Roper Industries reports historical Q4 results, boasts record operating and free cash flows

By Lisa Kerner

Charlotte, N.C., Jan. 28 - Roper Industries, Inc. chairman, president and chief executive officer Brian Jellison said the company's fourth-quarter 2012 "turned out to be the best quarter in our history" in virtually all measurement categories, including orders, revenue, net earnings, EBITDA and operating and free cash flow.

He said all four business segments are doing "spectacularly well."

Given the business segments and four quarters, Roper was a "perfect 16 for 16 in execution where every segment increased its margin over the prior year in every quarter," Jellison said on Monday during the company's fourth-quarter and full-year 2012 earnings call.

"Both operating and free cash flow were all-time records for us," said Jellison.

Operating cash flow for the quarter was $212 million, or 26% of revenue. Quarterly free cash flow was $202 million, or 25% of revenue.

For the full-year 2012, operating cash flow was $678 million, while free cash flow increased 14% to $639 million and represented 21% of GAAP revenue.

"Even though we invested over $1.4 billion in 2012, our balance sheet's still in terrific shape," said Jellison.

Roper still has "$700 million more powder than we did last year," according to Jellison.

Cash and revolver strong

Cash for the full year is "slightly higher" at $371 million, compared to $338 million the prior year, and the "undrawn revolver is, of course, much higher."

The revolver remains at $1.4 billion for 2012, versus $750 million for the full-year 2011.

"Our cash and under all revolver powder are up here at $1.771 billion versus $1.088 billion," Jellison said, for the full-year 2012.

"We'll generate, we think, well in excess of $700 million of free cash" in 2013, said Jellison, adding that it is "not impossible to envision us having $2.5 billion to invest soon."

EBITDA, gross margin improvement

"While our cash flow is best in class, our ratios continue to improve," Jellison said.

EBITDA for the fourth quarter was $275 million, and EBITDA margin was up 370 basis points to 33.7%.

"Our gross margin was really spectacular; it came in at a remarkable 57.9% for the quarter," said Jellison, up 300 bps above levels "most people see."

"I don't think anybody would have believed Roper would have achieved a 58% gross margin at this time. But we've done that, (and) we think it is pretty sustainable."

The gross debt-to-EBITDA ratio improved to 2.2 times from 1.4 times, year over year, while net debt-to-EBITDA went from 0.9 times to 1.8 times.

Successful bond offering

According to Jellison, Roper's "interest expense was up from $15 million to $21 million because we had a successful $900 million bond offering, which closed on Nov. 15 in the fourth quarter."

"That bond offering set records for execution in terms of spreads on our rating."

The offering "sharply reduces the rate at which our interest costs rates will be coming in, in the future," said Jellison.

"We now have a sustainable level of performance that says we need less than six cents of working capital to create $1 of revenue - that's really an exceptional result and sustainable," Jellison said.

Roper's gross debt at year-end totaled about $1.09 billion, compared to about $2.02 billion for the prior-year period.

Looking ahead, Roper is guiding to full-year diluted earnings per share in the range of $5.60 to $5.82, and full-year operating cash flow of more than $775 million.

Roper is a Sarasota, Fla.-based provider of engineered products for niche markets including water, energy, radio frequency and research/medical applications.

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