ROP
#Thanks.
Good morning, <UNK>.
No, I don't think so.
I mean, all our businesses ---+ when you look at our energy businesses or the industrial businesses, they have over 50% gross margin.
So the economics of those businesses similar to most of the technology companies you'd see that are not pure software.
Our software businesses outperform software companies.
Our industrial businesses outperform industrial companies.
So as long as we get outperformance out of these things, we think the market's incredibly smart and it has a pretty good idea about what things are worth.
And while we're always undervalued, we think that very hard to ever get rid of anything we have here.
It would have to be a compelling reason and those certainly could exist in the future.
They really could.
But today, we think we're perfectly positioned and I think this quarter sort of demonstrates that.
I'll take the second question first.
If you look at the detrimental leverage, so revenue down 10%, operating profit down 18%, you do the math on that, it's about a 43% leverage.
So you pull the one-time expenses associated with restructuring out of that and you get down into the mid-30% range for the detrimental leverage.
That's not at all different than what we would expect.
We actually think that's very impressive performance out of those businesses, given that they start with 55% gross margin.
So there's real cost actions, real belt tightening that has to happen and that will happen and it has and will continue to happen in order to be able to hold that detrimental leverage in the mid-30% to 40% range.
Now, as far as going forward when you think about sequential improvement, little bit throughout the year, like I said it's really driven by the non oil and gas portion.
So our things that are selling into, whether it be plastics or polymers or nondestructive testing, other markets that are not oil and gas related, which is about 40% of the segment.
That was down modestly in the first quarter.
We expect that to be up modestly as we go forward throughout the year.
And then the other piece is the timing associated with some of the project deliveries at CCC, which most of those are for downstream and midstream applications, more downstream, frankly.
And those are things that we expect to come to fruition later in the year.
So those are the drivers for why we expect the minus 5% organic in the first quarter to be closer to flat throughout the rest of the year.
The specific areas that we play in, that is the expectation.
And I wouldn't separate it out as pricing versus cost.
I would separate it out as gross margin.
So gross margin was actually flat in the quarter versus last year for energy at 55.4%, and we expect to be able to hold our gross margin very similar to what we had last year in this segment, which on a full year basis was right at 58%.
And we see no reason that, that won't be the case this year as well with the actions that have already been taken.
Well, I think the 130% is what we said as the trailing 12 months actual, with $851 million of free cash flow.
Our CapEx isn't going to be moving up.
It's going to be 1% to 1.5% of revenue.
Our operating cash flow is going to continue to escalate a little bit.
It's already best-in-class.
The conversion rate, we always talk about it being expected to be above 120% over time.
So actually, at 130% it's kind of crept up above that.
Things that we have, it will continue to improve a little bit.
Our legacy business actually has been improving.
They frankly tripled their cash return on investment in the last decade, which nobody recognizes, and the acquisitions help.
But I don't think our conversion ratios are likely to change dramatically.
They're enormous and I just wish we'd get more people to talk about our real cash earnings instead of talking about the DEPS number, not commenting enough about the non-cash intangible amortization stuff.
It's a good and complicated question in that the ---+ it's absolutely true that there's going to be more interaction between some of these niche businesses that are acquired that are smaller with the two big footprint businesses, MHA and Sunquest, than we would have had in the past.
If you think about Neptune, we never added anything to it except they wanted to have this rugged mobile DAP business that we rolled over on and it never really went anywhere.
In TransCore's case, we have made acquisitions that have been very strategic.
Several years ago we acquired this company called United Toll.
United Toll has become the entire technology leadership position around the world in toll and traffic with this Infinity Lane Systems.
Very critical acquisition we made and it's kind of fully integrated and gets sold as a bundle.
When you think about MHA, I don't think many things necessarily would be sold as a bundle.
SoftWriters, they continue to be sold and MHA's product branding would continue to be sold, but they're going to work in an integrated way with one another and in many cases some of these niche acquisitions will report to the MHA or Sunquest platform business.
So that's why we suggested that they were transformational in the way that Neptune and TransCore were transformational in 2003 and 2004.
I think we are a little surprised.
If somebody would have asked us your next $900 million of deployment would be in one business or six, we would have thought it would be one.
But they're so great and so good that we're happy to do those and I think there will be more smaller acquisitions that are closely correlated.
That said, they're still All going to be individual niche businesses.
We're not going to be the Fuller Brush man to hospital administrators with a lot of different stuff that you pull out of the bag.
We think those are going to be up to maybe $100 million of revenue, with about 40% EBITDA over the next 12 months.
Also we had huge tax benefits in these deals that ---+
That are really significant.
That is absolutely correct.
So it's a little ---+ it's north of $100 million of gross tax benefits that we will recognize over the next 12 to 15 years.
So it is a reduction in our cash taxes over that time frame.
Not enough.
But it's certainly helpful.
We wouldn't have gotten from 14%-plus to 5% without having several businesses that have negative working capital.
And most of the acquisitions that we're making now are going to come in with negative working capital.
We're going to get paid in advance for the work that they do.
Not always, but sometimes they get paid a month in advance, sometimes they get paid three months in advance, sometimes they get paid a year in advance on a subscription.
It's interesting.
So in terms of the negative working capital, so more of the things that we have acquired and are looking at are more on the subscription software, so they're SaaS businesses, which generally don't run with quite as much negative working capital as the licensed software does.
Because you have the maintenance that is almost always billed a full year in advance, whereas subscription software is going to be billed either monthly or quarterly.
So it's not as much around trying to become even more negative, as it is continuing to grow those areas that have the high subscription revenue and the wonderful balance sheet that comes along with that.
Thanks, Laurie.
And thanks everyone for joining us with our first quarterly call as Roper Technologies.
We look forward to talking to you with our second quarterly call as Roper Technologies as we finish up the second quarter.
Thanks.
