Roper Technologies, Inc. — Q1 2015 Form 10-Q
Business context and period. Covers the three months ended March 31, 2015, compared with Q1 2014. Roper operates diversified technology businesses across four segments. On April 24, 2015, the company changed its name from Roper Industries, Inc. to Roper Technologies, Inc.
Financial performance
| Metric | Q1 2015 | Q1 2014 | Change |
|---|---|---|---|
| Net sales | $865.3 million | $834.1 million | +3.7% |
| Gross profit / margin | $518.2 million / 59.9% | $488.9 million / 58.6% | Profit +6.0% |
| Operating income / margin | $246.9 million / 28.5% | $223.4 million / 26.8% | Income +10.5% |
| Net earnings | $155.8 million | $147.2 million | +5.8% |
| Diluted EPS | $1.54 | $1.46 | +5.5% |
| Operating cash flow | $260.4 million | $212.6 million | +22% |
Capital expenditures were $10.0 million, implying operating cash flow less capital expenditures of approximately $250.4 million. Cash and equivalents were $615.5 million at March 31, 2015, versus $610.4 million at year-end. Current assets were $1.52 billion and current liabilities $699.4 million. Management reported net working capital, excluding cash and debt, of $215 million, down from $285 million at December 31, 2014.
Total debt rose to $2.63 billion from $2.21 billion at year-end, principally to fund acquisitions. Net debt was $2.01 billion, up from $1.60 billion; net debt to total net capital increased to 29.5% from 25.2%. The company had $415 million outstanding under its $1.5 billion revolving facility and reported compliance with its debt covenants. Cash at foreign subsidiaries totaled $538 million and was considered permanently reinvested; repatriation would incur additional taxes.
Foreign currency translation and post-retirement adjustments produced $93.1 million of other comprehensive loss, leaving comprehensive income of $62.7 million, versus $134.4 million in Q1 2014.
Changes and segment trends
- Medical & Scientific Imaging sales rose 13.9% to $291.7 million; segment operating profit rose 20.1%. Organic sales increased 8%, with acquisitions contributing 9% and foreign exchange reducing growth by 3%.
- RF Technology sales rose 7.7% to $243.0 million; operating profit rose 18.2%. Organic sales grew 11%, led by toll and traffic businesses.
- Industrial Technology sales declined 3.2% to $190.7 million, as a 4% foreign-exchange headwind offset 1% organic growth. Operating profit increased 3.3%.
- Energy Systems & Controls sales fell 9.8% to $139.9 million, reflecting a 5% organic decline and a 5% foreign-exchange headwind. Lower oil and gas product sales contributed; operating profit fell 17.8%.
Overall sales growth reflected 5% organic growth, a 3% adverse foreign-exchange impact and a net 2% contribution from acquisitions and divestitures. Net orders were $848.7 million, approximately flat year over year; backlog was $1.04 billion, 2% below the prior-year level.
Acquisitions, outlook and risks
Roper acquired Strata Decision Technology, SoftWriters and Data Innovations for approximately $590 million cash, expanding its Medical & Scientific Imaging segment. Preliminary purchase accounting recorded $418 million of goodwill and $212 million of identifiable intangible assets. Acquisition transaction costs of $1.8 million were expensed. Funding included revolving-credit borrowings.
The effective tax rate was 31.2%, versus 28.2% a year earlier. Management expects a 2015 effective tax rate of 31%–32%. Capital expenditures for the rest of the year are expected to be comparable to prior years as a percentage of sales. Management expects operating cash flows to support debt reduction, but the pace depends on acquisitions and business performance. No specific earnings or revenue guidance is provided.
Q1 other expense included a $3 million write-off of an investment in a startup technology company. The company also cited adverse currency translation, including a $97 million pretax reduction in the foreign-exchange component of comprehensive earnings; $41 million related to goodwill and did not directly affect expected cash flows.
Risks highlighted include acquisition integration and financing, indebtedness and interest rates, foreign exchange, cyclical markets and weaker oil and gas demand, competition, product liability and warranty exposure, environmental matters, asbestos litigation, and potential goodwill or intangible-asset impairment. Management said ordinary-course legal matters were adequately provided for and did not expect them to materially affect consolidated results, but stated that potential asbestos liability could not be determined. Disclosure controls were reported effective, with no material change in internal controls.
Key facts for investors to verify
- Whether the three acquired businesses integrate as expected and deliver growth and cash flow relative to the approximately $590 million purchase price.
- How quickly Roper can reduce the debt added to finance acquisitions, and the effect on interest expense and covenant headroom.
- Whether weakness in Energy Systems & Controls and lower oil and gas demand persist; monitor segment orders and backlog.
- How foreign-exchange movements, including their effects on reported earnings and comprehensive income, develop.
- Whether the expected 31%–32% tax rate and management’s cash-flow and capital-spending outlook are maintained.