The Roper Industries First Quarter 2013 Financial Results Conference Call will now begin. I will now turn the conference over to John Humphrey, Chief Financial Officer.

Thank you, Kayla, and thank you, all, for joining us this morning as we discuss the results of our first quarter. Joining me this morning is: Brian Jellison, Chairman, President and Chief Executive Officer; Paul Soni, Vice President and Controller; and Jason Conley, who heads up Planning and Investor Relations. Earlier this morning, we issued a press release announcing our financial results. The press release also includes replay information for today's call. In addition, we have prepared slides to accompany today's call, which are available through the webcast and also available on our website at www.roperind.com. Now if 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 risks and uncertainties as described on this page and as detailed in our SEC filings. You should listen to today's call in the context of that information. Now if you'll please turn to Slide 3. Today, we will be discussing our income statement results for the quarter primarily on a non-GAAP basis. A full reconciliation between GAAP and non-GAAP measures is in our press release this morning and also included as a part of this presentation and on our website. For the first quarter, the difference between GAAP and non-GAAP is a fair value adjustment to acquired deferred revenue at Sunquest. For the quarter, this impact was $3.6 million to revenue and operating profit. This adjustment represents revenue that, absent our acquisition, Sunquest would have recognized. We believe showing our results on this basis provides additional insight into the ongoing and recurring results of the business. And now if you'll please turn to Slide 3, I will turn -- sorry, to Slide 4, I will turn the call over to Brian Jellison, Chairman, President and Chief Executive Officer. After his prepared remarks, we will take questions from our telephone participants. Brian?

Thank you, John, and good morning, everybody. If we look at the Q1 enterprise financial results, it was an all-time record for the first quarter, most level of orders, highest level of sales, biggest net earnings, the most EBITDA and the highest operating and free cash flow. One of the incredible things about the first quarter is that all of our margins again increased, gross margins, the operating margin, the EBITDA margin and the net earning margins, all established records for Roper. Our orders at $794 million are particularly strong in that last year we had about $15 million out of the Neptune cancellation, which of course, didn't recur, making that $794 million look even stronger on a comparative basis. Revenue was $741 million and our book-to-bill was 1.07, which is well above our norm. We have a little over $1 billion in backlog now, which is up 18% over last year at this time. Our gross margin went up 240 basis points to 57.4%. And all 4 segments actually increased their gross margin, so it's not just the benefit of higher margin of Sunquest but execution in all 4 segments. Operating margins were up 150 basis points to 25.5%. And our EBITDA reached $230 million in the quarter, which was up 210 basis points to 31%, which is a quite excellent performance for our first quarter. Our GAAP operating cash flow was $171 million, representing 23% of revenue. Compare that $171 million to $125 million of net earnings. The free cash flow was $160 million in the first quarter and our diluted earnings per share increased 17% to $1.27. We felt we had really compelling margins and cash flow, and then the Q1 orders will really drive our full year organic growth. Next slide. Here, we look at the…

Thank you, Brian. Next slide, going to the MHA overview slide. So talk a little bit about this acquisition, which we do expect to close later in the week. So all the regulatory approval has already been obtained on that. So MHA is the largest provider of services and technology and a network for the alternate site health care markets. An alternate site, for those of you on the phone, just means nonhospital settings. So all the places where care is being delivered in a nonacute care, nonhospital type of setting. What they really provide is a whole suite of tools and technologies, which include GPO services, includes reimbursement tools, software specific to pharmacy solutions and the largest network for processing and adjudicating Medicare Part D claims, and they provide that for all of their customers across multiple classes of trade. And those are delivered with the largest and most comprehensive customer service team, which enables their customers to both increase revenue through getting better reimbursements and faster reimbursements and also to lower costs by being able to purchase more effectively and efficiently across the network that MHA is able to provide to them. They do have the #1 position in all of their served niche markets, which include long-term care pharmacists, home infusion, specialty pharmacy, assisted living locations, all of the places where care is being delivered in a nonhospital setting. Next slide. Going into a few more of the kind of facts and figures for MHA. When we talk about it being the largest alternate site health care network, this really gives a glimpse of the scale that MHA has with a customer base of about 12,000 different customers, 47,000 different locations. And they enable the purchasing volume for all of those current locations, which exceeds $5 billion…

Thanks, John. People always ask us about what our criteria for acquisitions are. And we -- virtually every presentation, we will tell you that these are the things that we're looking at. And just as a reminder, these are the things we look at. So if you look at the first item, we want our businesses to be asset-light. Many people report EBITDA, and they don't even take the time to tell you what the EBITDA minus CapEx is. And they'll talk about depreciation and CapEx as though it's unimportant. We think asset velocity is extremely important. So in the case of MHA, they have no inventory. That would be 0, nada. And they have negative working capital. So the cash-on-cash growth out of MHA is really quite substantial because it's going to throw off additional cash that we're going to be able to use to acquire companies to augment its own growth. We're going to -- we always want to focus on market structure and driving forces. We invested more money and diligence on MHA than any deal we've ever had, with 3 different outside people approaching this from very different directions. And we've been looking at this company for quite a long time, waiting to pull the trigger based on a variety of factors. And this research was critically important to us to just see how secure their strategy is and that there aren't externalities that could come out of the woodwork that would be difficult for us. On customer intimacy and technology, we want those to drive the purchase decision, and we were very impressed. When John talks about the consulting nature, these people virtually prepare for their clients a 3-ring binder that they go through to kind of tell them how they're performing and where they…

[Operator Instructions] We will take our first question from Deane Dray with Citi.

For MHA, maybe some additional color on their mix, some sense of how or what percent of their contracts are exclusive. And maybe talk a bit about how much of the revenue comes from performance contracts and how they've done against those historically.

Yes. So none of their contracts are performance-based. Most of the things you're talking about, this idea of exclusivity is more of acute care hospital type of GPO -- I mean, very little as far as MHA's contracts with their customers are exclusive and none of them are performance-based.

Okay. And then Brian, I was hoping you can expand on -- and maybe this is just the terminology. But on Sunquest, when you talked about you're looking for faster implementation, is this -- are you talking about integration, new software rollouts? Or just if you could expand on that point.

Yes. The integration is fine. It's just a world-class organization, and we've had nothing but a marvelous time working with the Sunquest people. But the adoption of the software upgrades that they're getting is occurring at a faster pace, I think, than they expected. And as a result, their ability to execute against those and get the implementation needs to improve. And they're making some structural changes around people and who's driving what so that they can get better focus on that because we could actually escalate their growth if we can get out there to get those new customers onboard. It's a customer integration, not a Roper to Sunquest integration question.

And just to clarify on that, what is the growth rate that you're expecting from Sunquest if you factor in these new software upgrades?

I think we're expecting it to grow at sort of high single-digits.

And what type of margins that you've been -- you're getting out of the blocks?

I'd say they're maybe twice ours.

And we will take our next question from Matt Summerville with KeyBanc.

One follow-up on MHA, and then I have another question. John or Brian, can you talk about the addressable market size for MHA, the competitive environment, whether you see any disruptive technologies out there to what MHA has?

We see a lot of disruptive technologies and saw them all during our diligence process. I mean, they have a very high share, and particularly in the long-term care pharmacy space, yes, well north of 50% there. But it's still -- they have the largest share also in the long-term care facilities around food purchasing, but that's a relatively small share. So there's still quite a bit of headroom to grow in the long-term care facility and assisted living areas. And then we just see the positive drivers associated with demographic trends and more care being delivered in nonhospital settings as population ages. So those are positive benefits. And then those share gains, particularly on the LTCF side of their business, are things that we think will drive their growth going forward.

I think, Matt, that John means that the disruptors that he sees are at MHA, which is...

Yes, that is what I meant.

We're seeing a pretty clear pathway of growth there. And we're enabling a lot of people to be successful in a marketplace that probably wouldn't be able to survive without the productivity that MHA allows them to deliver.

That's right.

That's helpful. And then my for my follow-up, just, Brian, can help fill in the blanks a little bit on the organic growth forecast? You start out minus 3%. It sounds to me like you weren't specific, but the second quarter is maybe relatively flattish. That really does imply a pretty big finish to the year. Can you just sort of help bridge how Roper gets there?

Sure. I mean, yes, you're right, as far as the math and the way that it rolls out. So with kind of down 3% in the first quarter, we're expecting second quarter to be up kind of in the low single-digit range on an organic basis, 1%, 2%, 3%. And then the back half is in the high single-digit range, driven by the orders that we received in the first quarter. So that provides a nice backlog and contracts and projects to execute against in the RF segment. And then just some modestly improving areas, some new product introductions, and frankly, a little bit of easier comps as we get toward Q3 and Q4 in some of the imaging and industrial segments.

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

Just a couple of questions, gents. Just again on MHA, is that $95 million EBITDA number inclusive of the D&A that gets created by your acquisition of the company? Or is that its own underlying EBITDA?

It's actually both. So we will have incremental amortization, obviously, of the intangibles upon acquisition. But the earnings before that amortization and interest in other things is consistent between our ownership and theirs. And just to clarify that $95 million is under the first 12 months of our ownership, not for the calendar year of '13.

So you're saying the additional DA created by your acquisition doesn't -- isn't significant relative to that $95 million number?

Right. Yes. So we've got the $95 million of EBITDA. And then we're right now estimating that the amortization on an annual basis will be something around $25 million.

And that's included in the $95 million?

Right. Well, it's actually excluded from the $95 million, so the $95 million is before the amortization. So if you add any amortization, it comes down to $75 million or $70 million.

Got it. And just trying to ballpark the revenues of the business, I guess, at the midpoint of your revenue range is you've raised revenues by 3 percentage points, which is $90 million or so for a partial year. You've got some FX headwinds and other things going on. But we're talking about a business that's, I don't know, $130 million, $150 million in revenues. Is that the right ballpark?

Yes. That's a fair assessment.

And then finally, I was just wondering if you could give us a little more detail on how the deal pipeline looks now. This was obviously a very significant deal with the pipeline still active. Should we expect anything else this year of this size? Any general color would be appreciated.

Well, I think a couple of years ago, we said we already knew where the next $5 billion of investment would be. It's just that you never know whether you're going to close the gap or things work out. In this case, having done Sunquest at $1.4 billion in August and MHA at $1 billion this month, at $2.5 billion, we're sort of halfway there. We're hoping that things that we would like to do are still going to be available to us over the next 2 or 3 years. So I don't think there's any question. We've still got another $2.5 billion or $3 billion to go. But I don't think much of that would be this year.

And we will take our next question from Joe Ritchie of Goldman Sachs.

Just to follow up on that organic growth question from earlier, clearly the book-to-bill was strong this quarter, 1.07. What kind of confidence and visibility do you have into that back half of the year growth forecast? And then are there any specific areas where you have concerns in the back half of the year, given what you've seen and what has been a relatively slower growth environment this quarter?

Yes. That's a really good question. So the areas that we have the best visibility into are the ones where we also had some of the best order growth this quarter. So in the RF segment, which has a little bit longer lead time between order receipt and revenue and project execution, so that's the area that I would say that we probably have the highest degree of confidence in, because most of what we're going to be shipping out and delivering in the back half is largely in backlog already today. And then as we kind of step away from that and see that one of the areas where we have a little bit less visibility because we're faster between order to delivery, those areas are more in our industrial and energy markets. And so we have a number of things that are going on there. Our compressor controls is very similar to RF in terms of its backlog and visibility. But some of the other areas there, it's not unusual to have a order to revenue cycle that would be measured in weeks, not months. But we do have visibility in terms of the new products that we're introducing and what we expect the uptake rate to be there. But I wouldn't say that our view on the second half, as we stand here today, is any different than our view would have been on the second half as we stood here at this time last year. So we have similar visibility today as we would at any other time as we look 6 to 9 months out. And that kind of tries to give some sense of where we have better visibility and things that still have to happen in order to achieve our earnings guidance for the year.

Let me just add to that, Joe, that the -- our book and ship businesses actually did quite fine. And our book and ship businesses are motoring along. What we wanted to see and we were fortunate to have it occur is that these longer lead time businesses, which really are compressor control and our toll and traffic businesses, in some cases CBORD projects, all are coming in favorably now. That's where -- there was more risk in those things for the year than there are in some of these book and ship businesses. And our bellwethers that would worry us, that would say there's some weakness -- are seeing some of that on the instrument side that's CapEx-related but not anything on the service and parts and consumable side. So we -- that's the reason we were willing to stick with the organic guidance we had here when we raised our overall sales to 11% to 13% for the year.

Got it. That's helpful color, guys. I guess, one follow-up is given that we have had a little bit of a slower growth environment, has there been any adjustments that you've had to make to your portfolio, either adjusting the cost structure in any way to try to navigate through these relatively uncertain paths? Or has the portfolio essentially been -- remained intact over the past quarter or 2?

Well, in terms of the portfolio meaning the businesses, they've remained intact. We haven't really done anything about exiting a category. We did a very modest amount of restructuring in the third quarter of last year and even a little less in the fourth quarter. Most of that was in the energy business, which is why energy's first quarter had higher margins and why we're seeing they'll have still higher margins again sequentially in the second quarter. Those businesses that were down, and they were only a few, the big down is just this contract cancellation that -- going through the pipeline here. And so the others aren't down all that much. Where they are down, they're deleveraging at about 30% with gross margins at 50%. So that would tell you that their costs are quite fine in terms of being in line. And since we don't have a lot of heavy assets, if we had to make an adjustment, we can be very nimble compared to most other people because most of our assets go home at night.

We'll take our next question from Christopher Glynn with Oppenheimer. Christopher Glynn - Oppenheimer & Co. Inc., Research Division: So if we're talking about high single-digits in the second half, would it be fair to be thinking about RF as double-digits? Or presumably somewhere there's low double-digits in there and just wondering if we could go a little deeper into any such component.

Yes. It would be safe to say that RF will lead the organic growth profile by a wide margin. You'll get -- you'll struggle to get past mid-digits in industrial and you'll get high single-digits in energy and medical, and double-digits in RF. Christopher Glynn - Oppenheimer & Co. Inc., Research Division: Okay. And on the medical, high single organic can -- what's at the forefront of that? Is there any research improvement or budget flush that you're kind of putting into that?

It's all relative.

That's true. It is just relative. The situation there is you do have easier comps for the research market businesses. But we're not expecting anything great out of those. It's just a little better. And they did have a weaker Q1. And what really happens in the medical segment is in the fourth quarter, Sunquest becomes organic. So we acquired it in August, so it's finally going to lap itself and it will drive some additional growth in that segment. Christopher Glynn - Oppenheimer & Co. Inc., Research Division: Okay. That makes sense. And then just overall in the quarter versus where you came into it, what was the 1 or 2 biggest surprises?

I think even though we're down 3% organically, it's really all just this contract situation, getting rid of that. And the imaging, which we expected to be soft, I think we were generally encouraged that the consumption stuff with consumables in those businesses that were weaker with instruments was as strong as it was. So it's not suggesting that people are slowing down their activity but maybe postponing their purchases. Our stuff tends to be above MRO and below capital spending. But it's easy to defer the instrument purchases for a period of time.

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

Looking at -- Brian, can you say -- or John, after MHA, what does the balance sheet look like and what's your capacity after it closes?

You mean our balance sheet, not MHA's balance sheet?

Yes, correct.

So on a post-close basis, I mean, obviously, we'll be borrowing -- a substantial portion of our $1 billion will be borrowed under the revolver. And then that will put us kind of at a debt to EBITDA level of somewhere in the 2.5, 2.6 range, very consistent with our existing ratings and with our long-term commitment to continue to be an investment grade-rated company. So I don't really see an awful lot of pressure there. And then also you see we did raise our operating cash flow guidance for the year up to $800 million. So with the vast majority of that being in the U.S., we'll use that to pay down debt through the year and continue to build capacity with growing EBITDA to continue to do what we've been doing for the past 5, 10 years as well.

Yes. I don't doubt that. I guess, it's more -- what will be left in the revolver and how much cash will you have left?

So it is a $1.5 billion revolver, and this will -- if all of this is drawn, so it'd be $1 billion. So we still have $500 million available under the revolver plus the cash that we'll generate through the year.

Okay. So you're not drawing down your cash balance much at all, it's all in the revolver?

That's a fair assessment, yes.

Okay. And then looking at the medical and scientific, it looks like -- did research decline double-digits? Is that kind of what we're looking at here?

That's correct.

If you call $12 million on its base, the answer is yes. Down double-digits last year, and they're continuing their trend.

They were down double-digits last year as well?

They were. Yes.

Okay. So then with the rest of medical outside of Sunquest, was it roughly flat? It sounds like that was certainly below...

All of medical is the duck on the water, right? So everything looks fine. But the feet are moving fast, so there are different product lines that are doing better than others. Anything that has consumables with it is still doing really well. Some of the product businesses are more mixed. So you've got from negative single-digits to modest growth. We've got some new products that are coming on board, so we feel on balance pretty decent about the medical device side of the business.

Okay. And finally, can you give us an idea of the size of the orders in the toll and traffic in Florida and Virginia if you can?

I don't know if we can do that. Let me check. And if we have approval to give any color on the size of those contract wins, then I'll be able to get back in touch with you.

And we'll take our next question from Richard Eastman with Robert W. Baird. Richard C. Eastman - Robert W. Baird & Co. Incorporated, Research Division: Just a couple of questions on MHA, a follow-up here. Can you just give us a feel for what the purchased volume that MHA has handled -- what the growth rate been there in the last, say, 3 years? And then also what percentage of MHA's revenue comes from an administrative fee on that?

So the majority -- in fact, the vast majority of their revenue is an administrative fee on that purchase volume. And that purchase volume has -- there are a couple of different parts to that. You've got the long-term care pharmacy side, where the overall purchase volume has probably been flat over the past couple of years, primarily because of some branded drugs that have gone to generic, kind of that big change, particularly around one drug called SEROQUEL happened last year. So that change over the last couple of years has impacted the pharmacy side. On the long-term care facility side, where most of the purchases are around food, that's been growing at a single-digit -- a mid-single-digit rate on the overall purchase. But MHA has been growing faster than that due to share gains. Richard C. Eastman - Robert W. Baird & Co. Incorporated, Research Division: Okay. Is there a deferred revenue component with MHA? Will there be?

There will not be a deferred revenue component, no. Richard C. Eastman - Robert W. Baird & Co. Incorporated, Research Division: Okay. And then just the last question. On the RF tech side of the business, given the growth in the second half will come off of some project work, primarily in tolling, would you expect that the EBIT margin for RF -- or excuse me, yes, for industrial tech -- or excuse me, for RF, will work higher on that project-driven revenue than it is in the first quarter?

You mean the project-driven revenue at RF? Richard C. Eastman - Robert W. Baird & Co. Incorporated, Research Division: Yes. So RF will be driven in the second half by these projects in Virginia. I know you have one in California, also the projects at CBORD. But will the EBIT margin in RF tech work higher in the second half? Is there leverage there? Or is the project revenue going to come in at the same general EBIT level?

There's 2 kinds of leverage here, right? So one, as we said, one of the reasons that we did better in the first quarter in RF is the quality of the project execution that they have, which is service-related. The second is the margin on product sold. So when you look at a particular situation, like Florida has a lot of tag sales, so the margins associated with the Florida order will be higher than the Virginia order, where the Virginia order has more labor content, which is really almost design and build, if you will. So you're not going to have huge margins there, but you do have spread variances on your execution. And I would say not long ago, we put a new President in at TransCore that's a career expert. Tracy Marks is doing an incredible job. And he's really built a very fine team. We've kind of done some structural things to get more attention on contract execution, and that's starting to pay benefits. So I think we'll see in the second half better leverage on contracts than we enjoyed in the last couple of years. But they still will be the lowest-margin businesses we have just because there's so much labor content in them that they're not high-margin businesses. Richard C. Eastman - Robert W. Baird & Co. Incorporated, Research Division: Okay. All right. So again, off the first quarter EBIT of, say, 27% for RF tech, we'll still get some volume leverage off of that project work and that should -- our EBIT margin should work higher for the balance of the year?

Time will tell. We'll be able to talk more clearly about that after we have the third and fourth quarter. But I do want to follow up on one earlier question, Rick, I'm sorry. So just to your question around deferred revenue, the answer is no. There's not really a deferred revenue component for MHA. There will be some noise with respect to how purchase accounting treats some of the revenue that MHA has. That's why our guidance is on a non-GAAP basis. We're going to be adding some of that revenue back that will not be recognized due to purchase accounting rules. And after we close on the business, we'll be able to know exactly how much that is and talk more clearly and have some additional schedules available at the second quarter close that will describe that adjustment in detail.

We'll take our next question from John Quealy with Canaccord Genuity.

Just 2 quick ones. First, on the book-to-bill, obviously, very strong in RF. I'm assuming as revenue goes up, maybe book-to-bill qualitatively goes down this year. Can you talk to that? And then the second one, within industrial tech, you talked about double-digit metering gains. Is that competitive? Or do you think that's part of the -- with Elster going away? Or do you think that's part of the market coming back in housing, et cetera?

From what we've heard from competitors, they didn't do very well first quarter and we did quite well. So people will have to sort out whatever they think the forces at work are. I don't know, I just know that we continue to grow with the exception of the contract cancellation and have double-digit growth in the United States in water meters.

And then with your respect to your other question, John. So the book-to-bill ratio at 1.15 for the segment, I mean, that is above our norm. We would expect that over time to trend to closer to 1. And it will be based upon the timing of project orders in the RF segment as we go into the second half. Obviously, as some of these orders that we just received ship out in the third and fourth quarter, those will start to bring that ratio back down.

That will end our question-and-answer session for this call. We will now return the call back to John Humphrey for any closing remarks.

Okay. Thank you, all, for joining us, and we do look forward to talking to you at the end of the second quarter as well.

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