Roper Industries' CEO Discusses Q1 2012 Results - Earnings Call Transcript

Roper Industries Inc. (ROP)

Q1 2012 Earnings Call

April 23, 2012 8:30 am ET

Executives

Brian Jellison – Chairman, President, Chief Executive Officer

John Humphrey – Executive Vice President, Chief Financial Officer

Paul Soni – Vice President, Controller

Analysts

Dean Dray – Citi Investment Research

Mark Douglass – Longbow Research

Jeff Sprague – Vertical Research Partners

Alex Blanton – Clear Harbor Asset Management

Matt Summerville – Keybanc

Terry Darling – Goldman Sachs

Christopher Glynn – Oppenheimer

Richard Eastman – Robert W. Baird

Presentation

Operator

The Roper Industries First Quarter 2012 Financial Results conference call will now begin. Today’s call will be recorded. I will now turn the call over to Mr. John Humphrey, Chief Financial Officer. Please go ahead.

John Humphrey

Thank you, Jake, and thank you all for joining us this morning as we discuss the results of our first quarter 2012. 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 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 further detailed in our SEC filings. You should listen to today’s call in the context of all that information.

Now if you’ll please turn to Slide 3, I’ll 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?

Brian Jellison

Thanks, John. Today we’ll kind of go through the first quarter enterprise financial results and then we’ll get into the specific segment detail and the outlook for each of the four segments for the second quarter and balance of the year. We’ll update you on our established guidance for the second quarter and our full-year guidance, and then take your questions.

So next slide, please? The first quarter here was another spectacular quarter. We achieved all-time records for revenue, orders, net earnings, EBITDA, operating and free cash flow in the quarter. Total sales were up 10% and importantly organic revenue was up 8%. Our book-to-bill ratio was above 1 at a strong 1.03. Gross margins reached 55%, which is really quite remarkable, and our operating margin leverage was spectacular in the quarter. Operating margins were up 200 basis points to 24%, and our incremental operating margins were 43% in the first quarter. We closed out the quarter with 205 million in EBITDA and an EBITDA margin of 28.9%.

The diluted earnings per share were up 20% to $1.09. More importantly, the free cash flow was up 69% to 131 million in the quarter. It is an all-time record first quarter for us and a great start for 2012.

Next slide? Our first quarter income statement, you can see here that the revenue was up 10%, 8 organic, and book-to-bill at 1.03. Gross profit up another 70 basis points to 55%. Operating income was up 20%. Tax rate was a little bit higher than the first quarter of a year ago – 40 basis points higher, which cost us a penny. Still, net earnings were up 22% and you can see the DEPS line at 1.09.

Next slide? We had terrific EBITDA growth in the quarter, and if you just continue to look at our trend you can see on this chart our trailing 12-months EBITDA now is $830 million, up from 685 last year on a trailing 12-month basis and 519 million on a trailing basis at the end of Q1 2010. So we’ve added 60% to our EBITDA in just the last two years, and our EBITDA margins on a trailing basis are up 400 basis points from 25% in 2010 to 29% in 2012. People from time to time, investors ask, when are you going to have that deterioration in margin? Our plan would be never. We’re just going to continue to move up that line because of the culture and focus we have here.

Next slide? Q1 cash flow, you can see another blowout kind of a quarter here. Our cash conversion was very strong. We had 141 million in operating cash flow, which was $0.20 of every dollar of revenue. The conversion on that, 131% of net earnings. We invested about 10 million in capital in the quarter, which was 1.4% of revenue, right within our kind of 1.2 to 1.6% of revenue plans. So free cash flow was 131 million, 18% of revenue, and the conversion at 121. A remarkable performance against last year’s first quarter, where we had 78 million of free cash flow last year in the first quarter and 131 million this year in the quarter.

Next slide? Our asset velocity continues to improve. I know people keep saying it can’t be done, it won’t get better; but it does get better. If you look at the same period, inventory is now down to 7.5%, receivables actually dropped down to 14.5%, payables and accruals at 14.9, so our inventory plus receivables less payables and accruals closed out at 7.1%. If you look at the trend in 2009, it was 9.6, finally breaking below 10, and people would ask us if you could get any better, and the answer is oh yeah – you can get better. Two hundred and fifty basis points improvement over that three-year period, closing out at 7.1% - very exceptional performance.

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