Oct 24, 2011
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
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 14th 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, 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.
Next slide, here we look at our sort of balance sheet and financial position. We ended the quarter with $246 million in cash.
Our trailing 12 months EBITDA is $779 million. Our gross debt number is $1.174 billion.
If you take that 246 in cash away, you’ve got net debt at $928 million. Shareholder equity continues to be strong there in excess of $3 billion, meeting our net debt-to-net cap numbers about 23%.
Our gross debt-to-EBITDA is about 1.5 times, so we have very ample capacity inside anything we’d like to do. And in our EBITDA-to-interest coverage is over 12 times.
Now in the last two years we’ve invested $1.1 billion in transactions. But as you can see, the balance sheet is stronger than ever.
Next slide, so here we’ll take a look at our segment performance and the outlook for the rest of the year. Next slide, our Q3 segment performance was remarkably similar, you can see EBITDA margins and industrial, RF and medical are over 31% and in energy, they were 29%.
The OP margins continue to march forward as we have revenue growth and we capture leverage associated with that, and through out the enterprise we are very happy with the margin performance.
Our Freight Matching business grew at a double-digit rate as we’ve got more new subscribers in their very favorable dynamics occurring in the spot market, due to volatility in gasoline prices and driver shortages and truck shortages. Our Toll & Traffic Solutions business, which is less than half of the segment we’d remind people, did well as a result of an upgrade were we’re converting Puerto Rico from a coin based technology to an electronic technology, and we have strong tag shipments in several locations around the world.
In the fourth quarter looking forward, we are going to continue to benefit from this Electronic Tolling project in Puerto Rico, our iTrade business enters with a strong backlog and we expect double-digit growth and it will finally be showing up as organic growth here in the fourth quarter for us. The CBORD backlog remains strong enough to assure double-digit growth in the fourth quarter.
We expect to get continued margin improvement even given what we had here in the third quarter, we think we’ll do even a bit better in the fourth quarter. And our Technolog operations in France where we’ve been installing a system, we would hope that, that gets completed in the fourth quarter and then in 2012, that will allow us to get our data services revenue, which comes in at lower revenue, but much higher margins.
Next slide, here, looking at the Industrial Technology segment, while we often focus on Neptune, because it’s traditionally been about half the segment, growth in the other areas is nothing short of spectacular. Here orders were up substantially above the sales revenue of $185 million.
The sales were up 15% from the prior year. Operating profit was up 16%, and operating profit margin in the industrial businesses was 28.2%.
Fluid Handling continues to perform just in a very strong manner driven really by all of the shale, gas and oil activity that’s occurring in Canada and the US, lots of new customers and a lot of new applications. New products and strong end markets are also helping our material test business, which is off to a record year by a considerable margin.
And then in Neptune, the North American Meter Revenue was relatively flat, but we had strong growth in Mexico and Canada. Surprisingly, the US order flow in the third quarter was up more than 10% in the US.
We had a very successful launch of our low profile, lead free residential water meter. A lot of people are crying out to check the shedthelead video that we have and it certainly created a lot of interest in our water meter business.
So when we look to Q4, we expect strong seasonality. Generally speaking, we had year-end buys from people in both this and the Energy business and we haven’t seen any trends that would indicate that would not occur again this year.
Neptune is going to get double digit growth led by the Toronto Installation Activity, which is going to start to pick up in the fourth quarter and be substantially stronger in 2012. And then our favorable end markets, they are pretty much generally true and so just know we’re not doing well and the 30 plus percent leverage we got in Q3, we would hope will improve even a bit more in the rest of the year and next.
If we go to our next slide. If you look here at the Medical & Scientific Imaging segment, it was up 16% in the revenue.
Orders actually exceeded sales and orders were up sequentially from the second quarter. Operating profit was up 24% compared to the sales increase of 16%, so we had strong leverage here about 34%.
And the OP margin increased to 150 basis points to 24.7. Our high-end imaging solutions, driven largely by Gatan’s quantum and direct detection camera lines are continuing to perform in a fantastic way and we have a new product out there that’s processing frame speeds at 83 gigabytes a second.
I'm not sure anybody can relate to just exactly how fast that is, but it’s Bleeding Edge Technology for the most supreme applications in the research area and has added substantially to our growth this year.
Our Freight Matching business grew at a double-digit rate as we’ve got more new subscribers in their very favorable dynamics occurring in the spot market, due to volatility in gasoline prices and driver shortages and truck shortages. Our Toll & Traffic Solutions business, which is less than half of the segment we’d remind people, did well as a result of an upgrade were we’re converting Puerto Rico from a coin based technology to an electronic technology, and we have strong tag shipments in several locations around the world.
In the fourth quarter looking forward, we are going to continue to benefit from this Electronic Tolling project in Puerto Rico, our iTrade business enters with a strong backlog and we expect double-digit growth and it will finally be showing up as organic growth here in the fourth quarter for us. The CBORD backlog remains strong enough to assure double-digit growth in the fourth quarter.
We expect to get continued margin improvement even given what we had here in the third quarter, we think we’ll do even a bit better in the fourth quarter. And our Technolog operations in France where we’ve been installing a system, we would hope that, that gets completed in the fourth quarter and then in 2012, that will allow us to get our data services revenue, which comes in at lower revenue, but much higher margins.
Next slide, here, looking at the Industrial Technology segment, while we often focus on Neptune, because it’s traditionally been about half the segment, growth in the other areas is nothing short of spectacular. Here orders were up substantially above the sales revenue of $185 million.
The sales were up 15% from the prior year. Operating profit was up 16%, and operating profit margin in the industrial businesses was 28.2%.
Fluid Handling continues to perform just in a very strong manner driven really by all of the shale, gas and oil activity that’s occurring in Canada and the US, lots of new customers and a lot of new applications. New products and strong end markets are also helping our material test business, which is off to a record year by a considerable margin.
And then in Neptune, the North American Meter Revenue was relatively flat, but we had strong growth in Mexico and Canada. Surprisingly, the US order flow in the third quarter was up more than 10% in the US.
We had a very successful launch of our low profile, lead free residential water meter. A lot of people are crying out to check the shedthelead video that we have and it certainly created a lot of interest in our water meter business.
So when we look to Q4, we expect strong seasonality. Generally speaking, we had year-end buys from people in both this and the Energy business and we haven’t seen any trends that would indicate that would not occur again this year.
Neptune is going to get double digit growth led by the Toronto Installation Activity, which is going to start to pick up in the fourth quarter and be substantially stronger in 2012. And then our favorable end markets, they are pretty much generally true and so just know we’re not doing well and the 30 plus percent leverage we got in Q3, we would hope will improve even a bit more in the rest of the year and next.
If we go to our next slide. If you look here at the Medical & Scientific Imaging segment, it was up 16% in the revenue.
Orders actually exceeded sales and orders were up sequentially from the second quarter. Operating profit was up 24% compared to the sales increase of 16%, so we had strong leverage here about 34%.
And the OP margin increased to 150 basis points to 24.7. Our high-end imaging solutions, driven largely by Gatan’s quantum and direct detection camera lines are continuing to perform in a fantastic way and we have a new product out there that’s processing frame speeds at 83 gigabytes a second.
I'm not sure anybody can relate to just exactly how fast that is, but it’s Bleeding Edge Technology for the most supreme applications in the research area and has added substantially to our growth this year.
In the third quarter on an order comparison basis we had very tough comps because of two things that happened last year. We do report our Rugged Mobile business in here, which is certainly not keyed to the enterprise, but it had a particularly strong Q3 order for long-term delivery last year, which of course wouldn’t have been repeated in any one quarter and we saw that new initiation of an order.
And then, we had very strong dosage delivery business last year and this year it was more normal, so both had created a bit of headwind in terms of the cost. But if you [mask], take that away, their book-to-bill was above one, sequentially higher than second quarter and our backlog is strong, so we don’t expect any difficulty here.
In the fourth quarter, we wind up of course with record backlog entering the quarter, so that kind of assures our shipment pattern should be fine. We expect to have continued growth in medical, because the patient treatment and technologies that we’re involved in are continuing to grow.
We have a higher fourth quarter, because Northern Digital, which was acquired, will begin to kick in. It has traditionally strong seasonality in the fourth quarter and we haven’t seen anything that wouldn’t suggest that will occur here.
Next slide. Here when we get to Energy Systems & Controls, you can see once again, very strong performance.
Sales were up 22%, orders were just slightly ahead of sales up 12%, operating profit was up 35%, and our OP margins expanded 250 basis points to 25.7%. Growth again is led by a continued development of the Diesel Engine Safety System technology and that continues to get this US and North American shale activity.
We’ve got some new engine OEMs that are building that technology into their platforms and that helps as well. We had a record Q3 in terms of our instrument sales around our refinery business, so that seems to be picking up steam.
It had been slow, it had been much better this year but still relatively slow. One of the very few businesses that's not back to the 2008 results, and now that's largely there.
We had an expansion in our Alpha and Viatran and Dynisco family of businesses around sensor technologies. They have been up over 30% here for instrumentation to major composites and process manufacturing, and just excellent execution throughout the segment with the exception of our nuclear Tech’s business which has been very soft due to the nuclear plant shutdowns around the world, but fortunately it’s not a big piece of the total.
In the fourth quarter, we will benefit from an acquisition that we made right at the end of the third quarter, called United Controls. United Controls is a small business in the Midwest, which has a large OEM component with Rolls Royce.
It's got great field service, technical support, and its technology is very complementary to our Compressor Control business. We’ve done very little historically with Rolls Royce and so this gives us a new partner in effect to provide field service and aftermarket application for technology improvements and it certainly expands our OEM channel access.
In the oil and gas area, with the trends has continued to perform exceptionally well and there's no downturn of any kind we expected this year or early next. And seasonality here has always been very important.
The fourth quarter, there's a lot of MRO purchases that tend to get done in the fourth quarter both residual budgets. We expect that would continue this year, and we also think margins in this segment will expand in the fourth quarter however they were reported in the third.
Given all that, we'll look now at the guidance update. Next slide.
The guidance, we are increasing our full year guidance from 4.20 to 4.30 to 4.29 to 4.33. Now, we started out this year with guidance of 3.82 to 4.02 and when we look cumulatively, we’ve actually now increased our low-end guidance by $0.47.
So at 4.29 to 4.33, that results in Q4 at $1.18 to $1.22, and our full year operating cash flow will exceed $575 million on net leverage. Next slide.
If you look at our summary here before we get into the Q&A period, what we have is the best quarter in the history of the company. It’s the highest level of sales orders, backlog, net earnings, operating and free cash flow, ever.
Organic sales came in at plus 13%, largely driven by new products and new applications to existing customers and then favorable niche markets. We are really not seeing any slowdown in any activity and any of the things that we might consider to be bellwether items that would say things are getting slower, we’re not seeing that.
Very broad-based momentum as we entered the fourth quarter, which has allowed us to increase our guidance. Our gross margin is at 53.7%, certainly best in class, operating margins at 23.5% with 36% overall leverage on new revenue, again, I think probably best in class.
Operating cash flow at 23% of sales is nothing short of spectacular. And really a new milestone for us, it’s just as we said, I don’t think people are focused on just how much our EBITDA is growing.
But our operating cash flow now in the last two years has exceeded $1 billion for the first time in our history and you think about those acquisitions in the last two years, and the $1.1 billion in cash flow over a $1 billion and as we give you some idea about our capacity in transactions looking forward and the cash machine, that we’ve created here. So with that, I think we’re ready for questions gentlemen.
John Humphrey
Okay. All right, Becky.
So if you’ll start the question-and-answer part of the call.
Operator
Thank you. We will now go to our question-and-answer portion of the call.
(Operator Instructions) We will take our first question from Matt Summerville with KeyBanc.
Matt J. Summerville – KeyBanc Capital Markets
Just couple of questions; first, Brian, how are you thinking about the businesses, whether it would be in Imaging or RF Tech or industrial technology the touch areas that or at least in part funded by public sources, municipal sources. How are you feeling about those businesses heading into 2012 and I guess what risks or conversely opportunities do you see in those businesses?
Brian D. Jellison
Well yes. It’s certainly an industrial, you got Neptune that’s selling product to municipal water facilities but we are not really seeing any slowness at all in that arena, so we said our orders are in the US for them, are up over 10% in the third quarter.
So that’s really not a problem area for us at the moment. And in fact, I think the municipal funding had start to pick up a little steam with muni bonds.
So we were worried about that going into the year and certainly outperformed our peers if not as robust as it was in the past but new products and applications and selling some software along with data clients helps that. In the Imaging arena, you have the NIH situation in the US and then similar situation in Japan, those which people fears a little slow but technologies we’ve launched through our research scientists are so compelling that they really blown through any of that risks.
We’re not seeing anything that would be measured as softness. It would be driven by the National Institute of Health funding award or really the Japanese.
You see a little more of that actually in Europe than you do here, but nothing that’s much of a headwind. So, that’s actually better than we would have expected.
In the radio frequency arena, again the applications we have tend to be cash registers for people. So, they are not really viewed as capital spending.
I think it’s a work delivering sort of immediate pay backs for people. We’d be more worried than they are.
We certainly performed better in the third quarter on our order and sales basis than we would have expected because we do occasionally listen to the news and managed. If you looked at all the externalities you’d be scared to death.
But fortunately, our businesses are so nichy and so specific and value-added that those externalities haven’t had much effect on us at this long. So, we’re not seeing nor does anybody feel fearful about the fourth quarter or frankly next year.
Matt J. Summerville – KeyBanc Capital Markets
Okay, Brian. And then just one more follow-up, can you talk a little bigger picture about what you guys are seeing from an M&A standpoint?
It sounded like you are closed on, it sounded at least like a relatively small transaction here within the last couple weeks. How are you thinking about M&A activity kind of over the near to intermediate term, how are multiples trending, what size transactions or businesses are you looking at, how healthy is your pipeline?
Brian D. Jellison
Well, bunch of different questions in there Matt adding to that. I think control is small deal.
It’s less than, it’s about $25 million but strategic, nonetheless and very strategic for Compressor Controls, so material to them. Pipeline remains very fully up continuing activity and a lot going on there.
I think we’ll be finally seeing a little breakdown in Europe where the European banks are offering very much support for us and not to long ago you're seeing 6.5 times debt staples from those folks and now we’re not seeing any debt staples from those folks, so that had an effect both on the reality and the attitude of people. Debts rating in US have dropped.
I think the hard for most people to get a debt funding for transaction more than about five times EBITDA and so that trends the multiple down and so we’re not going to put in our whole lot more equity than they would have before when debt staple was much higher. Furthermore, the strengths for them in that blended cost of their interest, so we get a deal that are higher now than they were if strengths have gone up a bit on masonite portion to debt.
So we’re seeing multiples come down a little bit. Our sellers are still, their expectations throughout the year were too high.
It’s one of the reasons that with our disciplined approach we haven’t done a large transaction. But we continue to look at a number of large transactions and sometime I think in the foreseeable future we’ll execute on something.
Most deals we’re looking at are relatively large and I wouldn’t expect that there is always this kind of the United (inaudible) situation. We could have two or three of those, but we're kind of patiently waiting for the right balance here.
People still are worried about CMS reimbursement on medicals. So that's an area you have to be exceptionally careful in.
And in the software side, we’ve got things going that we like a lot. And is just a price gap kind of discussion and we're patient and ultimately it's better to be patient.
We don't need to do a deal because the deal is available. We need to do a deal because it makes sense for our institutional holders and our shareholders.
Matt J. Summerville – KeyBanc Capital Markets
Thanks, Brian.
Operator
Next we’ll hear from Deane Dray with Citi.
Deane Dray – Citi
Thank you. Good morning, Brian and John.
First question for price cost in the quarter; can you take us through that, and I’d be very interested in how much of that 13% organic was helped by price?
John Humphrey
Well, Dean, it’ll take that one. I mean the way we always look at the price cost equation rather than looking at each of those in isolation, those always have to be looked at in combination with each other.
And so what we always track is our gross profit margin. And the fact that gross profits came in at 53.7% and up 50 basis points from where we were at this point last year.
It gives us confidence that our businesses are doing the right things with respect to pricing and having up any material cost inflation. As you know, the only real exposure that we have any type of raw material input cost is in copper and it goes into our Neptune business; and Neptune has really done a couple of very smart things.
One, with the redesign of the residential water meter, which reduces the amount of material content as well as improves the quality for the customers, which is real positive thing, so that mitigates some of that exposure. And then we also just entered into supply agreements that are usually six to nine months out, which gives us a little bit better visibility and what the cost structure is going to look like on the input side, which allows us to still be able to manage the price equation in a way that doesn’t really drove the customers around all the time in that end market.
So those are the things that we look at and so we’re confident that our businesses have done the right things on price cost as long as we continue to have the gross profit margins where we see them.
Deane Dray – Citi
Okay. Thanks helpful.
And then just over on the businesses, Brian, hope you can expand on the point regarding the shale gas opportunity and I trust this includes the fracking phenomenon that’s going on. And if I am not mistaken, this opportunity crosses both the Industrial business as well as the Energy business, you know on the dewatering pumps and the diesel engine shut-off.
So, what is the opportunity for Roper in aggregate and do these two businesses within Roper combine to have more of a one go-to-market strategy or is it just an individual selling of components?
Brian D. Jellison
Well, it’s all of our Pump businesses Abel, Cornell and Roper have different reason to be involved with fracking and movement. And in addition, Abel does a lot of other thing that are related to municipal water.
It’s a German company largely involved in India and Australasia for the most part. Our Cornell and Roper businesses are dewatering and also directional growing and support for the speed in which you can move to drill through the geological issues that are in front of that.
Then the diesel shot-off valve is really making sure that all these diesel engines in fact do shut-off instead it continue to run after somebody turn it on. Now we also have a couple other businesses Viatran in Northern New York, which is a sensor related business.
It goes into oil and gas and supports some of the technology they need to know about reading information on sensors. So there is really about six different businesses.
They don’t go to market under common sales force because it’s not how that business work. So they share customers and talk about things with people, but generally different influences are making buying decisions about it, so you have to call through the channel mostly to the end user or mine itself.
And it does get us closer and closer to mining applications, which is increasingly interesting to us.
Deane Dray – Citi
Can you aggregate what the revenue opportunity is for this market?
Brian D. Jellison
Well, I think in total the family of businesses you’re looking at are somewhere in the $200 plus million of revenue growing quite substantially in the 20% range, not the 5% range.
John Humphrey
Deane Dray – Citi
That’s really helpful. Thank you.
Operator
Next we’ll hear from Mark Douglass with Longbow Research.
Mark Douglass – Longbow Research
Hi, good morning gentlemen.
John Humphrey
Hi good morning, Mark.
Mark Douglass – Longbow Research
If we can look at fourth quarter John, it look like the orders and backlog support, appears to me double digit organic sales in 4Q, is that the right way to think about it at this point with minimal FX?
John Humphrey
Closer to high single-digits, but never totally about the revenue for us, it’s about the margin discipline and cash, so…
Mark Douglass – Longbow Research
Right, and then Brian, you’re continuing to drive down working capital to pretty impressive levels, how much is left there, it looks like you’re reaching (inaudible) is that true or what do you think is…?
Brian D. Jellison
Can’t be a lot less, because you know years ago what we said to everybody and they used to throw a ball back for that or switched it. Well if you got to have your payables equal to your inventory and then receivables is really a function of pricing an investment with your customer, and nobody believed it, everybody believes them now.
And so when you look at where we are, getting the receivables down to 14.7% of sales was really a level of performance that is never good enough but freaking spectacular. Yes so when you got 40% of your business, not the US to get receivables down to this kind of levels is comforting.
I think we’ve got better quality people doing that work down in that clerical and administrative arena. I think there is a real earned knowledge about where you want to invest in collections and the software and technology used to keep real fine data and the customers, and all that has paid big dividends for us.
With 6.5% of sales, we’re pretty happy, we were happy at 6.8%, but we only like things to improve.
Mark Douglass – Longbow Research
Thank you
Operator
Next we will hear from Jeffrey Sprague with Vertical Research.
Jeffrey Sprague – Vertical Investment Research
Thanks and good morning everyone.
Brian D. Jellison
Hey, good morning Jeff.
Jeffrey Sprague – Vertical Investment Research
Good morning, Brian, could you elaborate on what’s going on in CBORD, you said the security offering has kind of doubled, was that a comment over the last year and could you give us a little more color on what you're doing there to integrate some of your other RF applications with CBORD trying to bring broader suite to that end market
Brian D. Jellison
John Humphrey
And in fact integration is the right word, eventually what CBORD comprise for the customers is a single integrated across a diverse campus that much of software solutions. So you have access control, you also have the ability to have payments in Food Corp et cetera and all of that tie back to a single data base, single integrative real time data base about what a student or a doctor or a nurse had access to at any given time.
In fact we have had some opportunities to bring together a variety of the businesses, one of them at major university in the Big Ten area bodes for and in fact in their healthcare solutions so using CBORD as well as our SIFCO business as well as in Ebonics in a way that allows all of those to talk collaboratively together which is a future opportunity which we maybe able to do more of but it really gets to the heart of what CBORD does so efficiently and we look forward to being able to grow that going forward.
Jeffrey Sprague – Vertical Investment Research
Is there where you can give us just some idea to get our head around the scale of the opportunity if you think about maybe your most holistic complete application whether it’s at Miami or somewhere else kind of what your potential value per student, per year or some kind of framework of reference, so we can kind of think about how to model this or get your head around the ultimate occupancy here?
Brian D. Jellison
I think about that you know way to give little more crisp answer the problem when answering the question is that, if you look at where we get like that I wouldn’t think of this a revenue per student because let’s say you are doing Michigan State University, which is a big application for a variety of things at CBORD. You got you know it’s a Big Ten school with thousands of that, but you know it’s not – the incremental cost of a student is exceptionally low and the dollar that we gain for an incremental student is very low.
So it’s really how much of the suite of services and data collection technologies they buy that’s critical. So, if it’s a turnkey installation where somebody is putting in electronic locking mechanisms and parking control and food management and recursion management.
They are generally they have start out with the portion of the activity or try it in an area as opposed to putting in the entire university. So the system grows over time into a fore mature suite of applications and it becomes valuable.
So, it’s really how many new things can you win to sort of get your foot in the door with these people as they build it out. Now we’ve been very fortunate in the last two years to displace another competitor in several locations and we look forward to continuing to do that.
And we have an awful lot of sweat for the activity (inaudible) we just finished CBORD User Conference within the last couple of weeks with hundreds and hundreds of people who attend it. And it was over 500 different kinds of people who attend this conference that are thinking about ways to use our software and system data collection technologies in a variety of ways around the campus.
So it’s a mind share of thing that drives the growth sort of more than, gosh, I got the largest you ever see in the country. I mean, it could be that the smallest one would get you more revenue than a large one because the amount of seat activity they’re purchasing and the number of cards and applications that they’re applying it to, right.
But it’s sort of a long-winded answer, but it’s the truth.
Jeffrey Sprague – Vertical Investment Research
Thank you, that is helpful. And just kind of housekeeping one from me, if I could.
John, just thinking about the three points of consolidated M&A and two points of FX, I believe the M&A is more than digital. Is there anything else in any of the other segments and can you give us a little color on the FX?
John Humphrey
iTrade and RF, and Northern Digital is hardly, just a very small piece there.
Jeffrey Sprague – Vertical Investment Research
Oh, it’s mostly iTrade.
John Humphrey
Well, inside RF, it’s iTrade and inside our Medical and Imaging business, it’s going to be Northern Digital. The other part of your question around the FX, just to kind of go through quickly, the FX by segments, where there is two on a consolidated basis, it was 1% in RF, it was 2% in imaging and then 3% industrial and 3.5% in energy.
So really reflective of the more global set of businesses inside energy and industrial whereas RF and imaging really don’t have as much exposure there because of the larger medical footprint, which is still largely US, although lot of growth outside the US in the RF business with the large amount of recurring revenue and at our toll and traffic business.
Jeffrey Sprague – Vertical Investment Research
Great, thank you.
Brian D. Jellison
The way it’s going.
Operator
Next we’ll hear from Christopher Glynn with Oppenheimer.
Christopher Glynn – Oppenheimer
Right, thanks. Good morning.
Had a question about the iTradeNetwork build-out in Europe, just how that’s progressing and if you want to put the opportunity into some context, we talked about the Shell, the CBORD opportunities developing elsewhere in portfolio, just to kind of get some framework on that opportunity
Brian D. Jellison
Well, we got our first trading office deployment in Europe with this large contract completed successfully in the quarter. So that’s the kind of critical turnkey nature of what happens and then now with that’s in place, we’ll start to see some deployment activity in Q4, which will help drive our double-digit growth that are in that, in that business in the fourth quarter and that of much, much more revenue in 2012 now that you’ve got the first trading deployment underway they should start to roll it out to the vendors.
So I think that will be very helpful to us next year. We are still aren’t allowed to talk about who it is because of the sensitivity of the customer that is, it’s among the most significant people in Europe, so we expect it to be long in the future benefits for us.
Christopher Glynn – Oppenheimer
Great thank you, Brian, and John just what would we expect for the tax rate in the fourth quarter?
John Humphrey
Christopher Glynn – Oppenheimer
Okay, thank you.
John Humphrey
You’re welcome.
Operator
Next we’ll hear from Alex Blanton with Clear Harbor Asset Management.
Alexander Blanton – Clear Harbor Asset Management, LLC
Hi good morning.
Brian D. Jellison
Good morning.
Alexander Blanton – Clear Harbor Asset Management, LLC
Could you I missed one figure. What was the initial guidance this year, could you repeat that and then…
Brian D. Jellison
3.82 to 4.02 Alex is what we established when we had the year end earnings.
Alexander Blanton – Clear Harbor Asset Management, LLC
3.82 to…
Brian D. Jellison
4.02.
Alexander Blanton – Clear Harbor Asset Management, LLC
4.02, okay. Now you mentioned during your opening remarks that CCC Compressor Controls has a I think it was Rolls Royce?
Brian D. Jellison
We just acquired this company called United Controls will be primarily up with Compressor Controls.
Alexander Blanton – Clear Harbor Asset Management, LLC
Right.
Brian D. Jellison
So United Controls has been doing significant work for Rolls Royce for sometime.
Alexander Blanton – Clear Harbor Asset Management, LLC
Yes.
Brian D. Jellison
And United Controls was available for sale Rolls Royce had a great deal to do with whether or not it could be sold and here would be a lot of buyers. So we were able to do that, and that gives us a value to work with Rolls Royce, which is fundamentally different than what we had from Compressor Controls where we had some work with them in some field work but nothing if I got it ultimate choice.
So that is going to give us very interesting build out around things in 2012 that are already committed in United Controls hence then the field service follow on with them will be quite significant to us from a current revenue view point. So it is a really very material transaction for Compressor Controls.
Alexander Blanton – Clear Harbor Asset Management, LLC
Yes and could you just give us little more perspective on it, because when you acquired Compressor Controls in 1992, it was doing almost all its business in the aftermarket. Upgrading compressors that had been sold by OEMs with the OEMs’ controls on them, and it was sight at the time that there was a very large market for Compressor Controls in actually working with OEMs to put the controls on initially rather than retrofitting them later.
But that really never developed, because most of these compressor makers wanted to make their own controls and sell their own controls, and it was only 1% or 2% of the cost of the compressor. Anyway, so, I think Compressor Controls continued to operate in the aftermarket.
Now is this a change, is this a wedge into the OEM, putting their controls directly on the compressors when they’re shipped from the factory?
Brian D. Jellison
Alexander Blanton – Clear Harbor Asset Management, LLC
Yes, okay.
Brian D. Jellison
We’ve got dedicated algorithms that are meaningful to the end user of the product where they can lower their seats or increase the speed, manage energy much more efficiently with the use of the turbine and get more throughput at the end. In United Controls, I’d say, I wouldn’t say had a total walk on Rolls Royce, but certainly have been a very significant player for them.
And so by acquiring them, we get actually some additional algorithm and specific controls that are useful for Rolls applications just like the other wins that we do for many other people.
Alexander Blanton – Clear Harbor Asset Management, LLC
Okay, so it continues to be the situation that the OEM compressor makers really aren’t providing the most efficient machine that they could provide, and you come along and make it that way, right?
Brian D. Jellison
We can improve on what’s out there. What they provide and for this period of time we would never argue against them, we love them as our customers and are prepared to sell even more to them sooner.
Alexander Blanton – Clear Harbor Asset Management, LLC
Okay, thank you.
Brian D. Jellison
Okay.
Operator
Next, we’ll hear from Richard Eastman with Robert W. Baird.
Richard Eastman – Robert W. Baird & Co., Inc.
Yes, good morning. Brian, could you talk just a minute or two about just the tone of business in Medical & Scientific and maybe the outlook there.
I mean, if I kind of do the math with the FX and make an assumption on Northern Digital, I mean it is kind of low single digit core local currency growth this quarter, and we talked a strong backlog maybe entering the fourth quarter, but how do you feel about the tone of business they are going forward with some of the funding and funding issues.
Brian D. Jellison
Well, it’s really been not bad at all. The situation is that, if you look at the life science CapEx type companies out there from those that are reported, they’ve been up about 4% in the third quarter.
We’re doing better than that. The reality is that, we had a very large order for rugged mobile which reports in this segment, that was a turnkey situation and if you take that out on both equations and then, we have one particular customer in medical that buys are dosage pumps.
Richard Eastman – Robert W. Baird & Co., Inc.
All right. And then, also…
Brian D. Jellison
With that said…
Richard Eastman – Robert W. Baird & Co., Inc.
… on the Industrial Tech side, just to clarify your comments about Neptune, we had, the business was flat in the US, but strong in Canada and Mexico in the quarter. And the orders, the orders were plus 10% in the US.
Is there a reason that you that you saw for the flatness in that third quarter in the US? I mean, it sounds like is it a funding issue or orders were better than sales in the quarter or?
Brian D. Jellison
No, I don’t think it is a funding issue, I think it’s just a question of timing and the comparison to the prior year. If you kind of take a little bit of a wider lens to those, I mean Neptune, just if you exclude.
So we’ve got some very nice wins with both the Canada project, which is continuing, which will give us in the neighborhood of 15 maybe a little more million dollars this year and double that next year, so that will continue to ramp up. We also had nice rewards from Mexico meters, so meters more standard meters going into Mexico, which have a slightly different margin profile, but still a nice win for us.
But if you take a wider lens and look at just the US for Neptune, really on year-to-date basis, revenue was up kind of in the mid single-digit range and orders continue to out pace sales. So, I mean it’s just the question of the component they had against the very strong third quarter last year.
But on a wider lens looking year-to-date basis, we’re still in a pretty good position there.
Richard Eastman – Robert W. Baird & Co., Inc.
Okay, very good. Thank you.
Brian D. Jellison
Okay.
Operator
Next, we’ll hear from Ben Elias with Sterne Agee
Ben-Ari Elias – Sterne Agee & Leach
Thank you. Good morning.
Brian D. Jellison
Hey. Good morning, Ben.
Ben-Ari Elias – Sterne Agee & Leach
I have a question, it’s slightly on less sales. You guys have done a great job managing through the ’08, ’09 recession.
You know you can see the working capital turns. We are looking at strong organic growth, if we are going into a sort of slow growth environment, could you just walk us through the succession planning that you guys have at Roper, are there anything on your contracts that sort of limit your term in office?
And you know for Brian and for John. Thanks.
Brian D. Jellison
You mean long-term contracts that we have with all of these customers.
Ben-Ari Elias – Sterne Agee & Leach
No, no management contracts.
Brian D. Jellison
Oh, yeah. We generally don’t have contracts for people.
We have long-term compensation programs for people. They are all involved with different forms of stock option and other stock criteria and then there are cash bonus programs that are related to improvement year-over-year in operating income.
So if you think about going into any kind of a slow growth environment, one of the reasons our people are so nimble on our opinion is that the only way they earn a bonus to drive continued performance is to get better in the New Year than they were in the prior year. There is no sort of forgiveness for the fact that the market is difficult.
So all those guys are prepared to be quite nimble, they have very strong operating people in all of those units and those people are – they understand their compensation better than any of us do, and I think we understand it quite well. So, they are highly motivated about that, and they have a very strong view of how stuff happens.
And in the enterprise level, we could have somewhat compensated the same way on a cash basis. So that’s what focuses its attention here, we continue to add modestly to our corporate staff, we’ve got; we’ve strengthened our legal area, our tax area.
We brought in a couple new executives this year that are dedicated to corporate development activity and software and medical orientation, so we all have the strongest team of people that we’ve ever had. For myself, I’ve got a long-term best in program on all my equity, so, that continues out to, I don’t know 2014 or 2015 or something, and I would expect that my program of one year update so it continues just like [Walter Alston] for quite some time.
Ben-Ari Elias – Sterne Agee & Leach
So there is no mandatory retirement ages you see in your executives?
Brian D. Jellison
No, one of the things about a company like us, we don’t have a finishing plan. So when you don’t have a finishing plan, it’s pretty hard to have a mandatory retirement program.
So, we do not have a mandatory retirement program. I think the only thing that speaks to that is our board has a mandatory retirement at age 74, and most of them are not yet in their 70’s.
Ben-Ari Elias – Sterne Agee & Leach
Okay, but that’s not for the CEO, CFO and anyone else?
Brian D. Jellison
None of us here are aware of a mandatory retirement program that would affect us.
Ben-Ari Elias – Sterne Agee & Leach
Okay, thanks for that. Second question, on the diesel engine side that you mentioned you are working with some OEMs they are installing the safety systems on platforms, could you tell us who some of the OEMs are and you know what the sort of lead times on those diesel engines have been?
Brian D. Jellison
Well, I think you wouldn’t be surprised to learn that, when you’re a technology company like we are, and we’re providing OEM technology people, people have no interest in us telling if it’s Intel Inside unless they want to do that. So they’ve guard their own end market brand situation carefully and we are there to protect them in that regard.
So we don’t provide information about who is incorporating our technology and that’s always, almost always part of the agreement we have with anyone anywhere. So that’s (inaudible) or the guts of a people’s businesses, you talk to or a team.
Ben-Ari Elias – Sterne Agee & Leach
Okay, thank you.
Operator
And now, we’ll end our question-and-answer session for this call. I would now like to turn it back over to Mr.
John Humphrey for any closing remarks.
John Humphrey
Thank you, Becky, and thank you all for joining us today. And we look forward to talking to you again in late January or early February as we finish up the year.
Operator
And that does conclude today’s teleconference. Thank you all for joining.