Roper Industries' CEO Discusses Q3 2011 Results - Earnings Call Transcript

Roper Industries Inc. ( ROP)

Q3 2011 Earnings Call

October 25, 2011 8:30 am ET

Executives

John Humphrey – Chief Financial Officer, Vice President

Brian D. Jellison – Chairman, President and Chief Executive Officer

Analysts

Matt J. Summerville – KeyBanc Capital Markets

Deane Dray – Citi

Mark Douglass – Longbow Research

Jeffrey Sprague – Vertical Investment Research

Christopher Glynn – Oppenheimer

Alexander Blanton – Clear Harbor Asset Management, LLC

Richard Eastman – Robert W. Baird & Co., Inc.

Ben-Ari Elias – Sterne Agee & Leach

Presentation

Operator

The Roper Industries’ Third Quarter 2011 Financial Results Conference Call will now begin. Just a reminder, today’s presentation is being recorded. At this time, I would like to turn the call over to Mr. John Humphrey, Chief Financial Officer. Please go ahead.

John Humphrey

Thank you, Becky, and thank you all for joining us this morning as we discuss the results of our record third quarter. Joining me this morning is Brian Jellison, Chairman, President and Chief Executive Officer; and Paul Soni, Vice President and Controller.

Earlier this morning, we issued a press release announcing our financial results. The press release also includes replay information for today's call. We've prepared slides to accompany today's call, which are available through the webcast, and also available are on our website at www.roperind.com.

Now, if you please turn to Slide 2, we'll begin with our safe harbor statement. During the course of today's call, we'll be making forward-looking statements, which are subject to risks and uncertainties as described on this page and as detailed more fully in our SEC filings. You should listen to today's call in the context of that information.

And now, if you please turn to Slide 3. I'll turn the call over to Brian Jellison, Roper's Chairman, President, and Chief Executive Officer. After his prepared remarks, we'll take questions from our telephone participants. Brian?

Brian D. Jellison

Thank you, John, good morning everybody. We'll start off with a quick overview of the Q3 financial results and then talk specifically about the segment performance and outlook for the fourth quarter, update you on our guidance summary and then I’ll open it up to questions and answers. So, first slide.

If we look at the Q3 financial results, once again, they were an all time record for any quarter in the history of the company, not just a record third quarter. Orders were at the highest level and history sale is the same. Backlog, the highest level, net earnings, the highest level, and operating and free cash flow in the quarter set a new standard for the company.

Our total sales in the quarter were up 18% and organic sales were up 13%, which was frankly better than expected. Our book-to-bill was greater than 1.0 for the ninth straight quarter, and our record backlog of $876 million is up $106 million from the third quarter a year ago.

Operating margins were terrific throughout the enterprise. They were up 230 basis points so that operating margin was 23.5% of revenue in the quarter. Our EBITDA was $203 million in the quarter, which is a fairly astonishing number by any standard, and EBITDA margin was 28.6%. Our operating cash flow was 23% of sales at $167 million, and our free cash flow was 22% of sales at $157 million.

Next slide. If we look at the income statement, you can see bookings again were above 1.0 at 1.01. Net sales were, as we said, up 13% organically. Gross profit picked up 50 basis points from a year ago. Our operating income was up 30% from $128 million to $167 million, and margin at 23.5%, up from 21.2% in the third quarter a year ago.

Our tax rate was actually a headwind in the quarter. In the third quarter last year, it's only 25.9%. As most of you would know third quarter results tend to have whatever rollover there is in 1040A calculation for filing tax returns. This year our tax rate was 27.7%, a 180 basis points increase over the prior year, which took a couple of pennies out of our results.

Net earnings were $110 million, up 31% from the prior year, and our diluted earnings per share were $1.12 versus $0.87.

Next slide, free cash flow in the quarter was truly spectacular, 22% of revenue and a 142% of net earnings. This will be the 14 th consecutive year that our free cash flow has exceeded net earnings. And really, we had very strong execution throughout the family of businesses, and you can see the comparisons prior-year here on the graph.

Next slide, we had quite substantial EBITDA growth. I’m not sure people caught up to just how much our trailing EBITDA continues to grow. We’re up 33% in EBITDA over the prior-year and our trailing 12-month EBITDA now entering the third quarter is $779 million. That's up from $585 million in the corresponding trailing 12 month period ended in the third quarter of ‘10, and up from $507 million in 2009. Part of the reason for that is continued margin expansion. Our EBITDA margins in 2009 were 24.5% for that TTM period. In 2010, they were up 140 basis points to 25.9% and this year, as they get skyrocketed to 28.5% from 25.9%

Next slide, our Asset Velocity performance continues to be best in class. We can see inventory has actually dropped to 7.4% from 8.9% just two years ago. Our receivables are down 200 basis points to 14.7% from 16.7%, just a terrific performance by all of our field operating units around receivables. And payables and accruals have actually come down and our numbers would be even more spectacular. Also in total, when we look at the inventory plus receivables minus payables on accruals, we finished the quarter at 6.5%, that’s 240 basis points better than just two years ago. So our exceptional performance in that category continues.

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