPS earnings, which includes the sort of trifecta around the Tax Act for us, were up 24% to $2.61.

The operating cash flow was $282 million, which is 23% of revenue.

We'll talk a little bit about that number.

It's terrific at 23% of revenue, a little lower than last year for a specific reason.

We reduced the debt by $535 million in the quarter, and since the end of 2016, we've taken $1.6 billion off of our gross debt number.

So it was really a great quarter and really throughout the enterprise, we had very good execution.

Next slide.

If you look at the income statement, you'll see revenue went up from $1.1 billion to $1.205 billion.

Gross margins from 62.2% to 62.5%.

The tax rate down at the bottom, you can see was 28.2% last year, this year, it was 18.1%.

I think we guided people sort of high teens.

The rest of the year, we think, it'll be about 23%.

Q1 is a little lower because of some unique benefits that happened in the first quarter on a tax perspective.

And there, you can see that the adjusted DEPS number was up $0.50 from $2.11 to $2.61.

Next slide.

We look, again, at the progress we continue to make on deferred revenue on our asset-light business model.

If we just look at the last 2 years, 2 years ago at the end of the first quarter, we had 4.8% net working capital to revenue.

This quarter, we closed out at a negative number of 2.7%.

You can start to see a trend now because on this slide, if you look at the column 3/31/17, that was a negative 2.9%.

And that was the first time that we had gone to negative working capital.

And now this time at 2.7% is the fifth consecutive quarter where we've been at negative working capital.

And that's run from a negative 2.9% to 2.4% to negative 2.5% and negative 3.3% and now, negative 2.7%.

So starting to get a real-world, new normal for Roper.

Five years ago, when you look at the same data, inventory this quarter was at 4.5% of revenue and 5 years ago, it was 6.8%.

Receivables were at 16.4%.

5 years ago, they were 19.3%.

Payables and accruals were exactly the same, 11.5% this year and 11.5%, 5 years ago.

But deferred revenue, close to doubled from 5 years ago, it was 6.5%, 5 years ago of revenue, now, it's 12.1%.

When you total it up 5 years ago, we were 8.2%, net working capital to revenue, and now, we're negative 2.7%.

So when you basically make an 11% swath on sales of approaching $5 billion, it's a big, big, big change.

Deferred revenue, you can see totaled $585 million at the end of the first quarter, which is more than double what it was just 2 years ago.

So as we continue to grow, we find that the working capital becomes a source of funds for us.

Next slide.

We continue to compound cash flow and are in a particularly good place to achieve another all-time record in 2018 for cash flow performance.

In the first quarter, we had 2 things that were unusual.

There was timing of a tax payment in 2018 that totaled about $43 million, and then we had, in the first quarter of last year, a big MTA payment for that project.

It was around $34 million and another one in the Middle East for about $16 million.

So there was $93 million of an unusual variance between the first quarter of this year and last year, and that will smooth out as the year goes on, and we'll still deliver a very high operating cash flow to revenue and free cash flow as well.

You can see the conversion number here with the GAAP to net earnings conversion at 141%.

Next slide.

The sort of strong financial position, you can see the debt structure here.

Cash is at $366 million.

We were able to repatriate about $300 million of non-U.

S. cash in the first quarter, still a couple hundred million left that we think we'll be able to repatriate during the course of the year.

Our undrawn revolver, we have $2.5 billion revolver, and there's nearly $1.8 billion in that revolver that remains undrawn.

So our capacity for investing in capital deployment is very high.

Our gross debt has dropped down $1.2 billion just in the last year and the net debt number also down substantially.

If you look at our trailing EBITDA for that period of time, we're up $261 million.

So you're up on EBITDA, down on debt and that gives you the net debt-to-EBITDA number here of 2.6% (sic) [2.6x] versus 3.7x a year ago.

And you're picking up more than sort of 20 basis points on that thing every time.

So the way we build cash here, it takes no time at all for us to be below 2x net debt-to-EBITDA.

But we're likely to find ways to deploy capital here in 2018, could happen sooner than later.

We're in a number of transactions now, all of which are attractive, but you never know if you're going to get any of them done.

Next slide.

Here we look at the segment detail, and all of these things are really wonderful businesses.

But if we turn this next slide, here to Slide 11, you'll see our trailing 12-month margins, the gross margins on the top and the EBITDA margins on the blue line at the bottom are really spectacular for all of our segments.

So you look at energy at 57%, gross margin and 31% EBITDA margin.

Part of what I want to point out is that the enterprise in total is running about 62.5% gross margin, so it's very much like the RF & Software line.

And if you've got 37% cost of goods sold, which would be the reciprocal of that gross margin, and half of your cost of goods sold is material, and it goes up by 10%, if you can raise your prices by 1.9%, you have no cost risk at all.

And if the material is only 1/3, which is more like what it is with us, and prices go up on material by 10%, you wipe that out with a 1.5% price increase.

So we are not seeing, do not expect to ever see this cost push in price and pressure that other people are complaining about, talking about with material cost.

And part of that is that our cost of goods sold, it's quite modest compared to the other multi-industry guys.

Our businesses are really in outstanding niches.

They're nimbly led.

And I can assure you, we were on top of any of these kind of issues related to tariffs or material price or anything else.

Next slide.

We turn to our biggest segment here, the RF Technology & Software group.

It did almost $0.5 billion in the quarter.

Revenue was up 7%, operating profit was up 13% and the OP margin was up 130 basis points, which was particularly satisfying because of a lot of the amortization that gets into that OP margin.

Organic for the segment was up 4% with FX having a favorable impact just 1% here.

We had low single-digit growth in toll and traffic, which we weren't necessarily expecting.

Very good execution, so we're finding good margins and not having negative variances.

A lot of stuff is out for quote, but it's -- feedback on timing is just very unclear.

Deltek Software business continues to do really well, both the GovCon and the professional service markets are doing exceptionally well.

The bolt-ons we did for them we're booking on (inaudible) are performing as we expected they would and we're getting the synergies that Deltek had expected to get.

On ConstructConnect, I'm going to ask Neil to tell you a little bit about these 2 small bolt-on acquisitions we did to expand our preconstruction takeoff and estimation software.

These help us expand the size of our network, one is called QuoteSoft and the other is PlanSwift.

In total, we invested about $39 million.

So, Neil, you might just explain how those make ConstructConnect's network stronger.

Right.

Both QuoteSoft and PlanSwift are in the preconstruction planning space and focus on automating the takeoffs and estimation activities of contractors.

Both enhance the ConstructConnect network and product platform, where it's more comprehensive in ConstructConnect's pursuit to be embedded in the daily workflows of contractors relative to their preconstruction activities.

QuoteSoft focuses on the HVAC and plumbing trades.

PlanSwift focuses on other trades such as flooring, drywall, windows, et cetera.

Thank you, Brian.

Okay.

The -- Aderant also had spectacular quarter.

They were up double digits with significant gains with large law firms.

So we continue to feel good about Aderant, but they certainly are outperforming this year.

On our Freight Matching business, that growth has really been driven by a combination of solid markets, but substantial improvement in retention and net subscriber adds here.

We just launched another app on expanding the ability to track loads, which we think will drive additional growth in the second half of the year.

And then lastly, our RF IDeas unit in Chicago is doing exceptionally well.

With the privacy concerns, their technology really allows identification of individual people in a wide variety of access areas, around access control and access to storerooms and supplies.

So that business is really terrific.

For the rest of the year in terms of Q2 to Q4, we think we'll have about mid-single-digit growth in the software businesses with their outsized margins and cash performance.

The toll and traffic is harder to predict.

We think we'll get modest growth there, but it actually could be outsized, but it's just, it's hard to predict.

In total, we think the segment will grow around 4% to 5% and continue to have the terrific margins that we see here.

Next slide.

If you look at Medical & Scientific Imaging, $366 million in revenue, it was up 5%.

Did a little bit better on the revenue side than we expected, and we had some particularly good breakthrough situations.

We've had an accelerating rate of adoption at Strata with the financial decision support cloud software we have.

And importantly, Kaiser, which is one of the largest entities in the country, Kaiser Permanente, adopted the national cost accounting program technology that's supported here by Strata.

To give you an idea of the size of that, Kaiser's got 12 million members.

They have 22,000 doctors and 39 hospitals.

So for Strata, this is the sort of perfect validation of how good our technology leadership is compared to everybody.

And we expect both adoption to continue at an increasing rate, and we think we'll gain share from other people with older systems.

And the second area I want to highlight here is given the fact that we had 4% organic growth, we had a decline in revenue in the high margin U.S. lab business, but fortunately, it was really offset by growth in revenue in our Data Innovations diagnostic connectivity business and CliniSys, our international lab business.

So the good news around that is that it really thwarted the decline in revenue, but it can't make up for the operating margin.

So where you see the 150 basis points deterioration on OP margins going to 32.9%, that's still that pressure we're going to have this year and next on the U.S. lab business.

We had high single-digit growth in the software solutions for both long term care and home health, with our software acquisitions that we made a couple years ago called SoftWriters and SHP.

The medical product businesses in total came in at mid-single-digit growth, and we see that sort of continuing throughout the year.

And then Gatan continues to build its backlog where some new products that were launched last year and will continue to have expanded growth over the next several years.

So we actually commenced shipping the next generation of these cryo-EM projects right at the end of the quarter.

As we look for the balance of the year, in Q2 through Q4 for expectations, we think we'll have broad-based growth across the medical businesses as a group.

Scientific imaging should continue to improve over the prior year, and we think we'll get mid-single-digit organic growth for the segment in total, but will still be down maybe about 100 basis points on margin due to the U.S. lab business with its higher margins declining as a part of the mix of the segment.

Next slide.

On Industrial Technology and Energy, both were pretty spectacular.

They had double-digit growth for both segments.

You can see Industrial was up 18%, Energy was up 11%.

On Industrial, the organic was up 15%.

We had double-digit growth at Neptune, and we had all-time record orders for Neptune as they continue to benefit from real customer-focused innovation.

I think one of the things that's really showing up in the last 1.5 years at Neptune is the software experience we've had in our other businesses, we've been able to sort of virtually add to Neptune's capability in that arena and help guide them in terms of all the development things that they're doing, which are quite exciting as they build new technologies in Atlanta and have the plant focusing on what it does best, its foundry.

We're backward-compatible at Neptune in almost everything we do.

And as a technology company, you find Neptune acting and behaving like an emerging technology company now as opposed to somebody that's making a lot of [years], and that's very exciting for all of us.

The Cornell Pump had an all-time record.

I mean, they're -- they have gained share at the expense of other pump companies at an extraordinary rate.

They'll have a record year.

The first quarter was just beyond spectacular and to Robert and all the team out there, we just thank you for your outstanding performance.

We had really good end markets in our Roper Pump business where their execution and our technology products are sort of taking off again with the DuraTorque technology.

We've got better solutions with rubber and bearing wear and drilling faster and deeper than many other people do, and so they're back.

They're not back to the all-time levels that they enjoyed a few years ago, but they're certainly up quite substantially.

And for the remainder of the year, we think we'll get sort of high single digit growth organically with great leverage.

Leverage in these segments are pretty strong as you can see revenue up 18% and operating profit up 23%.

In the Energy segment, we had 5% organic growth.

We had strength in upstream applications, which were sort of similar to Roper Pump.

Our AMOT DEPS [Bi trans] businesses were up very, very dramatically.

Most importantly, our compressor control business did better than we expected, sort of flat to the prior year.

We expected it would be down some, and we're starting to see green shoots for compressor controls for 2019 projects that we wouldn't have expected this early.

And so that's encouraging for the longer term for that business.

The industrial businesses pretty much universally that are inside the Energy segment all performed reasonably well.

For the rest of the year, we think we'll have sort of 5% to 7% organic growth with good leverage throughout.

And with that, I think we can turn to our guidance update.

Next slide here, Slide 16, you can see that we're raising our full year guidance from $11.08 on the low end -- or I'm sorry, from $10.88 on the low end to $11.08.

And on the high end, from $11.20 up to $11.32.

Organic growth, we've raised by 1 point, 4% to 6%, up from 4% to 5%.

All of the end market data we see supports that.

Our tax rate is going to be sort of 23% for the second quarter, the third and the fourth.

We don't think there'll be much variation between those quarters, and it's up from the lowest quarter of '18 in the first quarter.

Q2 guidance, we're laying in at $2.65 on the low end and $2.71 at the high end.

All of these point to operating cash flow that should continue to be a record in 2018.

Next slide.

If we look at Q1 on the summary, sort of 2 main themes that we take away from the quarter is that our asset-light, niche market strategy continues to deliver just spectacular results.

And a lot of that comes from nimble execution from our business.

We had broad-based revenue growth as we've said with organic at plus 6%.

The end market data we see is encouraging.

We probably haven't seen any more optimism as a group as we went through our Q1 reports and talked about forecasts for the balance of the year.

I think there's a mature level of optimism as opposed to euphoria.

I think people feel really good about not being impacted by any of these geopolitical issues or tariff issues or -- cost [puts] inflation on material because our cost of goods sold is so low and material and so much less a component of our cost structure.

Our gross margins were up, which sort of proves the point that we're staying ahead on that price-cost challenge.

Earnings before taxes up 10% and with the trifecta of tax reform giving us a lower rate, allowing us to repatriate cash and then getting more value out of the cash that we were providing before because we get to keep more of it, we were up as you can see 24%.

And then on the other side is our capital deployment side, which the balance sheet really has put back into a great place for us.

We reduced debt by $1.6 billion since the end of '16.

The still pace would be about $7 billion of acquisitions over the next 4 years including this one.

We're seeing a lot more attractive opportunities in the pipeline already, and we're engaged in several, all of which look attractive at this point.

So we had a great first quarter.

We got a positive outlook for '18, and we've raised the guidance.

And with that, let's open it up for questions.

(Operator Instructions) And we will take our first question from Richard Eastman with Robert W. Baird.

Just a couple things, Brian.

The core growth outlook for '18 kind of bumped up by this -- by 1 point-or-so.

And when I kind of sift through the commentary on the platforms, is it safe to assume that the industrial tech platform has a bit more momentum maybe than planned earlier in the year?

Is that primarily where the core growth outlook has bumped up?

I wouldn't say that.

It was a little stronger in the first quarter than we expected because some of the businesses are industrial.

Certainly, Neptune was spectacular, belies to everything everybody else says about these spaces.

Felt better about that.

There isn't anything that's soft, so we're talking about the rest of the year at high single digits, not at 15%.

But yes, I think that's good.

Actually, may be more encouraged by medical in some respects because 2 good things happened.

You -- the level of reduction in the U.S. lab business was what we expected.

It wasn't higher than what we expected, it was manageable, and we offset it with growth in other portions of our overall lab business.

So that was encouraging.

It gives us a little better feeling for the year.

And I think just the general attitude of everybody when you challenge them about their forecast, the way we run the company, we don't use metrics.

We [don't] tell people, [we use finances].

Drill down exactly in Q1 what you were this quarter versus 1 year ago and why that's going to sequentially change and what's going to happen.

The answers to all those questions around where the orders are coming from, where the growth was coming from were all very mature and very well thought out reasons, hence, we built a little confidence for us and so we've raised the organic growth by 1 point.

Yes, it really was, Rick, broad-based.

And the first quarter really look at each of the 4 segments, really outperformed our internal model, and that confidence then continues throughout the year as we go through our review process and talk to all the leaders.

Sure.

Okay.

And then just as a follow-up, when you look at the M&A pipeline, Brian, you referenced it's essentially full and there are some nice opportunities in there.

Is it more target-rich in the application software area, which would fall into RF?

Or is there some medical software in there?

I presume it's software-dominated, but maybe you could just provide a little bit of color, maybe next layer down on what that pipeline looks like.

I think most of the things are application software, network kind of things, so less likely to be medical.

At the moment, the things that we're doing are not medical, but it doesn't mean there wouldn't be one.

I mean, we're actually just starting to look at one, it's a smaller thing in medical.

But there are a lot of application software things and there's some things that we've looked at in the past that we gave people advice about what they ought to do to make it a better company, and some of those people have taken that advice, and we're going to maybe look at them again to see how we feel about that.

We will take our next question from Joe Giordano with Cowen and Company.

Okay, we will go to our next question from Deane Dray with RBC Capital Markets.

This is Jeff on for Deane.

My first question is just on your toll and traffic business.

Can you maybe just talk about the bid pipeline that you're seeing and maybe more broadly the penetration of cashless tolls?

I think the bid pipeline is extremely full.

I think there are some people waiting around to see if there's going to be any support from an infrastructure program that the government throws out that would pay for stuff that they otherwise have to pay for themselves.

We really have always driven the cashless tolling because we have the supreme technology about the ability to read various things.

So we have a family of multi-protocol readers that can read a wide variety of technology.

So those things really facilitate people doing adoption.

So as you watch the people drive through at higher rates of speed and then we really have great execution capability for remotely accessing those technologies and helping people manage it.

All of that is good.

And then lastly, in addition to the technology where we're really preeminent, there's also just the administrative back office activity and there's a lot of bidding around that as some of the very long in the tooth administrative people that have been around for a very long time and who've not improved very much.

A lot of people are looking for new players.

And so when they look out for somebody that has a proven track record and has expanded rather than not expanded the technology, we kind of get the first look.

So we're involved in a lot of those things as well.

Okay, great.

And then just as a follow-up, do you have an update on the timing of the resegmentation of your portfolio and the initiative to streamline the internal P&Ls?

The situation around that sort of it's, what are we acquiring this year?

Are we going to divest anything?

Is that going to have an effect on anything?

Neil spent a good deal of time in the quarter beginning to look at that, and he's spending a great deal of time the second quarter traveling around and visiting with people.

So I think that will continue to progress throughout the year.

And we will take our next question from Julian Mitchell with Barclays.

This is Lee Sandquist on for Julian.

In medical, you touched on the mixed headwinds from U.S. labs, but not the startup costs in Australia.

Can you just update us on the cost to ramp up for the Queensland project?

Yes, it's Neil.

So it's -- we -- the [project] has started.

It started on track.

It'll be one where the timing of revenue relative to the timing of the expenses will be a little imbalanced or out of balance this year and then it corrects itself for the remaining 9 years of the contract.

And so it's on plan in terms of our expectations and we would continue to expect the project to progress in that order.

Understood.

On the balance sheet, the delevering effort has been very impressive.

Can you just provide a perspective, updated perspective on the capital deployment priorities if, in the off chance, M&A does not materialize?

I don't think there's any chance that EBIT -- or that M&A does not materialize.

So that's the perspective.

Believe me, in a slow year, we'd look at $10 billion of opportunity, make offers.

There is no way that we're not going to be having the ability to do fantastic transactions in M&A.

And we will take our next question from Joe Giordano with Cowen and Company.

Curious, like you mentioned the Aderant growth, and how early or late are you into that whole customer base being up for grabs and having to make decisions there?

Yes.

I think it, call it, sort of a mid, if you will.

I mean, there's -- the competitor has a forced migration coming in 3.5 or 4 years, and so customers are in the process of getting ahead of that.

And so we've got several years to go.

I think it's worth also noting that Aderant is not sitting around waiting for that day to come.

I mean, there's a number of new products we're launching and other initiatives we're doing to be able to offset that growth dynamic 4 years down the road.

So in the short term and in the interim, I think we're in very good shape.

Great.

And then, Brian, on the portfolio, you mentioned application software probably heavy, network heavy.

Is there any like kind of an obvious theme without giving away too much information from a competitive standpoint, but feel like there was an obvious medical theme for a while, an obvious infrastructure theme now.

Is there something new that you're looking at or is it more fill-ins to existing kind of platforms that you have?

No.

I think that there's some common themes that override that all the way, right?

So we know the kind of business it's going to have, hopefully has deferred revenue, so we're paid in advance for what we do.

And it's going to have high margins, it's going to have the sort of mid-single-digit growth or better oftentimes.

And it's going to be something that's niche, that's critical to the customer that's actually making the decision to deploy it.

It's not going to be something that goes to some value-added reseller that's making adjustments to it.

It's not going to be software that the customer itself is using to rewrite stuff.

It's going to have some implementation service associated with it that we're not going to spend a huge amount of time servicing it over a long period of time.

And the market, it's going to be something that the customer allows him to make more money so that his decision about what he's willing to pay for the software or network access that he's getting from us is a no-brainer for him.

And so then it's really the kind of thing -- I mean, I can't describe the ones we're looking at now.

But each one of those, they're not huge revenue companies of their own right but they're controlling billions of dollars of revenue.

And so people really want them.

And that's true of a whole lot of things.

I mean, you can think about like a toll tag business, well, gee, it's a couple hundred million.

Well, no, it's bringing in maybe $85 billion.

Gee, it's iTradeNetwork at a grocery chain at $100-plus million of revenue.

No, it's $8 billion of transactions.

So the kind of things that our people do have very far reaching broad applications with lots of money involved, just it's not our revenue.

And those are the kinds of networks and software applications that we're looking at right now.

Is there anything on the application side around Neptune?

I feel like there's been a lot more kind of technology going through the metering channels there.

Is that something that Neptune is just doing organically on their own?

Or is there maybe opportunities there to add more on like the analytics kind of software side there to that business?

Well, we have some other investments and activity that help support that.

But what happens at Neptune is that as we build -- everybody else kind of went with one idea and they're trying to drive one idea.

And what Neptune has done is by making everything backward-compatible, when you take something that's really quite old, still allow a customer to move forward without having to change out everything, and that's an invaluable thing.

Other people force dramatic change on customers, and a lot of them don't like that.

So that's an important part.

I mean, Rob, you may want to add to the -- of course, we've established an Atlanta technology center, it's a big deal and we're staffing that rapidly.

Yes, that's exactly right.

So we have been investing organically in software in Neptune quite a while and that continues to ramp.

And as Brian said, we are doing that in Atlanta.

A lot of exciting things.

I mean, it's such a great customer base.

Our solutions really drive the ability for the customers to collect the revenue and I think there's a lot more things we can do to continue to help the customers get better over time.

And we're making those investments today that we feel confident will pay off in the future.

And we will take our next question from Alex Blanton with Clear Harbor Asset Management.

I wanted to ask about what you said about compressor controls.

You said that the -- I believe you said that the orders were coming in better than expected for 2019 projects, is that correct?

No, I wouldn't say, Alex, those were orders, but we're seeing a lot of activity.

And so if you went back to the bigger [LNGJ], $30 billion kind of projects that people knew would be out in 5 years.

What we're seeing is a lot of smaller projects in the $1 million to $2 million arena that people are considering for 2019.

But we wouldn't see an order for those until 2019 and then delivery in '19 and '20.

Okay.

So indication's future orders are better than expected.

What's the reason for that?

Why do you...

Some of it is around exports, some of it is around people seeing an opportunity for some of the things to be profitable that they thought maybe couldn't be profitable before.

How much of it is the pricing mechanisms they're seeing, it's really hard to say.

Each one of those customers has got his own concept about why he's talking to us, but the important thing for us is they're talking to us.

And 12 months ago or 15 months ago, we weren't having any of those conversations with anybody.

Is that partly related to the price of gas, you think?

I just don't think -- we're not going to make that call.

I mean it could be.

You'd have to ask each one of them, right?

So these are big guys.

It's certainly got to be related to their view of macroeconomics, whether that's the price of oil or a change in the ability to export or something around LNG projects or the fact that they've under-invested for a very, very long time and eventually have to -- and they're beginning to start that cycle on getting back to upgrading their older areas.

Yes, well, the lower price of gas should lead to greater usage of gas, and that would help you.

Second question is on the first quarter tax rate, I might have missed it, did you explain why it was only 18% versus 23% for the rest of the year?

Yes, just timing on deductions related to stock-based compensation.

Okay.

And thirdly, I don't have a really good sense of where the energy segment is relative to the past peak.

That business fell way down a couple years ago.

And just where are we relative to the past peak?

It's still probably down by at least 40% from the peak.

The one business that's actually ahead of its peak, and it's Cornell Pump, and that's because it's not much an energy business.

They do a lot of [club sale] directly on packaging stuff.

But Roper Pump, AMOT, Viatran, and [DEPS] are directly upstream guys, so let's say, they're up 35%, but they were down 60.

So...

Right.

So if you're off still 40% from the peak, what's going to take to get back to that peak?

And when?

Yes, so [all balanced, right]?

We have the midstream and downstream businesses that have not bounced back similar to the upstream yet, we still have -- the reason why we're excited about these green shoots of optimism for compressor control is going out a year or 2, is it still hasn't really rebounded because it's very late cycle.

But again, as you know, Alex, this is a really small part of Roper now from a percent standpoint.

It's very difficult for us to predict if we ever get back to peak or not.

What we can be sure that our business leaders are going to execute very well in the environment they're in as they have done, and now they're getting very good leverage as the business has grown.

That's really what we ask them to do versus us making long-term macro predictions.

Right.

But you've still got plenty of potential there, correct?

In that segment?

But it's still a very small part of the total.

I mean, these businesses are never going to get back to be 15% or 20% of Roper.

Well, under 10%.

Not going to be there.

They're going to be single digits of our portfolio.

Right.

That's correct.

And 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.

Ladies and gentlemen, this does conclude today's call, and we thank you for your participation.

You may now disconnect.