Roper's CEO Discusses Q3 2012 Results - Earnings Call Transcript

Oct.25.12 | About: Roper Technologies, (ROP)

Roper Industries Inc. (NYSE:ROP)

Q3 2012 Results Earnings Call

October 25, 2012 8:30 AM ET

Executives

John Humphrey - Chief Financial Officer

Brian Jellison - Chairman, President and CEO

Paul Soni - Vice President and Controller

Jason Conley - Heads, Planning and Investor Relations

Analysts

Jeff Sprague - Vertical Research Partners

Mark Douglass - Longbow Research

Deane Dray - Citi

Steve Tusa - J.P. Morgan

Richard Eastman - Robert W. Baird

Christopher Glynn - Oppenheimer

Matt Summerville - KeyBanc

Alex Blanton - Clear Harbor Asset Management

Operator

Please standby. The Roper Industries’ Third Quarter 2012 Financial Results Conference Call will now begin. As a reminder, today’s conference is being recorded. I will now turn the call over to John Humphrey, Chief Financial Officer.

John Humphrey

Thank you, Casey. And thank you all for joining us this morning as we discuss the results of our third quarter. Joining me this morning is Brian Jellison, Chairman, President and Chief Executive Officer; Paul Soni, Vice President and Controller; and Jason Conley, who Heads our Planning and Investor Relations for us.

Earlier this morning, we issued a press release announcing our financial results. The press release also includes replay information for today’s call. We prepared slides to accompany today’s call, which are available through the webcast and also available on our website at www.roperind.com.

Now, if you please turn to slide two, we begin with our Safe Harbor statement. During the course of today’s call, we will be making forward-looking statements, which are subject to risks and uncertainties as described on this page and as detailed in our SEC filings. You should listen to today’s call in the context of that information.

Now, if you please turn to slide three, today we will be discussing our income statement results for the quarter, primarily on a non-GAAP basis. A full reconciliation between GAAP and non-GAAP measures was included in our press release this morning, as also a part of this presentation which is available on our website.

The difference between the GAAP and the non-GAAP measures as we will be talking about them today is really made up of the following three discrete items. First, a fair value adjustment to acquire deferred revenue at Sunquest, for the quarter this impact was $3.1 million to revenue and operating profit.

This adjustment represents revenue that absent our acquisition Sunquest would have recognized. We believe showing our results on this basis provide additional insight into the ongoing and recurring results of the business.

Second, we incurred $6.3 million of acquisition-related costs specific to Sunquest.

Finally we recorded a $1 million non-cash charged to earnings in the quarter for the early termination of our credit facility. We believe discussing our results excluding these three discrete items provide investors with additional insights and improve understanding of the trends of our business.

And now if you please turn to slide four, I’ll turn the call over to Brian Jellison, Chairman, President and Chief Executive Officer. And after his prepared remarks, we’ll take questions from our telephone participants. Brian?

Brian Jellison

Thank you, John. Good morning, everyone. So we’ll go through the Q3 enterprise financial results, which were really quite good. Look at segment detail and then take a look at our Q4 guidance and what the implications are for the full year. I’ll give you a summary and then take questions from people.

So next slide, we look at the Q3 enterprise financial results, we had an all time third quarter record for most everything accounts, most orders in the history, highest level of revenue, sales, biggest level of backlog, $1 billion almost again, net earnings were an all time record, as well as EBITDA and cash flow both on an operating and free cash flow basis.

Our revenue was up 5%, but that included $0.02 headwind on foreign exchange otherwise revenue would have been up 7%, with organic growth up 3%. If you look at the operating margin expansion it was really remarkable at 220 basis points up from what already best-of-class operating margins to 25.7%.

Our operating leverage was kind of beyond remarkable, I have to put this in the spectacular category, if you look at incremental sales and incremental op, operating leverage in the quarter was 67%.

This really attribute to the nimble business model we have with break-even analysis and various analysis. We get to the end, we kind of talk about year-to-date, just how well our operating leverage has gone and why that so important for the fourth quarter and in 2013.

Our EBITDA in the quarter was $231 million. EBITDA margin was also up 220 basis points to 30.8% at the enterprise level.

Our GAAP operating cash flow is $205 million or 27% of revenue and it’s also up 23% from the third quarter last year. And our diluted earnings per share were at $1.24 up from a $1.12 in the prior year, cash conversion was spectacular, we talk about that when we get into the balance sheet and cash flow, but really exceptional margin expansion throughout the enterprise.

Next slide, if we look at the income statement in Q3, I start out with orders being basically flat to the prior year up a $1 million and the reason for that is and we have a lot of variability in book-to-bill over the last two and half years, almost always due to just project push outs coming in plus we have a difficult GAAP to proj comp finally goes away in the fourth quarter.

Year-to-date book to bill is the same as it generally and these quarterly variances, we don’t read much into it long as they are only driven by what happened with project bookings which we rarely have any control over. So orders were probably better than they really looked in this chart.

Revenue at $751 million was up 3% organically. Our gross profit moved from 53.7% up to 55.9%, remarkable 220 basis points improvement. And our operating income went up from the same 23.5% to 27.5%, another 220 basis points with that 67% incremental leverage. Actually, it was worse in the third quarter than last year. It cost us $0.03 a share compared to last year’s baseline numbers because we had fewer than 48 rollouts in the third quarter of this year than we did last year.

And our reported $24 includes about $2 million of restructuring expenses in energy that would have added a penny if we would have excluded that to hit a $25. Sort of a note to July, it was quite okay and September was strong with August being kind of down within the quarter. We’ll talk more about that when we get to those segments. So we actually feel better today than we did in the middle of the quarter.

Our Q3 operating reviews were much more optimistic when we held those in October than our mid-quarter discussions in August.

Next slide, our EBITDA growth trend continues to see our Q3 trailing 12 months EBITDA back in 2010 with $585 million. We’ve added $287 million to that to reach the $872 million on it, fairly 12-month basis now.

And questions are we always get are, well, how are you ever going to be able to hold this 25% EBITDA margins and our answer to our people and to everybody is we’re not going to settle for 25% EBITDA margins. We don’t have to settle for that kind of a number. And here you see we’re up another 390 basis points in last two years to 29.8% EBITDA on a trailing 12 month basis, 49% over the last two years.

Next slide, on our Q3 cash flow, it’s simply spectacular. $205 million of operating cash flow represents 27% of revenue or $197 million of free cash flow represents 26% of revenue. It’s the 15th consecutive year where free cash flow has exceeded net earnings.

You can see we’ve moved up here from $437 million of trailing cash flow in 2010 third quarter to $618 million now. Year-to-date, our cash conversion is quite strong and we’ll have an even stronger performance in the fourth quarter.

Our cash conversion in the third quarter was 176% on a GAAP basis with 166% on a non-GAAP basis. And all these numbers are all time record numbers of cash flow.

Next slide, if we look at the Q3 balance sheet, you’ll see even after absorbing the $1.4 billion acquisition of Sunquest in August, we still have an exceptionally strong balance sheet. Cash has improved. Our undrawn revolver is less than it was or it’s about same, it was down a little bit.

Our trailing 12 months EBITDA that we’re showing here at $779 million at September a year ago, $872 million now that excludes any pro forma from Sunquest which would add dramatically to that number. So when you look at the statistics around gross debt to cap, there are 37%. If we get net debt to net cap, it would be 32.8%.

Our gross debt to EBITDA is only 2.4 and as you perform Sunquest, of course, it would be much closer to two. We really have ample capacity to do any kind of transaction if we like to do and we still see a number of things in the pipeline that we’re discussing look attractive to us.

Next slide, we can answer the specifics around segment details here. Next slide, in the third quarter, our segment pro forma which was again remarkable. Across the board in all the segments, you can see gross margins at 52%, 52%, 55%, and 66%. And you can see EBITDA margins within each segment, they were all above 30% and all of those are just leading us with a tremendous amount of flexibility with our balance sheet and ability to reinvest for growth in our existing business.

Next slide, we start with RF technology which is our largest percentage of revenue at 29% within the quarter. You can see on an organic basis, I had a modest fall off, eight-tenths of 1% in revenue, which was really due to a specific push out in a job we have in Texas that we expected to start to deliver in the third quarter, which looks like it might even move in the first half of next year.

But we had great margin expansions. You can see operating profit was up 10% and operating profit margins were up 280 basis points. We had some project activity that we expected to come in that really costs us between $5 million and $10 million against what we thought was possible that we were kind of assuming is going to come into the first half of next year, some chance, that it could move into the fourth quarter of this year, some of that.

Overall, the growth is really massed by 5% headwind from Q3 projects last year that were unusual that one-time installer trends and very large installation project at Miami University for CBORD. Our SaaS-based businesses continue to grow in this quarter led by our freight match subscriber base increase which was quite substantial.

These pushouts that we have had, we have very high confidence that they are going to be entering our order book within the next six months. So once again we feel bit better about orders that have book to bill flat line number.

Next slide, in the fourth quarter, we have growth expected to improve in our toll and traffic project activity based on the timing that we have. And we know that our margin expansion as the SaaS business continue to grow as a portion of the SaaS business will continue to give us improved margin that report job in the Middle East with one of the airports. Mostly other things we have going on. We unfortunately just can’t talk about yet because they are not public.

Next slide. On industrial technology, we had organic growth in industrial technology of 10%. So it continued to perform frankly better than our expectations. It did have 3% of foreign currency headwind. The operating margin there is amazing. I mean, our operating profit in the quarter was 30.8%. That’s an all time operating profit margin which was driven by terrific executionist. People are prepared to take out costs.

There is any kind of downturn and just on top of everyone there are variances. The Neptune Toronto project rollout continued were now about 25% complete with several years ahead of us. We have over 100,000 units installed in the field in Canada.

Now, our fluid handling business remained very strong in the quarter. Their oil shale activity that we have around directional drilling with some unique technology there offset the expected reduced demand we had on pressure pumps in the natural gas application. So that really came in stronger than we might have guessed.

And our material gas business continue to grow both in North America and actually had modest improvement in Europe and Europe as whole for the enterprise, not just Industrial Technology, actually on am organic basis was flat in the third quarter whereas many people reporting organic negative growth in Europe.

In the fourth quarter, you will see our extending margins in industrial, we expect to continue. We do have some growth comparisons that are going to become difficult for us in the fourth quarter. As Neptune, we get a benefit possibly from modest improvement in housing starts.

However, in the fourth quarter that tends not to help that much, that’s going to have to be more of, once you have returned to better client activity in 2013. But that’s going to be offset by a four year long program we’ve had with an individual customer that’s rolling off and that’s going to be about $5 million revenue in headwind within the quarter. And then we have, of course, the fall off in shale activity for pressure pumps in the natural gas application. But the rest of the activity, industrial looks strong in the quarter.

Next slide, the Energy Systems and Control segment, it had organic growth of 4%, but we’ve got, of course, being at, generally a lot of non-U.S. activity there, FX hurt us by 3%.

We had very solid margin expansion despite taking a $2 million charge in two of our businesses in energy for a little bit of retention and it cost us a penny a share, certainly good investment, might be a tiny bit more of that in the fourth quarter. Revenue was up 5%, operating profit was up double digits at 11% and the operating profit margin came in at 27.1%, up 140 basis points.

The Compressor Controls business, which as always been project oriented and still is project oriented is growing its field service activity at such a fast cliff that the field service is beginning to change our book-to-bill ratio dynamics in this segment, because the field service is, while it’s not subscription-based, certainly is a continue input around activity.

And then kind of a fresh benefit is that we had nuclear plant inspections added to growth here in the third quarter, which is the first time, we can say something positive about Vitec in a long time. Refinery instrumentation demand though remained very weak and that -- lot of that’s European business activity.

In the fourth quarter, we expect to have strong seasonal Q4 demand and the nuclear inspection activity is going to continue as it’s already scheduled, and we expect to get margin expansion from both growth and some of the benefits to these cost actions that we’ve already taken.

Next slide. In the fourth quarter, I’m sorry, the Medical and Scientific Imaging business, you’d see here, this is where you are beginning to see the initial effect. Sunquest coming in, it will be -- you will see that in a much larger way of course in the fourth quarter and in 2013.

But even given that you can see revenue in the quarter was up 12%, operating profit was up 28% and the operating profit margin was up 340 basis points to 28.1%. Now acquisitions were 16% of that, we had actually a negative organic growth of 3% in the segment because of the academic research markets being down double digits.

The good news for us is that medical already represents more than two-thirds of the revenue in the segment and the medical was approaching much higher percentage of the total operating profit in the segment, as the imaging businesses become far, far less important to our overall portfolio.

The Sunquest acquisition is completed. It’s off to a very good start around administrative and financial processes. It’s absolutely been the easiest transition we’ve ever had with any acquisition in our history. We have very gifted organization in place, not only from a marketplace and customer delivery perspective at Sunquest, but the administrative functions and processes are the best that we’ve seen in an acquisition anytime in our history.

We have mid single-digit organic growth in Medical, driven mostly by OEM systems revenue out of our Northern Digital acquisition couple of years ago and the Verathon Glidescope demand, which continues to be quite substantial.

I mentioned the weakness that we have in the academic research markets, which primarily impact to camera business, but photonics in general down double-digit. In the fourth quarter, those research markets are going to remain weak, but we finally left them, so the comparisons become easier and some of those businesses will actually have increase revenue in the fourth quarter over both the third quarter and the fourth quarter a year ago.

We’ll have continued strength in the Medical platform. We get the full quarter benefit of Sunquest acquisition coming in there and quite a nice boost from Northern Digital on OEM products that we’ve introduced and arrangements that we’ve made with the important large brand key manufacturers.

We get a little bit of benefit from our sanction acquisition, which is getting nested inside Northern Digital and then a modest continued improvement out of Verathon. We will have very dramatic margin expansion in the fourth quarter, as we get the benefit of some things we've done in the core businesses and then the much better margins that will be added to us as a result of Sunquest.

One little noise factor that we’ve seen in the administrative arena and the academic research market is around some people concerned about China with the Japanese and Taiwanese customers who frequently export there, and the noise around that is something that’s hard to calibrate that does appeared to be real.

Next slide, so here we’ll talk about the 2012 guidance and where we stand. Next slide, we look at the full year, we’ve initiated a full year non-GAAP diluted earnings per number of $4.91 to $4.97. This raises the midpoint to $4.94. The midpoint had been $4.92 on a $4.84 to $5 number.

Last year, our non-GAAP EPS was $4.29 a share and remember we had a remeasurement gain of a nickel. We’ve brought the GAAP number from $4.34 down to $4.29, so that midpoint represents more than a 15% increase in EPS. But, of course, real story for us is going to be the cash.

Our Q4 non-GAAP DEPS number, we’ve established to the $1.43 to a $1.49. That gives us an improvement over last year’s $1.23, somewhere between 16% and 21% in the fourth quarter.

That midpoint of $1.46 is higher than consensus and if you only did the midpoint, you’d be about 19% above last year on a non-GAAP DEPS measurement. And again cash flow will be more important in our opinion than the DEPS measurement.

Very exciting thing about fourth quarter for us is that, we’re going to hit a new milestone for Roper that we’ve never seen before, where in the fourth quarter our EBITDA will exceed $250 million in the quarter, meaning we’ll have an excess of $1 billion EBITDA run rate in the fourth quarter, which we are quite excited about.

Next slide. If we look at the summary of activity in the third quarter, you can see that we’ve now demonstrated all these records related to orders, revenue, backlog, net earnings, EBITDA and cash flow. We had across the Board margin expansion in all four segments, which was very comforting for us given the uncertain economic environment.

Organic revenue at plus 3%, we would have like to see that a little bit higher, but when you adjust for the technical GAAP’s to fronts in the core and a little bit of push out in totaling, I guess it was better than most.

Gross margins, spectacular, it hit 55.9%, our operating margins at 25.7%. Year-to-date, if you take the first nine months and you look at the revenue, you look at the op, you do that calculation, you will see that our operating leverage throughout the year is now above 50% of revenue. Now, we used to talk about 25% to 30% leverage out of EBITDA. And then occasionally, we get up to say well, maybe 30% -- maybe could be 35% my goodness it’s above 50% throughout the entire year at this point.

Our free cash flow of $197 million was 26% of revenue. I don’t think there is any people that could point to step-by-step. Sunquest, we set very smooth transition lots of exciting opportunities, really looking at some bolt-on things on that arena and doing some things we think we’ll have big payoffs for 2013.

Our balance sheet remains very strong. We have ample capacity, continue to invest in transactions. We’ve got not only a record year that we know will deliver in the 2012 year, but I think we can now say one position to another record year at 2013.

So with that, I would like to open it up to questions.

Question-and-Answer Session

Operator

(Operator Instructions) We’ll take our first question from Jeff Sprague with Vertical Research Partners.

Jeff Sprague - Vertical Research Partners

Thank you. Good morning.

Brian Jellison

Hey, good morning, Jeff.

Jeff Sprague - Vertical Research Partners

Good morning. Well, maybe first question just pickup right where you left off, you bravely approached 2013 on a pretty uncertain environment. Obviously, you’ve got the Sunquest accretion, which would basically get you there. But if you think about the other businesses, could you elaborate a little bit on kind of the trends you are expecting as you exit the year in the next year?

Brian Jellison

Hey, I think we’re not going to provide any real guidance until we closed out the year. We generally do that with the year-end report. But I do think we were really taken by the -- we have a very formal quarterly review process. We talked to everyone of our P&L people. And when we talk to them in August, we were actually down 9% in orders in August and we were up late July, September. They were positive obviously or we would have the kind of performance you saw.

People were really apprehensive I guess. And we are that kind of behind that so people are worried about that, but all of the customer contacts relatively favorable. Europe has performed a little better than we might have expected the industrial businesses with 10% organic growth in the third quarter, which kind of competing. We know what are challenges are in 2013. We will have some struggling activity unless founding starts picked up and Neptune that we need to overcome.

But our toll and traffic businesses are going to be more robust next year then they have been. The medical scenario is going to be better. We have some great clarity around various things we are doing there. The CBORD is going to win at major Northeastern University that we can’t get announced. It’s very important, a large opportunity for us.

We have some things that are going on in projects that we know are going to come to fruition. So we -- all those things that are negative, we kind of have those cooked out in our opinion unless there are some kind of much more precipitous falloff and so new field we are comfortable, I would say going into 2013 than we have it anytime this year.

Jeff Sprague - Vertical Research Partners

Great. Thank you. And could you elaborate a little bit more on what you see on the scientific and research side that indicated the comp is easier in Q4. But do you have some thoughts on what sequester looks like for the business, for example, that happens next year and what actions you might take?

Brian Jellison

Well, we are taking some actions. But I don’t think that the sequester would have much effect because these are not really defense-related businesses. They are really research applications going mostly to university markets. I think that the U.S. is a fairly small part of where those businesses survey less than a third of low revenue. So, sequester would have any impact as it relates to Europe and Asia, which is where the lion share of our revenue, where those camera business resides.

The other thing is it that they are of course better than other peoples businesses. They are -- the worst portion of the margin side of our OP in the company. So if they are down, they don’t have a kind of negative spin. It’s not quite having any of the other businesses -- have negative variances. So, they are really getting to the point where they have very little effect on the overall enterprise.

Jeff Sprague - Vertical Research Partners

And then just finally, and I have passed the time since you are kind enough to give us specific August order and that number down nine. Can you tell us what September was and what you are seeing in October?

Brian Jellison

With the gifted statistician such as your software read out to you to back into it, if they were modestly favorable. Our overall build to the year by the way is 101 and so we are preparing for all this, we are looking at that fasting owing to -- in the last five or six quarters, we’ve been all over the math. We used to say that our book-to-bill would be 0.97 or 1.03.

And so certainly on our trailing basis, we’re right in that sweet spot. But we had number of quarters. In the last six month, we’ve been sort of outside the margin. And so the projects stop -- if we stop reporting orders, we wouldn’t have to waste time talking about it. But things are fine, they are going to continue to be good.

Jeff Sprague - Vertical Research Partners

Great. Thank you very much.

Brian Jellison

Okay.

Operator

Thank you. We’ll take our next question from Mark Douglass with Longbow Research.

Mark Douglass - Longbow Research

Good morning, gentlemen.

Brian Jellison

Mark.

Mark Douglass - Longbow Research

Looking in the fourth quarter, well first of all what would be the organic orders in the quarter from 3Q?

John Humphrey

Organic orders were down 2%, so we kind of have to same 2% headwind on FX, so that’s.

Mark Douglass - Longbow Research

Okay.

John Humphrey

Okay.

Mark Douglass - Longbow Research

Okay. And then what we thinking as far as organic sales in fourth quarter kind of similar to what you saw in the third quarter?

John Humphrey

That based -- our guidance is based upon how low-single digit organic growth in the fourth quarter.

Mark Douglass - Longbow Research

Okay. And then we can talk about the medical segment, much higher operating profit than I think a lot of us saw how much of that is really due to Sunquest, and then also did you have some pretty custom cost actions I know medical now are above two thirds, but still two thirds of the businesses down double-digits to have margin expand that dramatically is pretty good, can you dive down to that a little more?

Brian Jellison

Well, I think you are right as far as the relative mix and we continue to grow with higher margin areas. Sunquest comes in above the company average operating profit margin. So, that give us a little bit tailwind, but even ups and down we still saw margin expansion in the segment as we continue to grow in medical versus the lower margin camera businesses.

And the nice thing about those -- for the nice thing well, few nice things about this camera business is they do have a pretty variable cost structure. So the reason of large -- fixed cost they need to have restructuring actions, so they are able to flex some of their operating expenses revenue.

Mark Douglass - Longbow Research

Okay. Thank you.

Brian Jellison

You’re welcome.

Operator

Thank you. We’ll take our next question from Deane Dray with Citi.

Deane Dray - Citi

Thank you. Good morning, everyone. Hey, would like to get some color regarding the restructuring actions taken in energy. You said there was a couple of projects, but and then suggest so you could do some more in the fourth quarter, maybe if you can just expand on that?

John Humphrey

Yeah. That’s largely severance-related actions, so it was right at $2 million in the quarter. Once again, with the asset license of this model, we don’t really have the larger restructuring charges that taken off a lot of time to a, implement and b, realize the benefits from. So those are severance related actions with couple of the businesses.

Deane Dray - Citi

Great. And then Brian, I know you can’t names, but your comment about CBORD having a big North East university win. These are always pretty important and especially if you are just placing and incumbent. So maybe just give us a color to the extent that you can regarding the context of the win, what the opportunity was the value that CBORD is bring that the incumbent was not able to provide.

Brian Jellison

I think the -- this is somebody we have been working with for a while and this is a much larger rollout and will normally be the case in terms of the size, which will be apparent when we finally get around announcing it, because its not a small campus environment. And while they see a lot of connectivity point.

We continue to grow at the expense as a competitor in this arena and anyone that to close to those market spaces know that we’ve been gaining share and expect to continue to gain share, because our folks are really focused on the space and are compromised with other possible things that this one competition seems to be involved with. So it’s really beneficial, competitive environment if you will for CBORD that they are ceasing on.

And we continue to beef up our delivery capability in CBORD and we had a quite a bit of talent in the project management arena. We have promoted somebody into a key role there and we’re quite happy with the way they are focused.

I think our new software executive and we have a business development chief architect that can help people think creatively about how to expand their existing product offerings as well. So, I think it’s going to be a long-term continuing contributor to the company.

Deane Dray - Citi

Now, with that this just in terms of timing on that order and would that be in a -- would that be a summer time delivery that’s typically when CBORD does those transactions?

Brian Jellison

Yeah. I think that’s still in our future to determine exactly what the rollout in the implementation schedule will be. Because there are different parts of the CBORD project. There would be the software portion, which of course that’s the large occurring nature to that. And then also in many cases security systems will have installation that have to be schedule around other activity in the campus environment. So, I think the implementation schedule is still in front of us to be able to determine that with the customer.

Deane Dray - Citi

Great. Thank you.

Brian Jellison

You’re welcome, Deane.

Operator

Thank you. We’ll take a next question from Steve Tusa with J.P. Morgan.

Steve Tusa - J.P. Morgan

Hi, good morning.

Brian Jellison

Good morning.

Steve Tusa - J.P. Morgan

Really impressive the margins results, RF Tech up 300 basis points versus last year. Could you just maybe parsed the dynamic there and what drove that?

Brian Jellison

Sure. A couple of different things, one very good tag shipments, which always helps our toll and traffic business, but then also the addition of our and the growth in our software businesses.

Steve Tusa - J.P. Morgan

Right.

Brian Jellison

We have a lot of recurring revenue, but then also come in generally with a little better than the margin performance that our toll and traffic and particularly the projects side of our toll and traffic business. And so with the combination of mix, plus also some costs actions and some other things that we had that we were expensive last year than they are this year. So, we’ve had that tailwind through the first three quarter and expect that to continue in the fourth as well.

Steve Tusa - J.P. Morgan

Europe was down I guess 20% in energy in the second quarter. Can you maybe talk about how those dynamic change in the third quarter. Has there been any kind of change in customer behavior, any problems in financing or credit terms any thing like that?

Brian Jellison

The things we are delivering are not highly expensive. They are really -- we don’t need to think how it was capital items at all. It might be a capital projects that’s driving purchase of the instrumentation software that we sell, but Europe in total for the company not just energy it’s down to 15% of Q3 revenue.

Steve Tusa - J.P. Morgan

Right.

Brian Jellison

So did you ask was this little over 60%? Actually Europe, we include some what other people would call Middle Eastern markets, some of that goes through Europe because of arrangements we have inevitably with some people and absolute number. Probably, John can give better numbers.

John Humphrey

Yeah. Just to check, Steve so as far as energy is concerned just for that segment Europe was actually up almost 10% on organic basis. Remember we do have some OEMs. They are still generally weak on some of the refining in the markets but we have some OEMs there that survey global marketplace.

So our destination revenue goes to Europe but their destination revenue were fairly top of that goes all over the world that is continued to be driven by North American and Middle East activity more so than Europe. And so Europe we look at it across the entire company was kind of flat and organic basis versus last year.

Steve Tusa - J.P. Morgan

Right.

John Humphrey

Next headwind of 5% or 6%. So on reported basis, it was down, but you strip out that FX impact. We were kind of the same as last year and we still refining the headwind of course got to find. So our argue would be the Europe was a little bit better than what we saw in the second quarter. Having said that, second quarter was a pretty low part of deal to jump over.

Steve Tusa - J.P. Morgan

Right. And then one last question on the compressor control stuff its been pretty good on LNG related demand and maybe some of the orders do you think I think he said was going to kind of ramp in the fourth quarter, any other kind of details there to help paying more visible picture on what’s going on there?

Brian Jellison

I think I mentioned in the segment commentary the thing its really changing in our compressor control businesses is adding additional of project work. We are getting this very high level of field service which is becoming more of annuity on a continuing basis. And we are way more resources than we ever had to do that. That actually depresses the -- what you perceive as organic growth, of course, because it just normalized in here more like one of our software business.

Other than that, we haven’t seen any follow up and what people want to do around compressor control. We continue to have couple of bolt-on acquisitions we did United Controls and Trinity Software that have had -- they could be doing more roles than they have in the past. And I think we’ll some spike up and that will help us to. So we would probably expect little better orders over the next six months than we’ve had in the last six.

Steve Tusa - J.P. Morgan

Okay. Congratulation on a very quarter. Thanks.

Brian Jellison

Thanks, Steve.

Operator

Thank you. We’ll take our next question from Richard Eastman with Robert W. Baird.

Richard Eastman - Robert W. Baird

Yeah. Good morning. I have just two questions I guess maybe a little bit of follow-up on that last one, but both, what we think it was maybe the shorter turns businesses, the industrial tag and also the energy systems business, just in general had that the book-to-bill in the quarter for both of those business was below one and certainly below a seasonal pickup, seasonal expectation. And is that, is the way you’re thinking about that that the damage was done kind of maybe in month of August and again, short returns businesses where we saw recovery in September?

John Humphrey

Yeah. I think, that’s, I mean, that’s the generally the case, Rick. But also as we look at the book-to-bill ratio inside the company, the major drivers really are project driven business, not the things that we are more book in turn inside of a shorter window. And as you know, we always keep a close eye on some of our, as we think of them our leading indicator businesses, our Struers material test business, our Dynisco business serving a number of process industries, as well as a couple of the other sensor businesses and energy.

And those continue to perform well. Their book-to-bill ratio was solid in the quarter and again, I mean, August was tough, but September was better for them. So, I think that that commentary that Brian was talking about is largely around the book and ship businesses and we have the project timing things that will overlay against that.

Richard Eastman - Robert W. Baird

Okay. Okay. And then just one follow -- my follow-up. There was some -- I think Brian you had mentioned that there was some project activity in the RF Tech segment that was pushed from maybe the second half of this year into the first half of next year. Is it -- where did that fall, was that the tolling business or where is that?

Brian Jellison

Yeah. Our total stuff in Texas, we had a very large contract that we won in the second quarter and we expect that we would have been doing some delivery by now and there are some things going on with tolling authority that are moving things around and they are not ready for delivery yet.

So that’s getting pushed out to probably, I don’t know, first quarter of next year. A tiny chance we might get a little bit out here in the fourth quarter, but we are assuming it’s one of the 2013, it actually give benefit to us because…

Richard Eastman - Robert W. Baird

Okay.

Brian Jellison

… it helps like any fall off that might occur in 2013 and some of these other areas.

Richard Eastman - Robert W. Baird

And the push out, I think you had mentioned $5 million to $10 million, is that kind of an annualize number or are we suggesting that was pushed out of the back half for this year?

Brian Jellison

We worked opposite. This is just locked. When we were preparing our guidance for the third quarter, we were thinking we’ll get $5 million to $10 million out of this particular project and we didn’t get anything that we could offer.

Richard Eastman - Robert W. Baird

I see. Okay. Thank you. Thanks for the clarification.

Brian Jellison

That’s why we are not at all worried about our book-to-bill, its 9…

Richard Eastman - Robert W. Baird

Okay. Understood. Thank you.

Operator

Thank you. We’ll take our next question from Christopher Glynn with Oppenheimer.

Christopher Glynn - Oppenheimer

Thanks. Good morning. Heard the comments on tolling being a little stronger next year, but just trying to think about how to frame up the segment in our longer-term. It looks like maybe the traffic and tolling side is kind of a flat line business. You get some growth out of the software side. So it kind of low growth longer-term but a margin melt-up on mix shift. Is that, anything wrong with that thinking?

Brian Jellison

I mean, if that’s what happens, then you are right with respect to the margin benefit. I’m not at all going where you are as far as toll and traffic been a flat business. I think they have a lot of opportunities in front of them. They have the number of solutions that they continue to deploy. People around the world are looking for ways to reduce congestion and generate revenue from their existing infrastructure.

I think that the trends in their business are favorable. It’s not all the question of whether austerity overwhelms that, but I don’t think it does. So, I’m not going where you are as far as it being a flat business.

Christopher Glynn - Oppenheimer

Yeah. I wasn’t necessarily there. Just wanted to bounce that up that was very helpful. And then on the regions, John, did the U.S. deviated all from the monthly trends that you talked about?

John Humphrey

Not materially but straight to mind, no.

Christopher Glynn - Oppenheimer

Okay. Thank you.

Operator

Thank you. We’ll take our next question from Matt Summerville with KeyBanc.

Matt Summerville - KeyBanc

Good morning. Brian, you mentioned some dynamics with China, Japan and Taiwan. Can you talk a little bit more about them and specifically, how it’s impacting your business or how you expected to impact your business?

Brian Jellison

Well, it’s really in -- more in academic and research arena where we have almost, a lot of our sales ultimately are going to China, but through Japanese and Taiwanese distribution or technology companies. Certainly the political situation that has escalated on the rhetoric basis between Japanese and Chinese less than helpful for people.

So we are -- we were curious as to whether that’s going to get resolved anytime soon, but doesn’t it -- it makes us a little more cautious about some of our end markets in particular area.

But remember, Matt, as you know, I mean, it’s a very small part of the overall company. But we do like to point out things that seem to be trend changes and that is a something we had not heard prior to the third quarter from people that I think are insightful. So kind of just alluring you that it could be a headwind.

Matt Summerville - KeyBanc

Got it. And then I wanted to spend just a moment on your CCC business. It sounds like you have excellent visibility there. So please, I mean, first, correct me, even if I’m working in thinking that? And then, I want to make sure, I understand, what dictates kind of the momentum and timing around your field service activity? And is this a business that is going to require some incremental internal investment near-term?

Brian Jellison

It doesn’t really need if its people related. So it’s just a matter of, we have seen an opportunity to expand our field service business for a lot of reasons. The people want to focus on capital equipment, which is very lumpy and they are leaving behind an opportunity to give out field service in this area, which we are picking out at a fast pace. So that requires a little bit of investment for people, but not massive one. They are expensive people because of where they are physically located.

And then in terms of the order processes, they are always lumpy in CCC. There is not anything you can do about that, people order their technology from us with a long lead time. So it’s not unusual to get an 18-month out order, we only book things that are shippable within 12 months.

So we don’t create a massive backlog and stuff that isn’t going to hit our next forward 12 months of activity. And we have a very strong knowledge about who we are working with in various CCC projects and what the likely outcome is going to be.

Those tend not to be so much what equity projects. I mean you are kind of working with somebody from a design viewpoint where you’ll likely get the order, we would not lose many orders that we are involved with.

Matt Summerville - KeyBanc

And then, just lastly one quick one. Captures decision to open source their technology and does that do anything to the tolling space at all?

John Humphrey

No. We think that’s a change versus the statistical. I mean those are, I believe our understanding of that is, it’s a number of patterns that have already expired and frankly, we’ve been on the leading edge of and also a lot of these interoperable solutions. We are the first people to and TransCore who were the first people to introduce multi-protocol readers.

So, a tolling authority could have the opportunity of having their choice of the best tag technology and we would be believe to read any ones available. So, I don’t think that that recent announcement really effects the competitive dynamic. I think it’s just a reflection of today’s environment already.

Matt Summerville - KeyBanc

All right. Thanks, John. I’m sorry…

Brian Jellison

I think, these are the strength of our business.

Matt Summerville - KeyBanc

Appreciate that. Thanks, Brian. Thanks, John.

Operator

Thank you. We’ll go next to Alex Blanton with Clear Harbor Asset Management.

Alex Blanton - Clear Harbor Asset Management

Good morning.

Brian Jellison

Hey, Brian.

Alex Blanton - Clear Harbor Asset Management

I wanted to ask what’s your GAAP estimate would be for the fourth quarter? You got a $1.43, $1.49 for the non-GAAP?

Brian Jellison

Yeah. And the…

John Humphrey

The difference is the deferred revenue is probably…

Brian Jellison

It’s a $0.04 difference.

Alex Blanton - Clear Harbor Asset Management

$0.04 below that. Okay. So we can calculate…

Brian Jellison

Yeah. That’s exactly. That $0.04 is related to the deferred revenue fair value adjustment as revenue out of the acquisition we would have recorded.

Alex Blanton - Clear Harbor Asset Management

Yeah. Okay. I was away from the call for a minute. So I don’t know if this was asked but you mentioned in your opening remarks that August dipped down a bit and you were concerned and then things strengthened. What’s the reason for that? That’s an odd fluctuation.

Brian Jellison

I think August was an aberration. When you scoop it out, the third quarter was maybe 2% below what we would have outpouring. We actually know that that was more project oriented. But in the middle of the quarter, we were apprehensive because we don’t want -- maybe there is some kind of falloff and we have really seen that. So we’re kind of back to a reasonable September and a reasonable July.

Alex Blanton - Clear Harbor Asset Management

There’s been an economic fall off since then as pretty dramatic going into the fourth quarter here with a lot of companies reporting weakness and things below expectations. Did you experience that apparently in August and then recovered some of that debts?

Brian Jellison

Remember, this is only a few of our businesses are going to bounce around like that. I mean, the medical businesses that are more secular in nature, most of are up other than the lumpy side of the projects. It’s pretty secular in nature with growth. So if you have a falloff in industrial energy, it’s almost always rebounds in the fourth quarter in energy. Any way, we’ll have a lot of things that people would want to invest in with them on budgets and other arenas.

John Humphrey

And Alex, few other thing I would add to that is that we don’t report -- there are some companies that actually report their quarter of their activity on a monthly basis because they really are better gauge and more type to near-term macro economic activity. That’s never really been our business profile.

So we’re not really a good indicator for the macro world because of the niche markets that we serve and many of the things that have the secular growth tailwinds that I was talking about.

So I think the -- other reason that we mentioned it was a little bit different than what we normally see but we’re not looking at month-to-month activity or week-to-week activity. We’re not that type of macro business.

Alex Blanton - Clear Harbor Asset Management

Right. I realize that and in looking at next year, well right now investment is lagging. Investors are really on strike, capital goods investment I’m talking about could even be down here in the fourth…

John Humphrey

Hello.

Operator

Mr. Blanton. Looks like his -- he disconnected his line.

Brian Jellison

Alex, we’ll follow up with you later on today.

Operator

Thank you. Ladies and gentlemen, that will end our question-and-answer session for this call. We now return back to John Humphrey for any closing remarks.

John Humphrey

Thank you. And thank you all for joining us this morning and as always, we look forward to talking to you next quarter.

Operator

Thank you. Ladies and gentlemen, this does conclude today’s presentation. You may now disconnect.

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