Roper Industries Earnings Call Nuggets: Sunquest and Addressable Markets

Roper Industries (NYSE:ROP) recently reported its first quarter earnings and discussed the following topics in its earnings conference call.

Sunquest

Deane Dray – Citi: For MHA, maybe some additional color on their mix; some sense of how or what percent of their contracts are exclusive, and maybe talk a bit about how much of the revenue comes from performance contracts and how they’ve done against those historically?

John Humphrey – EVP and CFO: So, none of their contracts are performance based. Most of the things you’re talking about, this idea of exclusivity is more of acute care hospital type of GPO – I mean, very little as far as MHA’s contracts with their customers are exclusive and none of them are performance-based.

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Deane Dray – Citi: Then Brian, I was hoping you can expand on and maybe this is just the terminology, but on Sunquest when you talked about – you’re looking for a faster implementation. Is this – are you talking about integration, new software rollout or just – if you could expand on that point?

Brian D. Jellison – Chairman, President and CEO: The integration is fine. It’s just a world-class organization, and we’ve had nothing but a marvelous time working with the Sunquest people. But the adoption of the software upgrades that they’re getting is occurring at a faster pace I think than they expected. And as a result, their ability to execute against those and get the implementation needs to improve, and they’re making some structural changes around people and who is driving what, so that they can get better focus on that, because we can actually escalate their growth if we can get out there to get those new customers on board. It’s a customer integration, not a Roper to Sunquest integration question.

Deane Dray – Citi: Just to clarify on that, what is the growth rate that you’re expecting from Sunquest if you factor in these new software upgrades?

Brian D. Jellison – Chairman, President and CEO: I think we’re expecting it ought to grow at sort of high single digits.

Deane Dray – Citi: And what type of margins that you’ve been – you’re getting out of the blocks?

Brian D. Jellison – Chairman, President and CEO: I’d say they are may be twice ours.

Addressable Markets

Matt Summerville – KeyBanc Capital Markets: One follow-up on MHA and then I have another question. John or Brian, can you talk about the addressable markets size for MHA, the competitive environment, whether you see any disruptive technologies out there to what MHA has?

John Humphrey – EVP and CFO: We see a lot of disruptive technologies, so they are molded in our diligence process. I mean they have a very high share, particularly in the long-term care pharmacy space, well north of 50% there, but it’s still – they have the largest share also in the long-term care facilities around food purchasing, but that’s still a relatively small share, so there is still quite a bit of headroom to grow in the long-term care facility and assisted living areas. And then we just see the positive drivers associated with demographic trends and more care being delivered in non-hospital setting as population ages. So, those are positive benefits, and then those share gains particularly on the LTCF side of their business are things that we think will drive their growth going forward.

Brian D. Jellison – Chairman, President and CEO: I think that, Matt, John means the disruptors that he sees are at MHA were fully owned.

John Humphrey – EVP and CFO: Yes, that is what I meant.

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Brian D. Jellison – Chairman, President and CEO: We’re seeing a pretty clear pathway of growth there and we’re enabling a lot of people to be successful in a market place that probably wouldn’t be able to survive without the productivity that MHA allows them to deliver.

Matt Summerville – KeyBanc Capital Markets: Then for my follow-up, just Brian, can you help fill in the blanks a little bit on the organic growth forecast. You start out minus 3, it sounds to me like you weren’t specific, but the second quarter is maybe relatively flattish. That really does imply a pretty big finish to the year. Can you just sort of help bridge how Roper gets there?

John Humphrey – EVP and CFO: Sure. I mean, yeah, you’re right, as far as the math and the way that it rolls out. So with kind of down 3% in the first quarter, we’re expecting second quarter to be up kind of in the low single-digit range on an organic basis, 1%, 2%, 3%. And in the back half is in the high single-digit range, driven by the orders that we received in the first quarter. So that provides nice backlog and contracts and projects to execute against in the RF segment. And then just modestly improving areas, some new product introductions, and frankly, a little bit of easier comps as we get toward Q3 and Q4 in some of the Imaging and Industrial segments.

A Closer Look: Roper Industries Earnings Cheat Sheet>>

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