The Roper Technologies' First Quarter 2016 Financial Results Conference Call will now begin. As a reminder, today's call is being recorded. I will now turn the call over to John Humphrey, Chief Financial Officer.

Thank you, Leann, and thank you all for joining us this morning, as we discuss our first quarter results. Joining me this morning is Brian Jellison, Chairman, President and Chief Executive Officer; Paul Soni, Vice President and Controller; and Rob Crisci, Vice President of 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. We have prepared slides to accompany today's call, which are available through the web cast, and also on our web site. So if you please 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 further detailed in our SEC filings. You should listen to today's call in the context of that information. Next slide? Today, we will be discussing 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 this morning and also the part of this presentation on our website. For the first quarter, the difference between GAAP results and adjusted results, consists of three items. Our normal adjustments related to recently acquired businesses on both deferred revenue and inventory valuation which totaled $3 million to both revenue and income measures. We have also adjusted our operating cash flow to account for the cash taxes paid in the first quarter for the Abel divestiture. The Abel divestiture you may recall was completed in the fourth quarter of last year. GAAP required this amount, $37 million in those tax payments, to be reported as an operating cash flow item even though it is related to that divestiture. We’ve added this $37 million back to reflect the ongoing nature of our cash flow. Now if you please turn the Slide 4, I’ll turn the call over to Brian Jellison, Chairman, President and Chief Executive Officer and after his remarks, we will take questions from our telephone participants. Brian?

Thank you, John. So we’ll go through today the first quarter enterprise results and we’ll look at the detail around the four segments. And the outlook for the remaining of the year and while we’re doing that, we’ll comment on the second quarter and full year guidance at the end and then take your questions. Next slide. So we start with the Q1 enterprise results. Go to next slide, Slide 6. You can see there is a lot of great thing here, was a very, very good quarter for us and certainly puts us on track for a record 2016, but just one word I’d say before we get started, Mr. Humphrey over here is actually just celebrating this month his 10 completed year with the enterprise. And as John refer to it’s actually his 40th quarter. So with that, let’s take a look at our first quarter and congratulations John. Revenue was up 4.4% to 906 million versus the first quarter over a year ago and organic, you can see was down 3.2%, which is really not the story, because excluding oil and gas the company’s organic was actually up around 1% and if you look at the headwinds that we knew we had with the end of Toronto and Puerto Rico and so forth really the underlying basis, the activity seeing better than that or like plus 3. Our orders are up 9% in the quarter to a record. Book-to-bill was really spectacular, because we haven’t had a book-to-bill above 101 for 2.5 years, this time [indiscernible] combined industrial energy together the book-to-bill was 104, medical was 103 and RF was even just here above 1, but actually had an adjustment in there for some debookings around the business that we’re doing something with and otherwise it would…

[Operator Instructions] And we’ll go ahead and take our first question from Scott Davis with Barclays.

Just trying to get a sense, I don’t think I’ve ever asked this question before and you may not have the answer off the top of your head, but you said 2015 acquisitions performing very well and clearly that looks to be the case, but can you quantify that? Is there a cash return on capital on those deals that you could quote for the first 12 months out or expected for 2016 or something that we could hang our hat on?

Well I think, you’ve been around us a lot to know that I am not a fan of return on invested capital where people look at stuff and don’t add back accumulated depreciation and don’t really realize how much future drawn cash, their CapEx will be. So in our world we look at new cash return on investment. So in that case, you look at the net earnings of the business and then you add back the non-cash charges and you divide it by the gross investment which is the physical plant & equipment plus accumulative depreciation plus networking capital. All of this acquisitions are well above 100% cash returns many of them are in the several hundred percent, cash return basis and some of them get paid in advance for what they do, so they have a negative cash return which is even more powerful. So they are all doing it very well, I think there is a general rule and more you can assume that our acquisitions are going to come in and they’re going to be substantially above the 34% EBITDA margin that the overall enterprise has and that they are going to have higher gross margins than the enterprise and they’re going to have higher cash returns than the enterprise.

Okay. Fair enough and as far as you put a lot of capital to work last year I think it was somewhere than 1.85 billion, would you anticipate I mean say over 1 billion in 2016 book, but you also said you have $1.8 billion or so of firepower, would you anticipate something closer to 1 billion or closer to the 1.8 billion that you have in the hoppers as a potential or is it just too early to say?

I think that we don’t sort of budget like let’s deploy $1 billion. So just thinking about what we think about it is very simple is we’re going to deploy our cash flow, we’re going to leverage it three times or more debt to the acquired EBITDA. So given this usually its more between 1.35 and 1.5 times our -- the powder of whatever our cash flow is. So if we have 1 billion in operating cash flow, we pay out some dividends or whatever and we multiply that to the acquisitions, it is very easy for us to deploy a 1.3 billion to 1.5 billion all the time. So that’s why we say we’ll deploy 8 billion over the next four or five years and as we said we deployed 2 billion in the last 15 months, we could easily deploy 2 billion in the next 15 months. So it’s not like a budgetary thing, Scott. I mean we’re looking at things now that are over 2 billion and we’re looking at things that are in the mid-100s of million and which ones we do and when they close is never thought of as a budget kind of thing but our balance sheet capacity and our debt ratios give us as much or more opportunities to invest than we’ve ever had.

Okay, great. Good reminder. Thanks guys and congrats on the start of the year.

Then we’ll take our next question from Deane Dray with RBC Capital Markets.

Just giving all anxiety we had last quarter regarding oil, it’s interesting and some relief that the comments that you’re expecting to see, margins improved sequentially in energy this year. So any comments on the visibility, the backlog and I know you didn’t call it out, you mentioned you did restructuring this quarter, but could recite it for us how much restructuring was done and what that payback is?

We got a little bit towards the end of last year in anticipation of the difficulty we did more in the first quarter, we’ll do couple of million dollars here probably in the second quarter, some of that you make the announcement, it takes a long time for people in Europe but we’ll continue to pull back a little bit on the sort of baseline SG&A, but the businesses are really small I think if you add them all up we had about 65 million of oil and gas revenue in energy and about 10 million in industrial, right. So, they really don’t have huge cost basis, they are very high margin businesses, if you look at them with sort of 30% pretax numbers or higher there is just not a lot of cost beside that takeout, we don’t have big factories that we have to worry about with absorption issues and what have you. So there is another couple of million, I think we feel like where we could be.

And then on organic guidance, I know you had a lot of moving parts in the second quarter especially, but what you’re expecting for organic second quarter and how about for the year versus the previous guidance of 2% to 4%.

We’re still in the same spot as we were when we issued the guidance with respect to the full year, in the 2% to 4% organic, that does imply or in fact it’s a part of our expectation that the second half will be in the mid-single digit organic growth, second quarter would be about flat.

Got it and just one last quick on, corporate expense came in a little bit light then what we were looking for where there any unusual items and or timing within corporate?

No, we’re not in fact that it was about what we had expected, in the it encompasses both from deal expenses as well as the equity compensation for the Company is all recorded that the corporate G&A line, in fact the stock price is up nicely from where it was last year that’s reflecting in that number also.

Got it actually I emphasize that was -- it came in higher then what we were looking for so, just want to --.

That is a directly tied to the share price going up, it’s of equity comp.

Thank you.

We help it goes up higher again, it’s a noncash charge.

And we go ahead and take our next question from Richard Eastman with Robert W. Baird.

A couple of things in the mid scientific medical products business the core organic growth in the quarter in orders, what did that look like and may be was there a book to bill in the core business there ex acquisitions?

We saw in organic basis for medical we were up 9% versus last year and the book to bill ratio was somewhere to the total, just a little bit above 1 even on core basis.

Okay. And MHA's business, is the pricing component there of their business, is it holding flat or has that improved at all?

So the pricing component for the branded drugs is continuing to be a positive contributor there, you do have some other impacts around generics which are either down a little bit or flat in prior you know last in couple of years those have actually been up, so in that net-net pricing is about -- is up very modestly for that not very much.

Okay. But at least flat. Okay. And then just one last question. On the RF business, the EBIT margin there, we have some real positive puts and takes, namely Puerto Rico's exit and then Aderant coming into the revenue and profit number. But is it a reset EBIT run rate that starts to push 32%? Does that start to be somewhat sustainable at that level?

Sure, yes. I think it will be in a low 30% range for the year, of course the timing of that -- the software businesses that we have are clearly higher margin, the timing associated with some of our toll and traffic projects which are often times little bit more on the equity side, and have a little bit more of a cost component to them even though there is not any negative drag from a cash flow prospective. Those margins come in a little bit below the average for the segment and so it’s about timing of the IPS project of the toll and traffic project, but will effect that. We still see north of 30% margins here for the remainder of the year.

And we’ll take our next question from Shannon O’Callaghan with UBS. Shannon O’Callaghan: A couple questions on medical. One, in terms of the plus 6% ex the imaging fees, the plus 6%, MHA, I think, had some comps in the quarter. With MHA down, would medical have been up even more? And then, also, as we think about margins for the second quarter and the year, should medical margins be down again because of either MHA comps or other comps or anything else? Or should we think about those starting to grow again?

You know I think too we’re seeing on the medical, we want to have people understand, but we’re going to continue make acquisitions there, we have extraordinary margins that we had with Sunquest and MHA. We’re going to make lot of acquisitions and we’re going to have better then enterprise margins, but they’ll be dilutive to software component inside medical. So this doesn’t bother as in any way. Now medical products had spectacular performance versus the medical software which in services -- so we’ve put Sunquest and MHA in the medical software services component and they were down a little bit organically in the first quarter, medical products was up more than double digit and off-course we still have the little bit corruption around imagining because we’ve actually been intentionally winding down certain of kind of imaging businesses while we’re going to have much better growth in Gatan. But the camera stuff this, we are trying to only participate in profitable markets, I don’t know if that helps you, but that’s the best way to explain it.

And remember the margins in this segment are just extra ordinary [multiple speakers], we expect our operating basis to maintain in the mid-30% all year. Shannon O’Callaghan: Yes, that's fine. I knew that there was some lumpiness this quarter. Just in terms of getting the margins and the modeling and just lumpiness in terms of some of the margin contracts, that's all I meant. In terms of energy, Brian, you sound pretty constructive on the non-oil and gas parts of energy. Can you give a little more color there, Zetec and also the other pieces, what you're seeing there that you like?

Well, we like that they’re not going down. They're inching ahead into low single-digit growth in both sectors, but industrials are going to have better growth because of Neptune. And then in energy we are getting a bit better growth in small business called DJ Instruments, we have business called Alpha that should have a stronger second half and Zetec is high single digits, might even get to the 10% growth, that’s really becoming a secular trend for that. So for a while with Fukushima and other problems with bringing things online, Zetec was really challenged. But today these people are working with us on all kinds of new applications, so we feel really quite good about that. But it’s a relatively small business within the enterprise, but nonetheless important.

And our next question will come from Joe Ritchie with Goldman Sachs.

My first question's, going back to your comment on M&A, Brian, you said it's the best it's ever been. I'm just curious, how much of that is being driven by the IPO market not being all that great right now and PEs having a hard time exiting? I'm just wondering what the driving factors are there.

I don’t think, it's really the IPO market, because generally the kind of things we acquire are things that probably wouldn’t go the IPO route. They would either go to a strategic or they’d get flipped to another private equity group. So I think there is a lot of forces of the work, there has certainly been lumpy feedback to sellers about just how much debt capacity they can get on things. Although frankly we don’t ever see any -- well we see one thing right now but it's got six-times staple, but another one that we’re really pursuing as a six and three quarter staple, there are still some seven staples. But the cost of debt has flipped around quite a lot, sometimes the mezzanine portion unsecured bonds of 10.5% other times they are 9% and the LIBOR 4% has been in play sometimes, maybe they gets 4.75 on the term loan. But it's really isn’t because there’ll be LIBOR 4 of 100 spent, 5.75. So I do think that there are a lot of private equity people feel as that they’ve got an asset that they are going to sell in the foreseeable future, it may still be as good a time now to sale. And they changed weekly, and first they are very opportunistic right; so our situation, we are not affected by those things and our ability to finance stuff is certainly easier and better than their cost of debt, so I think that helps. But also there is lot of things we are looking at, they have been in various portfolios for a while, and they need to get out. They might be more worried about the financing markets in 2017 than they are announced. So I can think of the time we’ve made a call, somebody has talked to them about their business that they haven’t said come on over.

That's interesting color and helpful. Maybe switching gears a little bit, you mentioned some of the known headwinds in the first half with Puerto Rico and Toronto. As we look into the second-half ramp, what do you need to see from an order standpoint? And how important is the second quarter to hit your organic growth ramp in the second half?

Well, what happens is, if you just think about the things that are going away that are reflecting us negatively. I mean if you adjusted for all of our headwinds, which is ridiculous. When you adjust for everything, it's bad. But if you really look through headwinds, we would have been up over 3.5% organically. So the idea that we are going up 2 to 4 organically over the course of the year is not a big challenge. I mean we should do pretty well in the second half, now things that can effect that are going to be the adoption rate of new products and some versions of software that are rolling out in second half, but you never know what those adoption rates will look like, great. So if they are high then we have a much better opportunity to get to that midpoint number above if they are moderate then it's harder. The second thing on the tolling projects, we have an enormous amount of bid activity right now. But there is never anything us as a supplier can do to influence the beginning or the execution of those projects. So if they go at an expected pace then that helps, if they go as a slow pace that it’s not particularly helpful and then last year we got nothing, out of the year-end instrumentation businesses in terms of seasonality, that’s the only time that’s happened in a decade. So we would expect to get some more modest returns to seasonality in the fourth quarter in those instrumentation businesses. So those are the things that will determine where we’re at, but within our guidance we’re certainly comfortable that we’re going to be within our guidance for the year irrespective of what happens with Q2 orders.

.:

Just a quick one on healthcare. What do you think for the second quarter organic? And then these acquisitions are obviously crushing it. Just remind us of the impact on the ones that are coming in in the second quarter. And then when you say they're growing strong, I think its Strata and Data Innovations. Are you talking these things are growing 20% plus? Just trying to understand those dynamics because the acquisitions coming in are a big driver.

So as far as the segment is concerned, we expect that we are up in high single digits in the second quarter on an organic basis and that is aided a little bit by those acquisitions that turn organic because they’ve been growing, you’re right are well into the double digits even above 20% or maybe a little more. And so they add a couple of points to us for that --.

And those combined last year were like $25 million, something in that range, in the quarter?

[Multiple speakers] quarter.

Okay. And then so if you're doing flat in the second quarter to get to 3%, the midpoint of the range organic, it looks like you have to do something in the 7% range in the second half of the year. You mentioned mid-single digits as a tweener. I think some companies we cover would round that up to high single digits to make it look better. But for you guys you're a little more conservative with your messaging. Is that the right math we're talking about? Do you think there's a chance you're in the 7% range in the second half?

That’s the high end of our guidance absolutely.

O: of : guidance. :

If you go to the 4% you’re absolutely right on the math. So kind of we’re at the midpoint, it’s closer to the 6% range for the second half.

Okay. Got it. Thanks. Sorry, one more on Neptune, sorry about that, more detail. What was the debooking there? I haven't heard that term that you guys have used before.

We didn’t have any fee booking at that time. That was in radio frequency software where we had a situation in the UK that we really decided with all parties would we better if they did something other than what they were asking us to do. So we debooked a couple of million dollars in the quarter.

And that comes through in orders obviously. But that's reflected in your orders number or is that adjusted out?

Yes. That’s right.

Okay, great. Thank you.

And we’ll take our next question from Robert P McCarthy with Stifel.

Following up on some of these questions that have been raised, the second half organic growth outlook, are you going to have a better sense on the 2Q call what the adoption rates are going to be that drive the variability in your guidance, or is it not something you're going to know until mid 3Q?

Better view on the tolling project we’ll have a widely different view on product launches, little bit in the medical products, a little less so on the software version update. But I think maybe you want to think about the fact, we saw we have this sort of artificial, we thought it is real, but we have a 3% to 4% organic drag because in Puerto Rico that goes away right Toronto goes away. So, so many things go away in the segments and they wind up with, if they were growing 3% to 4% organically, some are already growing 3% organically they are just.

Right. And my only question is, can you declare victory one way or the other on the guide when you report in July, or is it still going to be unclear, is my question.

We never declare victory until the game is over?

Or you do a big deal. Now, moving on to the restructuring, obviously that's something to be applauded. You do a lot of restructuring. It flows through numbers. Do you have a size across the segments or any flavor we can give? Obviously the returns are incredibly high in terms of what you do. But anything around the narrative around restructuring that would be helpful?

All the restructuring is centered around the oil and gas businesses and so a substantial amount of that is Roper pump which is virtually all off -- not, almost all upstream and has just collapsed. I mean it takes your breath away if you look at the numbers in the first quarter of ’14 versus here. So, we’ve done quite a bit of restructuring there and we’ve done some restructuring at compressor controls and we’ll continue to do more because their underlying service revenue will continue to be good and even grow. Plus the project activity around Compressor Controls will be off quite substantially. So Q2, I’m going to guess $2 million additional as some of these European things finally come to bore. Be less than 3 million or 4 million in the last six months I’d say.

And to put a little bit of more context on this. If you look at the number of people and industrial technology is down 10% more it was last year, saying first quarter this year versus first quarter last year. And then our energy segment it’s down, I think 7% or 8%. So our costs unlike most other companies, our cost or people related. We never like to brag about having to reduce people, but when volume goes down, it’s a necessary part of the retrenchment process. And so to put a little bit of contacts around that right, we’ll take big restructuring charges that cost a lot of cash, so you have to close down factories or take out capacity. But we have had quite a substantial reduction in the number of people, who workforce in those two segments.

And Robert where you really see it, look at the detrimental margins and energy and you can see that they’re dramatically lower than the gross margin. So people really do a great job and find tuning things.

The last question would be just around the portfolio. This has been asked before so it's not exactly novel. But would you consider just separating into two companies, just allowing -- obviously taking the playbook of a noted competitor and then thinking about pursuing the higher growth opportunities? Do you think there's any crowd-out there that hurts the businesses that perhaps don't have quite the characteristics that your best businesses have?

Well, the reality is that, if you look at the industrial and energy businesses, they just have outstanding independent results, right. So they’ve been kind of consolidated businesses with 30% EBITDA. They get all the internal investment they need and they throw off positive cash. So our view on that at least for now is good brief. I mean, why wouldn’t you want to have a portfolio that you could deploy all of your cash into the highest possible returning businesses. So why keep the capital deployment model by forcing to invest in businesses with inherently lower returns than the technology businesses with inherently higher returns, it just doesn’t make any sense for our investors. From an investor view point, if you split the industrial and energy, you’re going to redeploy cash and stuff that produces dramatically lower returns than the high stuff, I don’t know why investors would like us for doing that.

Thanks for your time.

And we’ll take our next question from Christopher Glynn with Oppenheimer.

Good morning. Brian, just wondering if, as it sounded, perhaps you're foreshadowing that Roper will switch to a cash-based preamortization earnings model.

Well, I don’t think so. We’ll continue to watch what people say about that. There is GAAP really does distort a lot of things around cash. So I think we’re content with showing people what the GAAP number is and what the non-GAAP number is. This particular year though, because all acquisitions come in, the loss of non-cash amortization. So it doesn’t show up in operating profit, it distorts the number. So we want to have people understand that things are absolutely fine here. But we haven’t gone to the point of saying, well here is what the cash earnings are, here is our share count and that’s the earnings, cash earnings per share basis.

Okay.

We think investors are smart enough to figure that out.

Okay. And then perhaps another area where there's a little distortion from the sales of the acquired businesses. You talked about the added amortization component of SG&A but that was up a lot, too. Is that an area to whittle away at the deals and that contribution on SG&A to sales? Or is your comment on ramping up RD&E a more important thought there?

I’m not sure we understand that question Chris. So there is a lot of happens. When you do an acquisition, say you do a $1 billion acquisition. You’re going to have 2.5% or 3% or maybe more of the purchase price filling into non-cash amortization. So if you deploy a $1 billion are going to have all that cash deployment that’s gone into something never coming back, it’s not like capital reinvest that’s continued to reinvesting and the depreciation is a call in the future. So that non-cash amortization on the billion might be $30 million. So it shows up in GAAP as a reduction in operating profit, when in reality it’s an increasing cash earnings. So that’s all we’re talking about.

Right. Yes, I guess I worded my question poorly. But even independent of the 120 basis points you called out, SG&A to sales was still up a good bit, so I was just wondering.

We’re absolutely investing in product management. I mean, just like we said R&D is up 120 basis points. Our sales investments and product management they’re excelling, they’re probably up another 110 basis points. That isn’t going to change. We’re going to continue drive for long-term growth.

And as we continue to really become much more of a technology company as oppose to manufacturing company. SG&A is that’s where our value add is for customers. It’s not really in the cost of goods sold line. It’s about whether you’re able to machine the widget more efficiently than the next guy. If the intellectual capital which is inherent in the Research & Development, it’s in the engineering, it’s in the customer support and customer application people, show up as G&A. But those are value added resources for us. And as we continue to be more of a technology company, that’s how our P&L will continue to look like with less cost of goods sold and more on the SG&A side. Not as a cost to be reduced, but as an investment in the value producing parts of our enterprise.

Perfect. Got it. Thanks.

And now we’ll end our question-and-answer session for this call. We now return back to John Humphrey for any closing remarks.

Thank you and thank you all for joining us this morning. And we look forward to talking to you again in July.

And that does conclude today’s conference. Thank you for your participation. You may now disconnect.