Operator:

Good morning. The Roper Technologies Conference Call will now begin. Today's call is being recorded. All participants will be in the listen-only mode. [Operator Instructions] I would now like to turn the call over to Zack Moxcey, Vice President of Investor Relations. Please go ahead.

Neil Hunn:

Thank you, Zack, and thanks to everyone for joining our call. We're looking forward to sharing our second quarter results with you this morning. As we turn to Page 4, you can see the topics we'll cover today. I'll start by highlighting our second quarter performance, Jason will then go through our financial results in greater detail, review our balance sheet, including our M&A capacity and discuss our strong cash flow performance. Then I'll walk through our segment highlights and discuss our guidance for the full year. After our closing remarks, we'll open up the call for your questions. So, let's go ahead and get started. Next slide, please. As we turn to Page 5, three key takeaways for today's call are

Neil Hunn:

Thanks, Jason. As we turn to Page 9, let's review our Application Software segment results. Revenue here grew by 21% in total and organic revenue grew by 5%. EBITDA margins were 43.6%. We experienced strong performance across this portfolio of businesses with organic recurring and reoccurring revenue growing in the high single-digit area. So, let's start with Deltek. Our software business serving the government contracting, architecture, engineering and construction contractor markets. Deltek was solid in the quarter. We saw continued momentum across our private sector solutions and improved bookings activity and revenue within their GovCon business. Importantly, and as we started to highlight last quarter, Deltek's new GenAI-powered digital assistant Dela is in the process of integrated across Deltek's core suite of software applications. We're keen to see the customer workflow efficiency benefits take route as Dela is deployed throughout the Deltek tech stack, exciting for sure. Turning to Aderant. Our software business focused on the needs of large law firms continues to perform incredibly well in the market and had another great quarter with continued SaaS momentum and GenAI-focused innovation. The Aderant team is consistently delivering new GenAI-powered capabilities across our platform, enabling meaningful efficiencies in creating significant value for their customers in areas like billing, receivables management and time entry. Also, Vertafore & Frontline performed well in the quarter with strong net dollar retention and bookings growth. Also during the quarter, we completed our periodic strategic reviews with each of these businesses and left the reviews encouraged by the long-term opportunities in front of each. PowerPlan, our financial planning and tax software business serving heavy fixed industries was impressive yet again in the quarter and grew its ARR with strong net dollar retention and adoption of its new SaaS solution. Excited to see the progress the PowerPlan team is making. Our health care IT businesses led by Strata and data innovations were also strong in the quarter. As it relates to Strata, the combination with Syntellis continues to go very well with the vast majority of the cost synergies now in the rearview mirror. Great job by the team implementing this portion of the value creation plan. Since the completion of the transaction with Syntellis, the sales pipeline has continued to fill with substantial growth opportunities with several of these opportunities converting to bookings during the quarter. Further to this end, with the cost synergy faced behind the team, their full attention is now focused on long-term growth-related initiatives about which we are quite bullish and look forward to discussing in the quarters to come. As for data innovations, we saw accelerated growth in the quarter with customer decision-making returning to normal, encouraging for sure. Finally, Procare, the most recent addition to the Roper family companies is off to a strong start. For the second half of the year, we expect to see mid-single-digit organic revenue growth trending to the upper end of this range for this segment. Please turn is to Page 10. Organic revenue in our Network Software segment grew 2% in the quarter and was impacted by the fact we continue to experience pressure with our freight matching businesses and work through the impact on Foundry in the recent actors and rider strikes. Excluding our freight matching businesses and Foundry, the segment grew in the mid-singles area, which demonstrates the underlying quality of this group of market-leading businesses. EBITDA margins continue to be strong at 54.8%. Let's dig into the details and start with our freight matching businesses, DAT and Loadlink, which declined slightly as expected due to the continuing challenging freight market conditions that adversely impact both businesses. That said, the market appears stable, both on the carrier and broker side, bouncing along the bottom, if you will. Notwithstanding this and is typical for Roper, we invest for long-term sustainable and improving levels of organic growth. In DAT's case, we're absolutely doing this, leading the industry with GenAI-enabled fraud detection and prevention tools. Also, and importantly, in the quarter, we welcomed a new DAT CEO to the team, Jeff Clementz. Jeff has a long and successful career in network and software businesses, and we look forward to working with him to deliver the next chapter of DAT's growth. Now let's turn to Foundry, our postproduction media and entertainment software business. Foundry continued to roll out innovative product updates and ML-powered functionality this quarter, enhancing the creative process for high-quality visual effects. Given the continued impact related to the recent industry strikes Foundry declined in the quarter as expected. That said, the current content production pipeline is filling and Foundry's customers are beginning to reramp their capacity, which gives us confidence Foundry return to more normalized growth next year. As mentioned, the balance of this segment grew mid-singles organically in the quarter with solid execution across this portfolio of businesses. By pipeline, our life insurance and annuities network software business, has strong renewals, customer expansions and market activity, especially in the annuities market. ConstructConnect continued its solid march of improved financial results and bookings momentum. In addition, ConstructConnect continues to lead the market with their GenAI power and take off and estimating solutions. Great job by Matt, Buck and the entire ConstructConnect team. Finally, our alternate site health care businesses performed well with MHA benefiting from increased operational focus and rigor and improvement in senior care occupancy rates. SoftWriters, our LTC pharmacy software business continued their cadence of solid execution, well done. For the second half of the year, we expect the difficult freight market conditions to persist which resulted in our continued low single-digit organic revenue growth outlook for this segment. Now please turn to Page 11, and let's review our TEP segment's results. Revenue here grew 5% on an organic basis and EBITDA margins remain strong at 36.2%. We'll start with Verathon. Verathon had very strong growth across all through its product families and once again executed at an exceptional level in the quarter. The long-term success of Verathon is directly attributable to its leadership team building the business and all the underlying processes to enable sustainable long-term and improved organic growth. This long-term disciplined focus is truly a competitive advantage for Verathon. Neptune continues to be solid and delivered another record quarter financial results. Demand remains strong and consistent with our expectations. Also, the Neptune team did a great job commissioning substantial ultrasonic meter capacity during the first half of this year, both of which are great relative to Neptune's long-term success. However, Neptune struggled in the quarter to achieve the manufacturing efficiency needed to deliver on the mechanical meter demand. We anticipate this to progressively be resolved through the balance of this year. Northern Digital, or NDI, declined as expected in the quarter. As a reminder, NDI is our market-leading precision measurement business. NDI partners with the world's leading medical device manufacturers to deliver innovative health care applications that require super precise navigation such as robotic surgery and cardiac procedures to name a couple. Their long-term historical growth rate has been in the double-digit area. However, NDI is declining this quarter and this year based on customer program timing. Notwithstanding the first half performance, NDI continues to see strong OEM order activity, and we fully expect NDI to return to their normalized organic growth rate next year. Finally, IPA Inovonics & rf IDEAS declined against a difficult prior year comp. As a reminder, these businesses started recovering from supply chain challenges this quarter a year ago. For the balance of the year, we expect the TEP segment to grow in the mid-single to high singles range, which is slightly below our prior expectation of high singles growth due to the mechanical meter production efficiency timing at Neptune. We do expect to return to high singles growth in the fourth quarter as Neptune's efficiency improvements take hold. Please turn with us to Page 13. Now let's review our full year 2024 guidance and discuss the third quarter outlook. Based on our first half performance, enterprise momentum and our confidence in our outlook, we're maintaining our 12% total revenue growth and 6% organic revenue growth outlook for the full year. In addition, we're raising at the bottom end of our full year guidance of touch to be in the range of $18.10 and $18.25. Our guidance continues to assumes full year effective tax rate in the 21% to 22% range. For the third quarter, we expect adjusted debt to be between $4.50 and $4.54. Now please turn us to Page 14, and then we'll open it up for your questions. We'll conclude with the same key takeaways with which we started. First, we delivered a solid quarter of financial results, Second, we're increasing the low end of our outlook for the full year. And third, we are very well positioned relative to our capital deployment strategy. For the quarter, we delivered 12% total revenue and 4% organic revenue growth while increasing our EBITDA 13%. Importantly, free cash flow was strong, growing 24% in the quarter and 35% on a trailing 12-month basis. Free cash flow margins were 32% on a TTM basis as well. Next, we're maintaining our full year outlook for 12% total revenue and 6% organic revenue growth and increasing the bottom end of our full year guidance. We're confident in our outlook given the mission criticality of our solutions, the ongoing expansion of our recurring revenue base and seeing HSD growth in our enterprise software bookings. Finally, we continue to maintain a strong financial position with over $4 billion capacity for capital deployment. The M&A markets are very active. We have a robust pipeline of attractive acquisition opportunities that we're excited to pursue with our unbiased and disciplined approach. We remain quite bullish about our ability to execute this partner strategy over the balance of this year and into the future. Now as we turn to your questions and if you could flip to the final slide, our strategic flywheel, we'd like to remind everyone that what we do at Roper is simple. We compound cash flow over a long arc of time by operating a portfolio of market-leading application-specific and vertically oriented businesses. Once a company is part of Roper, we operate a decentralized environment, so our businesses can compete and win based on customer intimacy. We coach our businesses on how to structurally improve their long-term and sustained organic growth rates and underlying business quality. Finally, we run a centralized process-driven capital deployment strategy that focuses in a deliberate and disciplined manner on finding the next great business to add to our cash flow compounding flywheel. Taken together, we compound our cash flow over a long arc of time in the mid-teens area. So, with that, we'd like to thank you for your continued interest and support and open the floor for your questions. Operator, please go ahead.

Deane Dray:

Maybe we can start with the production efficiency issues at Neptune. And if I understand this correctly, so mechanical meters, it's an established platform. So, I would not expect it to be like a start-up issue on this, but maybe just share with us what the problem is, what the remedy is and so forth?

Deane Dray:

All right. That's good to hear. And then a second question, how about any issues with the CrowdStrike fiasco earlier this week? Any impact, any new vulnerabilities across your businesses? And anything you could share there would be helpful.

Operator:

And the next question comes from the line of Joe Vruwink. Your line is now open.

Neil Hunn:

Yes. I'll take a first pass of this and then Jason has anything to add. So first, it's been this -- certainly, we're aware of the situation from the other companies. And so, we're listening intently for this when we do our call downs of their businesses. And not once in any of our call downs or none of the first quarter, second quarter written summaries of business unit performance is this then the other as an issue in terms of our customers' IT spending diverting away from what we did is the first point. We've started to think about why that is. I think part of the reason is we're a teeny tied portion of the IT spend of our customers, and we're mission critical in what we do. So, I think it's a combination of the two. And our customers are very much looking to us to GenAI enable our product offerings. And we're very much doing that. We've talked about it in the prepared remarks for the last several quarters. I think there's three or four references in it in today's call. And so, we're super bullish about the opportunity. We noted enterprise software bookings up high single digits in the quarter, so some momentum there.

Joe Vruwink:

Okay. That's great to hear. Yes. And I wanted to follow up on the high single-digit growth in enterprise bookings because that does seem like a positive change in trend. So Deltek contributed, it sounds like any other big needle movers to call out just in terms of the bookings developments?

Operator:

And the next question comes from the line of Julian Mitchell from Barclays. Please go ahead.

Jason Conley:

Yes. Thanks, Julian. I think a little bit is Neptune. So just getting that -- those operational efficiencies will push some of that revenue that we normally have in the third quarter into the fourth. And then if you just look prior year, I think we think AS margins are going to be down year-over-year in Q3. If you recall last year, it was kind of the high watermark, Q3 was, of 2023. So, we actually expect it to be stronger AS margins in Q4. So, we'll have a strong Q4 there. So, it's just a little bit of a shift on margin, I think in the AS segment, which is obviously more than half of our revenue.

Neil Hunn:

I'll give you our best crack at what's going on there. So, as we all know, in recent past periods, DAT just really experienced abnormal growth that was consistent with the freight cycle. And then -- and then -- and sort of the freight recession is what's been impacting the business over the last several quarters. This quarter was flattish in terms of the volumes that we're seeing. And then maybe there's a little bit of green shoots happening. The spot market volumes are stable to slightly improving. Carrier attrition and the network has slowed a little bit more than originally expected or anticipated. And finally, maybe most importantly, freight rejection rates in the market are improving. And so, we're sort of balancing, as I mentioned, we're bouncing along the bottom. That's our call for the balance of the year, and we're not going to bake in an improvement in our outlook until we actually see it, but maybe there's some green shoots happening here.

Terry Tillman:

The first question, it's kind of a multiparter. It's related to the Deltek business. And then I did have a follow-up. It's going to be on Aderant. But in terms of Deltek on that large GovCon side, I assume that's for some of that volatility and some of the bookings weakness is still going on. Is there some seasonality dynamics and just kind of strengthening of the pipeline and visibility into the second half where you think that can turn positive in terms of bookings? And the second part of this first question is on FedRAMP. If I wasn't mistaken, FedRAMP could potentially unlock some large deals? And then I had a follow-up.

Terry Tillman:

And I guess just a follow-up question. I've been struck by just from our own primary research, just the Aderant customer base and optimism about moving to cloud. Where are we in that upgrade cycle and moving to cloud. And is it unlocking kind of expansion sales opportunities?

Jason Conley:

There's a few dozen conversions that's happened over the last three or four years. So, we're still really early. It's obviously picked up in the last, call it, six quarters. But yes, still plenty of running there.

Scott Davis:

Is it fair to say, it's getting a little harder to get price year-over-year? I'm kind of thinking specifically network software, but I guess, application software as well. But I know you had some pretty big price increases the last couple of years. Has it gotten a little harder to get price in those markets?

Scott Davis:

Okay. All right. That's good color. And then last quarter, my takeaway was your enthusiasm on kind of M&A markets unlocking was pretty high. Is that -- is it fair to say you're still in the same level of enthusiasm about being able to get high-quality deals done this year?

Operator:

And the next question comes from the line of Giordano -- I mean Joe Giordano from TD Cowen. Please go ahead.

Neil Hunn:

Yes. So, on the mix, we've been advised by Neptune for competitive reasons to sort of stay away from the specifics of the mix. Today, the market is declaratively going to static. There's a lot of benefit to static, and we believe we have a most product advantage with our static meter around being able to be accurately both high and low flow rates. Relative to the margin profile today, they're similar-ish in terms of margin profile.

Neil Hunn:

Yes. So, on the Deltek side, the construction vertical, Deltek remains strong. The pipeline activity is strong. Their bookings activity is strong. Now mind you, our customer base is very much on the S&M side. They're not the enterprise. They're not the largest customers, the Deltek services. So maybe -- I mean there's a gigantic un-bended market. So even in the headwinds of maybe a little bit of slowdown when these smaller contracts are looking for efficiency, they would look to using our software to do that, which might help with some of the pressure. At ConstructConnect, this business has just been -- it's just good old-fashioned execution that has led to better outcomes there. They're going to really get choice on their strategy and making choices to focus on the trade contractors and building product manufacturers. They've done a great job enabling that strategy around the product and R&D and go-to-market sort of changes, the lead generation changes, the way they hear their demos I think we've been four quarters of double-digit bookings at ConstructConnect. And so, it's just been good old-fashioned execution there that's led to quite improved outcome here.

Steve Tusa:

On the Neptune side, what's the kind of backlog status there? And what's your book-to-bill on that front? Just some color on the orders because accelerating into 4Q when your growth was 15% seems to imply quite a catch-up even beyond maybe just fulfilling some of these other orders? And then secondarily, you mentioned high single-digit growth in software, I believe it was bookings. Is that organic or reported? And if that's total software, shouldn't that translate to revenues more near term in the second half. It doesn't look like you're accelerating there in the second half.

Neil Hunn:

That's right. And just the only thing I'd add to Jason’s thought, on the software bookings is the majority, if not the vast majority of bookings are subscription or SaaS related. So, you've got the number of months left in the year, it's just hard to impact bookings in the second half or even second quarter six months left to go. So, it really is about the launch of point in AR for '25.

Neil Hunn:

That's right.

Alexander Blanton:

It's really Clear Harbor Asset Management, not an individual investor. I want to go back to the Neptune production issue. I really wasn't clear on the answer that you gave before. So perhaps you can make some clarifying comments. What's the nature of the production holdup or problem? And I think you said that you expected it to be resolved by the end of the third quarter so that you would do some catch-up in the fourth quarter. Could you elaborate on that?

Alexander Blanton:

My question really was what caused it to deviate from prior levels?

Alexander Blanton:

Well, right. But what is the nature of the production efficiency problem. That's what I'm getting at.

Operator:

Thank you. This concludes our Q&A session. I will now hand the call over back to Zack Moxcey. Please go ahead, sir.

Operator:

Thank you. This concludes our conference call for today. Thank you for attending today's presentation. You may now disconnect.

Operator:

Good morning. The Roper Technologies Conference Call will now begin. Today's call is being recorded. [Operator Instructions]

Zack Moxcey:

Good morning, and thank you all for joining as we discuss the first quarter 2024 financial results for Roper Technologies. Joining me on the call this morning are Neil Hunn, President and Chief Executive Officer; Jason Conley, Executive Vice President and Chief Financial Officer; Brandon Cross, Vice President and Principal Accounting Officer; and Shannon O'Callaghan, Vice President of Finance.

Operator:

[Operator Instructions] Your first question comes from Julian Mitchell from Barclays.

Jason Conley:

So Julian, it's -- like you said, it's about playing out as we expected, down low singles for the year. Not much change from our perspective last quarter. So yes, that's kind of the current guiding assumption.

Julian Mitchell:

That's helpful. And then just dialing in on the second quarter EPS guide. I think normally, you'd have maybe sort of a 3%, 4% type sequential increase in earnings in the second quarter, looks like it's basically flat at the guide midpoint for this Q2, is there anything going on sort of sequentially with any of the segment sales or margins that's abnormal or something below the line that's weighing on that?

Deane Dray:

Since it's the newest addition to the team on Procare, just some data points. So what was the contribution in the quarter? And reminds us about any kind of seasonality on the cash flow because it is tied to education. So we know that it tends to be seasonal. And any sort of like first 100-day plans for the business?

Deane Dray:

And the normal cadence for the monthly is revenue cadence is approximately what?

Zack Moxcey:

If you're comparing this to front line, where most of the cash flow comes in Q3, this is not that. This is much more linear throughout the course of the year.

Neil Hunn:

Yes. So for a long -- Deane, as you know, Neptune over a long arc of time is a slow and steady share gainer for sure. I think it proves out in all the market data we see and continues to research it. Relative short-term performance, we think it's a combination of a couple of things.

Operator:

Your next question comes from Joe Vruwink with Baird.

Neil Hunn:

Yes. So we got -- it depends on which part of the market you're talking about. Education, our frontline business was not and has not been a meaningful beneficiary of [ ESR ] funding. And so as that is coming to an end, we've not been a direct beneficiary of that. There might be some secondhand or thirdhand benefit by that, just having school districts having a lot of money over the last years and feeling good about life.

Neil Hunn:

Yes. Joe, that's the Procare business coming online, right? So we talked about 75% or so of their revenue is payments. And so that's showing up in the recurring line.

Scott Davis:

I think this was more positive in tone on the M&A side commentary wise, and I think we usually get from you guys. You're never really that bearish. But talk to us about -- a couple of things, a little bit more color there. Is it the number of deals? Is it the valuations have gotten more interesting? Is it the competition on the buy side has gotten a little bit better? I mean just drill down a little bit into that, it would be helpful. And kind of a natural secondary is you say $4 billion of fire price, is that enough? And would you consider tapping equity markets if the deal flow was going to be even more robust?

Operator:

Your next question comes from Brent Thill with Jefferies.

Neil Hunn:

Yes. We'll certainly give you an update on that. So we continue to grind away at this. So we have done a lot of work engaging with all 28 of our businesses, both on the internal productivity-based applications around R&D, customer for live customer support go-to-market, admin, HR, finance, regulatory, et cetera, have a call at lunch with a large group of our leaders today on just that topic.

Terrell Tillman:

Maybe just the first question because it is the most recent addition to the portfolio, and I think you all calculated the opportunity here maybe to continue buying high-quality assets, but maybe even some better growth profiles, good valuations. I'm curious, just an update on where you see kind of on a go-forward basis, the Procare Solutions revenue compounding growth rate where you see that? And then as you've had a little bit of time here, where do you see one of the most untapped growth engines for that? And then I had a quick follow-up for Jason.

Jason Conley:

Yes. I mean, obviously, we had a really strong Q1. So part of that is just carrying that through and a lot of that was at TEP and then we had some various small beats across software. So I think it's mainly what we saw in Q1 and then just the confidence that we're going to be able to sort of maintain our prior guidance for the out quarters.

Joseph Giordano:

Just curious on the jobs in the country, like you look at the jobs data and they're pretty good, but it's generally been like an erosion of white collar type jobs replaced by like part-time blue-collar jobs. And I'm just curious like on a longer term, what are the implications on some of your software businesses that are more headcount driven? Is that trend? I know you won't see it like immediately, but is that -- are you starting to see the implications of that like an outlook basis?

Joseph Giordano:

Interesting. Okay. And then just to follow up on the AI discussion in terms of like deployments and the products you're launching here. Has that been like table stakes now? Or is your competition doing the same? Or do you feel like deploying these tools has been a differentiation for your businesses?

Operator:

Your next question comes from Joe Ritchie with Goldman Sachs.

Neil Hunn:

So I just want to make sure we understand it or answering the question you're asking is that essentially how far along are we on our SaaS journey? And what's that look like?

Neil Hunn:

So Jason why don't you take on the first part, I'll take the second part.

Operator:

Your next question comes from Brad Hewitt with Wolfe Research.

Neil Hunn:

Yes, I'll take the first part. I'll let Jason talk about the growth outlook. So -- it's not -- I mean, we have a new president there, Pat McDonald. He is just hired as new CFO, as you referenced, really like the leadership mindset, the competitive orientation, the learning orientation, the building capability to be able to take long term, in that short term that the new leader brings to iPipeline.

Jason Conley:

Yes. I mean I think it's playing out as we thought it would when we acquired it back in 2018, 2019 area, it's in the high single-digit plus range and maybe it tilt a little higher down the road. But that's sort of where it's tracking. And just Adam Boone was added to the team a month ago, and we're excited about him joining along with Pat. So we're excited about the process for our pipeline.

Operator:

Your next question comes from Patrick Baumann with JPMorgan.

Neil Hunn:

Yes. So we touched on this last year, just DAT getting ahead of where they saw the market was going and taking some of the fixed costs out of the business. And so we're just realizing that through the first 3 quarters of this year. We think the margins in that -- I don't think it's going to get -- it's going to expand further. We're sort of in the 55%, 56% range. We expect that to continue throughout the year.

Neil Hunn:

Yes. I mean I think the organic growth expectations are the same in the second quarter as they are for the year. So no real big swings there. And then cash flow on the second quarter, it's always the quarter that we make to federal tax payments. So it's always the lowest of the year. So that's really the only dynamic I would point out there. If you look over prior years, that's always our low point, but still expect to grow, of course.

Alexander Blanton:

I noticed that you're forecasting or guiding to organic growth of 6% for the year, correct? But you had 8% in the first quarter. So are you factoring in some economic weakness in the U.S. in that forecast?

Neil Hunn:

And I would just add, Alex, to what Jason said, we assume that there is the freight conditions and whatnot that, that is muted, but we've assumed that all the way through, it's not a new assumption, but there is definitely back half macroeconomic weak impacts in that part of our business. That did not change, but it's embedded from our original guidance.

Neil Hunn:

The transportation part, the DAT & Loadlink inside of network, the Freight Matching business.

Zack Moxcey:

Thank you, everyone, for joining us today. We look forward to speaking with you during our next earnings call.

Operator:

Good morning. The Roper Technologies Conference Call will now begin. Today's call is being recorded. [Operator Instructions] I would now like to turn the conference over to Zack Moxcey, Vice President, Investor Relations. Please go ahead, sir.

Neil Hunn:

Thank you, Zack, and thanks to everyone for joining our call. We're looking forward to sharing our quite good 2023 fourth quarter and full-year results with you this morning. As we turn to Page 5, let's look at today's agenda. This morning, I'll start by walking through our full-year highlights and then we'll turn to commenting on our most recent acquisition, Procare Solutions. Jason will then go through our quarterly results, both in aggregate and at the segment level, share our annual results and review our strong balance sheet position, then I'll pick up and discuss our segment level annual results, our 2024 outlook, wrap up, and turn to your questions. Let's go ahead and get started. Next slide, please. As we turn to Page 5, the two key takeaways for today's call are; first, we delivered a very strong 2023; and second, we remain well-positioned and are carrying positive momentum into 2024. As we look back on the full-year, we're proud of what the organization accomplished. From a financial perspective, we delivered 15% revenue growth, 16% EBITDA growth and 32% free cash flow growth, with free cash flow margins at 32%. Our total revenue growth of 15% was underpinned with 8% organic revenue growth. Jason will cover this in a few minutes, but Q4 was strong as well with 13% total revenue growth and 8% organic revenue growth. Also during the year, we deployed $2.1 billion in the high-quality vertical software acquisitions, highlighted by our bolt-on acquisitions of Syntellis and Replicon. As we all know, last year was a challenged year relative to available acquisition opportunities, given that I'm super-proud of our team's ability to grind through the market conditions and successfully convert two outstanding value-creation M&A opportunities. Given all this, we entered this year with positive momentum. We continue to see strong demand for our mission-critical solutions. As a reminder, each of our businesses is a leader in their respective market and delivers system of record, network critical or vital and-or lifesaving technologies. As a result, we continue to see strong demand for our solutions. Also as we head into 2024, we have meaningful contributions from our recent acquisitions, Syntellis, Replicon, and Procare. It is important to highlight these additions to our portfolio of businesses also improved the underlying quality of our enterprise in terms of reoccurring revenue mix and organic growth profile. Finally, we continue to be very active in the M&A market, in environment that we expect to be notably improved in 2024 with a strong balance sheet and a large pipeline of attractive opportunities. So, a strong '23 and solid momentum both organic and inorganic behind us as we enter 2024. Now please turn to the next page, Page 6, where I will discuss our most recent acquisition, Procare Solutions. Procare Solutions is a fantastic addition to the Roper portfolio. Let's start with the fundamentals. We're paying $1.75 billion net of $110 million tax benefit for the business. We expect Procare to contribute about $260 million of revenue and $95 million of EBITDA for the 12 months ended Q1 '25. Procare will be accretive to our free cash flow in '24 and to our adjusted DEPS in '25. We will fund the acquisition with a portion of our $3.5 billion revolver, and we'll report Procare in our Application Software segment and expect the deal to close this quarter. Procare meets all our longstanding acquisition criteria, leader in a smaller market, delivers mission-critical verticalized software solutions, competes based on customer intimacy, operates in asset-light business model, and is led by a skilled passionate leadership team. What' incrementally different for us is the maturing leader nature of this company. As we outlined during our Investor Day last year, our corporate strategy leans on implementing two modest improvements. First, continue to improve our long-term sustainable organic growth rate. And second, capture more value from our capital appointment capacity. Relative to additional capital deployment value capture, we are focusing on doing a higher proportion of bolt-on activity as evidenced by last year's capital deployment records and adding higher-growth or maturing leader business profiles to our enterprise. Procare is a prototypical maturing leader archetype, meeting all our longstanding criteria that I mentioned above, but as structurally faster growth business that possesses the opportunity to improve margins as the top-line scales. For Procare, we expect mid-teens top-line growth with improving margins from an already strong position for the years to come. Let's talk about what the company does. Procare is the leading provider of mission-critical and purpose-built software to 37,000 owners and operators of early childhood education centers which they used to run their business. The software provides all the needed functionality to run the childcare center ranging from parents and family engagement, staff and teachers scheduling, classroom management, tuition billing and payment processing. The market itself is quite attractive. And in the midst of a long-term secular tailwind of young dual income families seeking higher levels of early childhood education versus daycare. In addition, like most industries, this one is undergoing long-term tech-enablement. Given these factors, this market is growing annually in the low double digits area. As mentioned, Procare is the leading player with a 1.5 times through all their market-share advantage in this space given their super compelling value proposition that combines both software and the integrated payment capabilities. Given this, Procare has very high gross retention and compelling net retention as well. Finally, from a extensive due diligence of the business, we are encouraged by the fact that Procare has multiple strategic and operating pathways available to deliver mid-teens growth and long-term margin expansion. Net-net, this is a highly compelling value creation opportunity for Roper, and our shareholders. And to Joanne, your leadership team and all the Procare family, welcome to Roper. So with that, Jason, let me turn the call over to you so you can walk-through our fourth quarter and full-year results, as well as our very strong financial position. Jason?

Neil Hunn:

Thanks, Jason. As we turn to Page 12, let's look-back on the year for our Application Software segment. Total revenues grew 21% and organic revenues grew 6% to $3.19 billion, while EBITDA margins remained strong at 43.7%. Within the segment, results were consistent with strength at Deltek, Aderant, Vertafore, Strata and Frontline. Deltek continued to see strong gains in our SaaS solutions, especially in the private sector markets. As discussed throughout the year, the GovCon market was tempered given all the uncertainty regarding government spending, notwithstanding Deltek delivered mid-single-digit organic growth for the year. In addition, they continue to innovate and add capabilities during times of uncertainty, which is a hallmark of Roper strategy, highlighted by the bolt-ons of Replicon and ProPricer. ProPricer, a smaller transaction about $80 million purchase price that closed late last year and delivers the leading contract pricing solutions and software for government contractors and federal agencies, an ideal strategic fit for Deltek's cost point product family. Aderant was just amazing last year. They had record bookings and significant adoption of their anchor SaaS solutions and add-on products. Also, Aderant is one of the leaders within Roper and the legal software market as it relates to productizing generative AI solutions within their product stack. Great job by Chris, Rossi, and the entire team at Aderant. Continuing on, Vertafore was solid with strong ARR gains throughout the year. Additionally, Vertafore made great strides with our product strategy deployment and the MGA systems bolt-on is trending well-ahead of our investment case. Strata also was quite good last year, both in terms of organic ARR gains, and their acquisition and integration work associated with Syntellis. Finally, Frontline executed well, delivering strong retention and cash flow during the year. As I mentioned earlier, we will report Procare solutions in this segment and expect the deal to close this quarter. As it relates to our 2024 outlook for this segment, we expect to see mid-single-digit organic revenue growth. Please turn with us to Page 13. Full-year organic revenue for our Network segment grew 5% to $1.44 billion and margins were strong at 55.2%. We'll start with our freight matching businesses, DAT and Loadlink, which both grew in the year despite the year long muted freight market conditions. Similar to that of Deltek, both businesses continue to innovate during the sluggish market with particularly interesting Gen AI innovations at DAT to help combat industry fraud. Pipeline delivered record bookings and had very strong customer retention and expansion activity, leading to strong ARR growth. Foundry, our post-production media and entertainment software business muscled through the year given the writers and actors strikes and made meaningful progress in the transition to a full subscription revenue model. Finally, our alternate site healthcare businesses, MHA, SoftWriters and SHP were strong throughout the year as census levels and senior care facilities improved. As it relates to our full-year 2024 guide for the segment, we expect to see low-single digit organic revenue growth based on the expectation of continued muted freight market conditions, but with continued strong EBITDA margin performance. Now please turn to Page 14 and let's review our TEPs segment's results. Organic revenues for the year grew 15% to $1.55 billion and EBITDA margins remain consistent at 35.3%. As we look back over the year, we entered the year with a high degree of supply-chain uncertainty. During the year, the vast majority of these uncertainties are resolved and our business has done a tremendous job of capturing the opportunity. As we exit '23 and look to '24, we do not see meaningful supply chain constraints. As usual, we'll start with Neptune, our water meter and technology business. Neptune was just great and continues to see strong demand and momentum for their residential and commercial ultrasonic or static meters, and increasing adoption of their meter meter data management software. We remain bullish about Neptune and the market in which they compete. Verathon was awesome as well for the year. Verathon was strong across all three of their product families, ultrasonic, bladder volume measurement, video-assisted intubation and single-use Bronchoscopy. As. As a reminder Verathon's reoccurring single-use offerings now make up about 55% of the business' annual revenue stream. Just an amazing product and business execution journey to both scale and improve the underlying quality of the business. Finally, our RF product businesses, Inovonics and rf IDEAS did a terrific job managing through their supply chain challenges and delivered very strong 2023 financial performance. Looking to our 2024 guidance for this segment, we expect to see high single-digit organic revenue growth for the full-year, and the expectation that Q1 will grow in the mid-teens area. Now please turn with us to Page 16. This morning, we're establishing our 2024 full-year and first quarter guidance. For the full-year, which includes the impact of Procare solutions, we expect to see total revenue growth between 11% and 12%. On an organic basis, we expect to see full-year 2024 revenue grow between 5% and 6%. And finally, we expect to see full-year adjusted DEPS to be in the range of $17.85 - $18.15, which includes about $0.10 to $0.15 of DEPS dilution associated with the Procare deal. Assumed in this guidance, the tax rate in the 21% to 22% range. We want to take a moment, set our guide in context of our long-term strategy and execution model. To remind everyone, historically we operate at a 5% to 6% organic growth portfolio. Our strategy and ambition to structurally improve organic growth rate to be in the 8% to 9% area. Over the last three years, we grew 8%, 9% and 8% on an organic basis. So these years were benefited to some extent from certain market conditions. As such, our view is our current course and speed of organic growth rate is in the 7% to 7.5% area. We are very pleased with our progress to date and continue to work to achieve organic growth aspirations. As it relates to organic revenue outlook for '24, we enter the year mindful of two factors; continued subdued large customer activity in our Application Software segment and our freight matching businesses within our Network segment being below trend based on our expectations for continued muted freight market conditions. As it relates to the first quarter, we expect to see adjusted DEPS in the range of $4.30 and $4.34. Now please turn with us to Page 17, and then we'll look-forward to your questions. As per our custom, we'll will conclude with the same key takeaways with which we started. One, we delivered another great year performance. And two, we have continued positive momentum heading into 2024. Relative to 2023s performance, we delivered 15% revenue growth, 16% EBITDA growth and 32% free cash flow growth, with free cash flow margins also at 32%. Our total revenue growth of 15% was underpinned by 8% organic revenue growth. Importantly, free cash flow was growing 16% on a three-year compounded basis and we delivered our first-ever quarter of a $1 billion of software recurring and reoccurring revenues, quite an important milestone for enterprise. In addition, we deployed $2.1 billion towards high-quality vertical software acquisitions, highlighted by our bolt-ons of Syntellis and Replicon, and year we're deploying capital was structurally challenged and we did so at very compelling values, leading the strong value creation for shareholders. As we enter 2024, we do so with strong momentum. We continue to see robust demand for our mission-critical solutions, a strong outlook for organic growth. Also, you can count on Roper to improve the underlying business quality as we scale our enterprise. Adding to the momentum for the year are the contributions from our 2023 acquisition cohort and last week's announcement of Procare Solutions. Finally, we are well-positioned to continue our capital deployment execution. We remain very active in the M&A market and environment that expect to be notably improved in 2024. We do this with a strong balance sheet, a large pipeline of attractive opportunities and unwavering levels of patience and discipline. Now as we turn to your questions and if you can flip to the final slide, our strategic flywheel. We'd like to remind everyone that what we do at Roper is simple. We compound cash flow over a long arc of time by operating a portfolio of market-leading application-specific and vertically oriented businesses. Once the company is part of Roper, we operate a decentralized environment so our businesses can compete and win based on customer intimacy. We coach our businesses on how to structurally improve the organic growth rates and underlying business quality. Finally, we run a centralized process-driven capital deployment strategy that focuses on finding the next great business to add to our cash flow compounding flywheel. Taken together, we compound our cash flow in the mid-teens area over the long arc of time . So with that, thank you for your continued interest in Roper, and let's open it up to your questions.

Deane Dray:

Thank you. Good morning, everyone.

Deane Dray:

Can we just start with Procare, and it's interesting. This is the first time I recall where you made a deal announcement and I had not one but two people at RBC Research contact me and say, hi, that they were you're active customers. And so -- and they show them the apps on their phone and it was really interesting to see that dynamic. And my question here is, I'm really glad that you highlighted how they're a maturing leader and within that category. And what surprises me is how much growth there is, I mean, low-single digit, maybe a low-double-digit to mid-teens. As you start to see that type of growth, might the private equity sellers have a bias, where maybe that's a public company exit, that's always been the kind of adage if you go for these more orphan businesses, there is no public company exit, they're more apt to sell to you at a reasonable price. If you start looking at some of these growth to your businesses like Procare, even at a maturing leader category, might that stretch the multiples because the private equity players might have a public company exit in mind? So maybe we can start there.

Jason Conley:

I think in this current environment liquidity is really key. So, if you do an IPO, you don't get your liquidity right away. So I think that's pretty important

Neil Hunn:

I think Procare is like a perfect example by earlier stage, right? So these are not early-stage companies. They are earlier than what we've typically acquired in the past. So they meet all of our criteria. I have to emphasize that every time we talk about maturing leaders. So it's a leader in a small market. The base, the competition is understood and observable in the marketplace. The relative market share advantage this company has is particularly interesting. So those are common traits of everything we've always acquired. In this case, the market is growing a little bit faster and the underlying business model -- margins are going to scale as the business grows. So that's the earlier part of what we're talking about. Historically, we would have maybe waited by Procare until the next trade, the one after, the one that just occurred. And so when we look at the model of this over a long arc, it's just much more value for our shareholders to do this type of transaction. In terms of the pipeline, it is as Jason said in his comments, as I said in my comments, just a noticeable change in activity since our last call in the marketplace for some of the reasons that we talked about, and it's a variety of opportunities. I mean, we know we're leaning into doing more bolt-ons, so there's a fair amount of bolt-on activity in there. That's a lot of what Jan and her team are working to build, and then there's a fair number of these emerging, maturing leader, excuse me, maturing leader type profiles and will just ask them, we'll be patient and disciplined to figure out the right ones for us.

Neil Hunn:

Thank you.

Julian Mitchell:

Hi, good morning. Maybe just following up on Procare. If you could clarify a little bit just the financial impact. I think you said maybe $0.10 to $0.15 hit for the year in that guide. So maybe just sort of clarify around that. Is it kind of a smaller hit in Q1 because of the timing of the deal close and then we just spread the rest out over the balance? Any thoughts on kind of the seasonality of the Procare business and then how quickly you'll get that sort of related debt down?

Julian Mitchell:

That's helpful. Thank you. And then, just homing in on Network Software for a second. So you have that sort of softness in the freight markets, just been sort of well understood for some time. Foundry was also weak for some of last year. So are we thinking that in the context of that low single-digit organic growth guide for the year in Network Software, just trying to understand are you assuming kind of a slower start and then a pickup in the back half? Or it's a steady sort of 3% growth rate dialed in, Just like how you exited 2023?

Julian Mitchell:

That's right. Great. Thank you

Brent Thill:

Thanks. Curious just to get the thoughts on organic growth in '24, obviously you've taken a pretty meaningful step down from what you did last year. And maybe if you can explain that in the initial guide and what you're baking in for the overall guide for '24?

Brent Thill:

Great. Thank you

Operator:

And our next question comes from Joe Vruwink with Baird. Please go ahead

Neil Hunn:

Yes. I think the step up at the year, I mean Deltek was strong in Q4. And it's one data point. The pipeline looks attractive. The pipeline for Frontline looks attractive at both the Enterprise and SMB portion of their business, but we've been through the better part of three, four quarters where the Enterprise activity was slow and we're just not going to underwrite that in our guidance at the moment.

Joe Vruwink:

Okay, great. And then I wanted to ask, there is some exogenous events like you mentioned Foundry. I think they communicated that they are now exclusively subscriptions here in 2024. You also have a lot of other businesses that have big on-prem maintenance streams that can get a multiplier over time. So there's things that are hurting and helping I suppose. Do you have a sense on a blended and net basis what this might be contributing to the model in 2024? And when you think about growth improving from the 7% to 7.5% range, what these types of items might ultimately mean over the next couple of years?

Neil Hunn:

Yes. I think just more longer-term on the SaaS migration. We have a little bit over $900 million and an on-premise maintenance. That -- as that converts, it converts -- is our recent history, the last two or three or four years it is north of two times on an ARR basis as it converts from on-premise maintenance to SaaS and cloud. So when we do that, it's actually going -- we believe historically it's been a bit of a net growth driver. While we might -- we will convert perpetual licenses which are end period one-time revenue to SaaS and that's a classic J-curve. The companies that are undergoing this transition, we're going to convert this $900 plus million of maintenance at a clip that will overwhelm that J-curve effect. So we believe it's a net growth driver. Foundry is a bit unique, in that they are making a, just a -- almost like a day-one pivot and their business model shift, and the other companies are doing more of a migratory approach

Operator:

An our next question today comes from Allison Poliniak with Wells Fargo. Please go ahead.

Neil Hunn:

So I mean both, and as we talked about, both Neptune and Verathon were just great. And last year both grew faster than the segment. Obviously, they are a predominant element of the segment. We believe that the long-term growth rate at Neptune is probably in the high single digits area. And we believe that the long-term organic growth rate of Verathon is probably a bit higher than that. It's -- we want -- we want to believe that it's going to be a low double digits. We want to see a couple more years of that, some more R&D productivity. We're super encouraged by the pipeline of R&D and the momentum they have in the market across the three product categories. So that's where we expect the long-term growth rates to be there.

Neil Hunn:

Yes, I mean, we're always -- our long-term policy is between 3 times to 3.5 times. If you look back to 2015, '16, you can never be right at that level, some you go above it and come below it. It's always this this process and where do you draw a line through those swings. We're going to just -- we're business model pickers. As you know, we're going to continue to look for the very best businesses at the most attractive valuations that meet all of our criteria, and then we'll look for the best way to finance those from that point. We certainly understand, I think acutely risk, both risk in the businesses, risk in the capital structure, and that's a big part of how we think about deploying capital and how we value assets.

Operator:

And our next question today comes from Christopher Glynn with Oppenheimer. Please go ahead.

Neil Hunn:

Good morning.

Neil Hunn:

Well, I think scaling certainly helps. We've added a fair amount of capacity at Neptune. We've added supplier capacity at Verathon. We've added supplier capacity at the rf IDEAS -- the RF products businesses. And certainly were not the similar for most companies. The supply chain operations teams are going from a -- from a model that was focused in the last three or four years on resiliency to maybe a more balanced between resiliency and sort of just-in-time, which certainly will help with inventory turns and asset velocity. So we do think there's a little bit of money trapped in inventory for us, so will be more of working capital advantage if we can execute on that plan. In terms of margins, I'll look to Jason. I think it's probably more just scaling infrastructure. I mean, what we -- our cost of goods is so low relative to industrial type companies that the input cost are a fraction of the cost structure of our Enterprise, but your thoughts about that?

Christopher Glynn:

Great, thanks. And then about the aspiration to 8% to 9% organic growth and driving things higher, certainly understand you have a lot of coordination of experts and best practices across the enterprise. What would you characterize this top of the list businesses with particular action plan opportunities in that respect?

Christopher Glynn:

Thanks, Neil.

Operator:

And our next question comes from Joe Giordano with TD Cowen. Please go ahead.

Neil Hunn:

Good morning.

Neil Hunn:

So DAT dynamics are a little bit different than what you described. DAT is when the freight markets are very strong, DAT grows in-line or maybe ahead of that strength. When the freight markets are weaker, they tend to slow down and then they sort of -- so therefore if you looked at their growth, it's more like stairstep type growth in this particular case, because we're coming off such a search for a couple of three years, it's a little bit more exaggerated. The dynamic that you're describing perfectly describes our ConstructConnect business, which is the construction analytics business, where -- when you think about building product manufacturers and contractors and subcontractors, subscribed or content about what commercial real estate buildings are in the process of being planned and built, they want to look for where their next jobs are going to come from. So in the construction markets, real estate markets are white hot and contractors are fully subscribed years out. You the value of our information is less when the market slows and their backlog is standing, then the value of what we offer is much higher. So we tend to have a little bit of a countercyclical sort of demand driver inside the ConstructConnect. We go by the way, Matt and his team for their ConstructConnect are working to balance out and have done a good job. So hopefully the go-forward will be up in up that markets and up-and-down markets. But that's the -- that's what our product strategy is trying to execute.

Neil Hunn:

I think unfortunately our read across the macro market is in a great win, right, because we operate at these relatively insulated end-markets, government contractors, property and casualty insurance, or brokerages where employment is higher, life insurance where employment is higher, healthcare where employment is higher, education where employment seems stable if not higher, right? We're in the sort of relatively isolated protected end-markets where the macro swings aren't -- don't impact that much. It doesn't have that much impact on the way we drive compliance bookings across our portfolio. I will say for labor market generally loosening up. It's been advantageous for us. We're also been able to not just fully staff at our business level, but use this opportunity to last probably 12 months plus to significantly upgrade talent across the organization.

Neil Hunn:

Thank you.

Terry Tillman:

Yes. Can you all hear me okay?

Terry Tillman:

Hi, good morning, everyone, and thanks for fitting me in as well. Maybe just one question for you. I guess it's for you, Neil, is what we've seen with our vertical SaaS companies and even horizontal SaaS companies in the past, when they get those customers on the new modern architecture, it really can start to reduce the friction to buy those other add-on modules. And so what I'm curious about is, you just called out some of your businesses in the past like Deltek that have seen improving growth. Anything you can share around net revenue retention from those customers that move to cloud? And I know it's still early days, but is there a propensity to buy those add-on modules? Does it speed up? Does it quick in? And that's just one of these things that could be a cumulative benefit over time, and also help on that organic growth. And then I had a follow-up

Terry Tillman:

That's great. I appreciate that. And I guess just a follow-up question. And I know you want to be careful and not revealing too much. But if the M&A environment does start opening up more and there's more shots on goal and just more things that are interesting, albeit, taking into account your discipline, I'm curious just bigger-picture, usually it's vertical SaaS, but what about interesting niche horizontal SaaS solutions? Whether it's back-office or kind of middle office or front office and/or second secondarily the idea of maybe software companies with a meaningful payments business. Thank you.

Terry Tillman:

Thank you. And our next question comes from Alexander Blanton with Clear Harbor Asset Management. Please go-ahead. Good morning, thanks. May I have some questions on. Broker. And. The first one is

Alexander Blanton:

Good morning, thanks. May I have some questions on. Broker. And. The first one is. You've indicated that is not accretive to. Adjusted EPS. Well, this year. Yes, and if not, then there is some dilution. How much is that you might have mentioned that earlier, I might not have caught it

Alexander Blanton:

Okay. So that accounts. For the shortfall. And. In the. Guidance versus consensus tender. Did you say $0.10 to $0.15. Per diluted, okay. Now going-forward, if you're. Growing at double-digits. Mid-teens. That implies you're going to get some pretty. Good. Accretion. In 2025, correct

Alexander Blanton:

Now can you give us an idea of what. The total available market is in their business. And I assume it's all domestic. At this point. And how do they look compared with that. In other words, what's your market-share or approximate. I mean I just. I understand that the leading provider, but it looks like it might be a fragmented market

Alexander Blanton:

Okay. Finally. In that market. There are different sizes to the. The. Groups that you might be. Serving there are nursery schools, for example, that have several 100. Students. And there are small ones that are much smaller. Where do you fit-in that. Do you are you aiming at the. Or serving the smallest schools as a larger ones or both

Alexander Blanton:

Okay. And finally, is there any foreign business there available, or are you looking to get into that or not

Alexander Blanton:

Okay. All right. Thank you very much.

Operator:

This concludes our question-and-answer session. We will now return back to Zack Moxcey for any closing remarks

Operator:

Thank you. The conference has now concluded, and we thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.

Operator:

Good morning. The Roper Technologies Conference Call will now begin. Today's call is being recorded. All participants will be in listen-only mode. [Operator Instructions] I would now like to turn the call over to Zack Moxcey, Vice President, Investor Relations. Please go ahead.

Neil Hunn:

Thank you, Zack, and thanks to everyone for joining our call. We're looking forward to sharing our third quarter results with you this morning, which like each of the first two quarters this year were quite good. As we turn to page four, let's look at today's agenda. As usual, we'll start with the most recent quarter's financial highlights then Jason will discuss our results. After that, we'll turn to our segment specific discussion and wrap up outlining our increased 2023 enterprise guidance. Let's go ahead and get started. Next slide, please. As we turn to page five, the four main takeaways for today's call are first, we continue to perform at a high level operationally, delivering another quarter of very strong financial results, definitively demonstrating the quality of our portfolio of businesses, our leaders and our governance system; second, we continue to be very active on the M&A front, deploying about $2 billion over last quarter; third, we're increasing our full year guidance; and fourth, we remain very well positioned for further disciplined capital deployment. As it relates to the first takeaway, our continued strong performance, we saw total revenue growth 16% and organic revenue growth 6%. Consistent with our long-standing strategy, we continue to not only scale our enterprise, but also simultaneously improve as underlying quality and recurring revenue base with organic software recurring revenue growing high single-digits in the quarter. Importantly, the cash. As we've been highlighting throughout the year, we had very strong cash flow performance with free cash flow growing 19% for the most recent TTM period and 77% in the quarter. Turning to our second main takeaway, the deployment of $2 billion over last quarter was led by our acquisitions of Syntellis and Replicon, both of which are bolt-ons for Strata and Deltek, respectively. These are each strategically interesting bolt-ons and are highly compelling from a value creation perspective as we're able to buy these businesses for about 14 times next year's EBITDA. More on these in a bit. In addition, in the quarter, we made a $125 million minority investment in Certinia, a professional services automation software business. We're excited to partner with Haveli and General Atlantic Ventures to deploy the value creation thesis associated with this unique opportunity. Third, we're increasing our full year total revenue growth to be 14% plus, increasing our organic revenue growth to be 7% plus and increasing our full year debt guidance to be in the range of $16.62 to $16.66 or up $0.21 at the midpoint versus our previous guidance of $16.36 to $16.50. And fourth, we continue to be very well positioned for further capital deployment by having over $4 billion of M&A firepower. We remain very active in the market as we evaluate and diligence in many attractive opportunities. So with that, Jason, let me turn the call over to you, so you can walk through our third quarter results and our very strong financial position. Jason?

Neil Hunn:

Thanks, Jason. Let's turn to page nine. And before we walk through our segment details, we'd like to start with an overview of our acquisition of Syntellis and the combination with our Strata business. To remind everyone, Strata has been part of Roper for eight years as a leader in delivering SaaS-based financial planning, decision support and performance analytics solutions to US hospitals and health systems. Syntellis is a leading provider of SaaS-based enterprise performance management and data solutions to hospitals, higher education and financial institutions. As many of you know, US-based hospitals and health systems continue to face intense pressure from macro market trends, challenges resulting from care setting shifts, reimbursement rates, lagging rising costs and labor staffing issues. The combined Strata and Syntellis business will uniquely be able to help health systems address these difficult financial and operational challenges. Together, the enterprise has relationships with about 70% of the country's health systems. Stand-alone, Syntellis meets all our acquisition criteria, a leader in a niche market, delivers mission-critical application-specific solutions, is an HSD organic growth business and operates an extremely asset-light business model. Taken together with Strata, it only gets more attractive in terms of the combined customer base, the combined product offering, the combined financial profile and the combined future product development opportunities. For 2024, we expect Syntellis to deliver about $185 million of revenue and about $90 million of EBITDA inclusive of cost synergies. Of note, this EBITDA is $5 million higher than at the time of our deal announcement. Considering the $1.25 billion net purchase price, the valuation is about 14 times next year's EBITDA and will only improve from there. Operationally, the teams have moved quite expeditiously and are ahead of schedule relative to the near-term value creation plan, having implemented about 85% of the cost synergy opportunities within the first 45 days. In addition, the customer feedback has been overwhelmingly positive. Finally, the new combined leadership team headed by Strata's CEO, John Martino, are turning their strategic attention to new combined product development ideas. Net-net, this is a highly compelling value creation opportunity for our customers and our shareholders. And with that, let's now turn to page 10 and walk through our Application Software segment. Third quarter revenues for Application Software segment were $803 million, up 5% on an organic basis and EBITDA margins increased to 44.6% in the quarter. We'll start with Deltek. Deltek was solid in the quarter with sustained momentum in their SMB channel and the private sector solutions. They continue to see sluggish activity in their GovCon Enterprise segment given the backdrop of federal government spending uncertainty. Retention rates across the entirety of Deltek remain high. Importantly, over the last couple of months, Deltek released a Gen AI-enabled data collection capability for the GovWin IQ business, an LLM based processing features for their Vantagepoint product. It's good to see further adoption of Gen AI within the portfolio. Also in the quarter, as we outlined on last quarter's call, Deltek closed the acquisition of Replicon, albeit about a month later than anticipated. To remind you, Replicon is a market-leading timekeeping and workforce management SaaS solution focused on professional services firms and is highly complementary to Deltek's strategy. We continue to expect Replicon to contribute north of $70 million of revenue and $24 million of EBITDA next year. Aderant, our software business focused on the needs of law firms, continues to excel and deliver a very strong quarter. In the quarter, Aderant saw record third quarter bookings and continued success in the adoption and cross-sell of their SaaS solutions. Also and importantly, during the quarter, Aderant continue to mature and gain market traction with their Generative AI-enabler MADDI. Aderant's most recent Gen AI product release enables passive fee earner time entry assistance through Aderant's iTimekeep product line. Great to see this rapid product innovation at Aderant. Vertafore, our software business that tech enables property and casualty insurance agencies continues to be a great business for us with solid performance across our core P&C business and their recent MGA solutions bolt-on. Strata, independent from the Syntellis acquisition was strong in the quarter and continued to gain market adoption of their leading decision support and financial planning solutions. Finally, Frontline had strong customer renewal season and delivered significant cash flow, as Jason mentioned, to the enterprise in the quarter. Looking to the final quarter of the year, we expect to see organic revenue growth to be in the mid-single-digit area for the segment. Turning to page 11. Third quarter revenues for our Network Software segment were $364 million, up 5% on an organic basis and EBITDA margins were 56.3%. Let's start with our US and Canadian freight matching businesses DAT and Loadlink, both of which grew in the quarter despite the continued challenges across the broader freight and logistics markets. Over the last quarter or two, these businesses have done a fantastic job of baselining their cost structures while continuing to invest in new product development. This led to strong segment margins in the quarter. Relative to product development, and as we highlighted a touch last quarter, DAT launched Gen AI-enabled solutions, among other initiatives targeted to combat freight industry fraud, which is a problem that plagues the entire industry. Within the first month of release, DAT has made a significant dent in fraudulent activity and DAT's customers have noticed and recognized this great accomplishment. This is a shiny example of why and how Roper businesses continue to innovate through and across macroeconomic cycles, which enables us to consistently deliver on market and customer opportunities ultimately leading to market share gains. Turning to our iPipeline. Our network software business that tech enabled the distribution channel for life insurance and annuities. iPipeline continues to execute at a high level and gain market share. In the quarter, they had very nice ARR gains driven by strong retention and customer expansion activity. This growth is directly attributable to iPipeline's strategy that is laser-focused on their core life insurance and annuity customer base. We talked about this concept during our Investor Day earlier in the year. A closely held value of Roper in our businesses is a notion that we compete and win based on customer intimacy. Customer intimacy requires focus and strategic choice. iPipeline over the last two to three years has excelled at this, the concept of focus on the core and choice, which enables further market share gains. Great job, team. Foundry, our media and entertainment postproduction software business continued their business model transition to a subscription model and is ahead of plan in that regard. Though industry demand was temporarily paused given both the Hollywood writers and actor strikes. Notwithstanding, Foundry continues to innovate their product offering and will aggressively compete for customer wallet share in the coming months as the actor Strike results. Finally, our alternate site healthcare businesses, MHA, SoftWriters and SHP were strong in the quarter. Execution was solid and the business has benefited by having improved census and skilled nursing assisted living facilities and home health reaching the highest occupancy levels and patient volumes since the onset of the pandemic. For the final quarter of the year, we expect to see low single-digit growth for this segment based on continued challenging freight market conditions and the actor strike impact on foundry. Now let's turn to page 12 and walk through our TEP segment. Revenues in the quarter were $396 million, up 10% on an organic basis. EBITDA margins for the segment were strong at 36.5% in the quarter. We'll start with Neptune, our water meter and technology business. Neptune delivered another fantastic quarter of operational and financial performance. As has been the case for several quarters, Neptune continues to see strong demand and momentum for the residential and commercial ultrasonic or static meters and increasing adoption for their meter data management software. We remain bullish about Neptune and the market in which they compete, given this market tends to be quite steady as Neptune's customers' budgets are typically fixed year-to-year and not tied to broader macroeconomic trends or cycles. Verathon was awesome in the quarter as well with double-digit order growth and tremendous operational execution. Specifically, Verathon saw strength across the reoccurring single-use products both Bronchoscope or Bflex and video innovation or GlideScope as well as BladderScan capital purchases. A group of smaller businesses here Inovonics, IPA and rf IDEAS were fantastic as they were last quarter substantially working through a series of nagging supply chain challenges. Relative to the final quarter of the year, we expect to see low double-digit organic growth for this segment. Now please turn to page 14, and let's go through our increased 2023 guidance. Based on our strong third quarter performance, we're raising our full year 2023 guidance for total revenue, organic revenue and adjusted debts. For 2023, we now expect total revenue growth to be 14% plus, an increase from about 13% last quarter. In addition, we're raising our full year organic revenue outlook to be in a 7% plus ZIP code an increase from about 7% last quarter and 5% to 6% in our original guide for the year. As a result of our improved revenue outlook, we're increasing our DEPS guidance for the year to be in the range of $16.62 and $16.66 up from our prior guidance of $16.36 to $16.50. Assumed in this guidance is the tax rate trending to the high end of our 21% to 22% range. For the fourth quarter, we're establishing adjusted DEPS guidance to be in the range of $4.28 and $4.32. Now please turn over to page 15 and then we'll look forward to answering your questions. We want to leave you with the same four points with which we started. First, we delivered yet another solid quarter. In the third quarter, revenues increased 16% to $1.56 billion. This growth was underpinned with 6% organic revenue growth and high single-digit organic software recurring revenue growth. In addition, EBITDA margins were notably strong at 41.7% and cash flow was outstanding, growing 77% in the quarter and 19% on a TTM basis. Second, we successfully deployed $2 billion of capital in the quarter, led by the bolt-ons of Syntellis and Replicon. These two deals will deliver about $115 million of EBITDA next year and are priced about 14 times next year's EBITDA, quite compelling. Third, based on the strong quarter performance, the recurring nature of our revenue stream and the importance of our solutions to our customers were increasing our full year total and organic revenue growth outlook and increasing our full year DEPS outlook to be between $16.62 and $16.66. And finally, notwithstanding this quarter's $2 billion of deployment, we continue to be active with our capital deployment activities as we have north of $4 billion of available M&A firepower. As we've been discussing over the past several quarters, we have a very large pipeline of opportunities, though, as always, we remain super patient and highly disciplined to ensure the continued optimal deployment of our available capital, just as we did with the Syntellis and Replicon acquisitions. We firmly believe that patients as is always the case with capital deployment will be rewarded. Before we turn to your questions, I'd like to share an exciting addition to the Roper executive team. During the quarter, Janet Glazer joined our team and is leading our acquisition cultivation and corporate development outreach efforts. Janet will partner with our M&A resources, our corporate leadership team and several of our business units to increase our forward-leaning posture with private equity sponsors and their businesses. Most recently, Janet was a global sector leader and portfolio manager at Fidelity. We're super excited that Janet has joined our leadership team and welcome aboard. As we turn to your questions, and if you could flip to the final slide, our strategic flywheel. We'd like to remind everyone that what we do at Roper is simple. We compound cash flow over a long arc of time by operating a portfolio of market-leading application-specific and vertically oriented businesses. Once the company is part of Roper, we operate a decentralized environment so our businesses can compete and win based on customer intimacy, yet we close our businesses on how to structurally improve their growth rates and underlying business quality. Finally, we run a centralized process-driven capital deployment strategy that focus on finding the next great business to add to our cash flow flywheel. Taken together, we compound our cash flow in the mid-teens area over a long arc of time. So with that, thank you for your continued interest in Roper and let's open it up to your questions.

Julian Mitchell:

Thanks. Good morning. Maybe just wanted to focus on the network software business for a second. One question really trying to put a finer point on how much of a headwind in that Q4 sales guide you have from the freight markets what sort of pace of decline or softness there? And is foundry more of a sort of rear-view month of October type headwind? And then was there anything onetime in the network software margins in Q3 that made them so high?

Jason Conley:

No, I think that's right. I mean, the abnormality, if you do a straight line from 2019, you'd see the business has been up substantially, right? So we have sort of this exceptional growth. A lot of carriers come in the market, they're exiting out. And you know, again, it's just been a good steady growth for us over the last 20 years absent, you know, sort of this exceptional period. And just back on Foundry, I would say that what we've observed is the gross retention of the business has been extremely strong. We have moved to a subscription model this year, and so that gives customers pause on if they get off maintenance, they're going to have to come back on a subscription. So we feel good to once the actor strike is done, that's -- that business is going to pick back up next year, hopefully.

Neil Hunn:

Yeah. So we're partners with Haveli principally in -- the Haveli partners, we know quite well. It was one of the founders of Vista and then the person who led the tech practice at Bain came together joined Haveli. So the long history of both of them as individuals. They actually approached us to see if we can lend some of our expertise to the situation. So we're intrigued by being able to help. We're intrigued by the value creation opportunity here. It's a very compelling value-creation opportunity. And then we'll also learn a thing or two along the way. I mean, this is a smart group of people that have a long history of doing this type of transaction. It's a unique opportunity, Julian, as you mentioned. We're not looking to do a lot more of things like this. This is not the beginning of like a large book of minority investments. We'll continue to be opportunistic, but it's not going to be anything. It's going to be few and far between in terms of our pacing and volume on this. And the scale, I think we're on at the private business, so we'll sort of keep the scale of the business sort of in the private domain.

Operator:

The next question comes from Allison Poliniak with Wells Fargo. Please go ahead.

Neil Hunn:

Good morning.

Allison Poliniak:

Going back to the technology-enabled products, it seems like certainly a tick-up in terms of where you were expecting the second half of this year. I know you mentioned Neptune and Verathon. But any specific vertical driving sort of that outperformance in the sector, in the space?

Neil Hunn:

Oh, sorry, but you broke up just on the very end there, Allison. So I would say -- so yeah, just to reiterate it, sort of Neptune is, I mean, it is a bit market-based in that, that market continues to be, you know, very healthy. The customers are -- ordering patterns are consistent and robust, lots of backlog carrying into next year. So there's market share gains and product advantage we have and also a cooperative market for sure. You know, with Verathon, the market dynamic is moving towards single-use in the category in bronchoscope from reusables because of infection control. So it's a market that is definitely a growth market that we are very soon to be the number one player in knock on wood, maybe this quarter. And so, that's market related, but just tremendous execution by the team, both go-to-market and product. I mean, tons of product vitality. And then also in the segment, we have a couple -- we mentioned a couple of smaller RF product businesses. That's less market and more just clearing through just a mountain of supply chain problems that plague the businesses for many -- a few quarters. And second quarter and third quarter are great in that regard to those businesses.

Neil Hunn:

Yeah, that's really the question. The -- so this -- it's like a -- the market Jason sort of referred to it as like a coiled spring. I mean, there is a tremendous amount of activity like forming activity, investment bankers, pipelines are filling processes are starting. There's increasing pressure from the LPs onto the sponsors to start thinking about getting some liquidity back to them. The sponsor is starting to think about raising new funds, which they need liquidity to do that. So there's a lot of the precursor activity that is required to see transactions come back into the market. The question still remains about the bid-ask spread between buyers and sellers. Here still -- the number of printed deals to date is still small, right? So this is -- and we anticipate -- well, we know there's going to be more opportunities. We don't yet know where they're going to clear. We continue to be super patient. You know, the market is coming to us. We don't have to chase the market. If we can find very compelling value opportunities like Replicon and Syntellis will do them. If we don't, we'll remain patient.

Neil Hunn:

Yeah. Thank you.

Deane Dray:

Thank you. Good morning, everyone.

Jason Conley:

Good morning, Deane.

Neil Hunn:

Thanks for saying that. We're looking at her, she's sort of an -- she's not on the back script, we're looking at her, and she's a blushing. So she's got to be great as part of the team for sure.

Neil Hunn:

So it's played out as we anticipated over the course of the year. It's really been a mixed bag. Just look at one company in Deltek, strong across SMB, both on the government contracting and private sector, professional services markets, strong at the enterprise level for PS, less strong on the government contracting side at the enterprise level. So it really is a mixed bag. In that case, it's less macro related and more tied to the uncertainty around what's happening to the federal government and budgets and what's going on there. You see strength across iPipeline. You see strength at Aderant. Those are very healthy customer bases. So it really is a mixed bag. Obviously, the weakness at DAT given that we just talked about with just where freight markets are, so it's really a collection of bespoke things than it is sort of a broad brush macro across the portfolio.

Neil Hunn:

Sure. Yeah. So we're definitely playing offense here. We think this is a transformational technology, right? It's not a trendy paradigm or hyping a fab. We think this is a foundational technology that will change the way we all live our personal lives and this will be conducted over the course of the next five years to 10 years, right? So that's our view on the technology of Gen AI and large language models, et cetera. So what we're doing is really a combination of top-down bottoms-up, if you will. From a top-down perspective, Deane, we've organized -- we deputized, I should say, a couple of our group executives, Satish Maripuri and Mike Corkery, to lead an education series across a variety of topics around Gen AI for our companies. So we've done a series of Zoom meetings, you know, three or four. We've got five or six still to go. They're spaced out every three weeks or four weeks around, that started with what is Gen AI, and it's evolving more and more into how do you deploy methods of deployment, where and how in the organization you deploy it both in productivity and new product ideas. So the hope with that is that it's -- it spurns this creative thinking across the 18,000 people at Roper. Think about how to impact our customers positively, how to impact our operations positively. So ultimately, it will be a bottoms-up, groundswell of ideas, but we're accelerating the learning, if you will. Ultimately, we might do a couple other things that center around, you know, contracts with some of the larger players or deployment models for cybersecurity, and safety and security purposes. But as with Roper, all the good ideas will be generated bottoms-up from the field and the leadership team and the employee base.

Neil Hunn:

Welcome.

Joe Vruwink:

Great. Thank you. In the slides, you make the distinction that organic software growth, the recurring software growth that's already in the high single-digits. And then, of course, your reported organic is 5%. I guess the question is that generally going to be the spread you would expect just given professional services and probably license attrition over time? And then is that spread expected to be consistent in the foreseeable future?

Joe Vruwink:

Okay, thanks for that. And then I wanted to go back a couple of quarters ago now you mentioned that AS had ramping services capacity that was to support strong bookings in your health care assets. I'm wondering if you can maybe just provide an update on maybe whether those awards have gone live. And then in the broader healthcare apparatus, you know, what are you seeing there? Obviously, you're increasing exposure there now via M&A I guess, how does maybe organic growth as a profile stand relative to the AS broader segment?

Joe Vruwink:

That's, great. Thank you very much.

Operator:

The next question comes from Scott Davis from Melius Research. Please go ahead.

Neil Hunn:

Hey, Scott. Good morning.

Neil Hunn:

So what I would say is -- as a general matter, we're still competing against the sponsor community, though the depth of the field is a little thinner. In the case of Syntellis, it was really a proprietary deal. And we haven't seen many proprietary deals in a long time, right? I mean, in a more frothy market, even if you were the most likely owner of an asset, the seller would run a market check. And in this case, we're able to just sort of cut through all that and reach a deal that made sense to both parties. So maybe in that regard, I mean, the competition is a little thinner, but it's the same set of characters.

Jason Conley:

Yeah, I'd say a little bit. I mean, it's -- you know, for the second half, it's like single-digit revenue impact relative to our last guide.

Jason Conley:

Mid-singles.

Neil Hunn:

Yeah. Good to hear from you.

Terry Tillman:

Yes, thanks for taking my questions, and good morning, gentlemen. The first question is on Frontline. If I'm not mistaken, you know, you have this important renewal season. We saw the strong cash flow in the quarter. I'm curious, those are important kind of milestones when they're renewing and you get the cash flow. But what happens and what did you see with expansion or interest in expanding products or modules, adding more seats, taking pricing? And then the second part of my first question is just how is new business growth going in Frontline?

Terry Tillman:

Okay, thanks for that, Neil. And I guess, just my follow-up is on Neptune. You know, do you foresee this momentum continuing into '24? And how much should we hang our hat on this meter data management product? I mean, does that move to the needle? Does it have a good attach rate? Thanks.

Terry Tillman:

Thanks.

Christopher Glynn:

Thanks. Good morning, all. So a lot has been asked. I was curious about some language in the press release that guidance doesn't include, obviously, future acquisitions or divestitures. You've had a pretty broad stroke of divestiture over a couple of year period recently passed by. So curious if that -- the intent on putting that word in the press release.

Christopher Glynn:

Okay, great. Thank you. That's all I got.

Joe Giordano:

Hey, good morning, guys.

Jason Conley:

Good morning.

Neil Hunn:

Well, Joe, I would say, yes and no to that. I would -- I mean, first of all, times of uncertainty relative to our capital deployment, our history and pattern recognition says, those are great times for us, right? If you go back to like the pandemic, we do Vertafore. Like in the late summer of 2020, it was an -- it's a terrific business for us, a great asset for us, our largest deal because of our balance sheet strength and our flexibility, we were in business when nobody else was and the sellers need to sell. Frontlines, very different reasons last year, very similar. Syntellis, I mean, it's opportunity in this uncertainty. So we like that. Now as it relates to going to be deployed to a platform or bolt-on, we've built over 20 years, the ability to understand -- be a great, if you will, humbly a business picker. And part of that is understanding the markets and understand the competitive advantages. But in that, we're looking for stability, right? We're looking for stable competitive forces, observable competitive forces, small markets, clear leadership position, high gross and net retention, that's a formula for stability which -- from which to grow from. And so if we see things like that and these uncertain times, we'll certainly lean into that. At the same time, as we talked about at our Investor Day, for our capital deployment strategy, we are trying to lean in to do more bolt-on activity because they've historically been the best value-creative deals we've done, they help our businesses once they turn organic grow faster. That's a gigantic part of what we brought Janet in to do to help lead that part of our investment strategy. And so, we'll do either, but you understand sort of the dynamic between the -- the interplay between the two.

Neil Hunn:

I think all of that is factored into the current environment. I think the large government -- the enterprise class government contractors based on just the uncertainty have -- or just are being very cautious in their activity. They've been cautious over, you know, fits and starts this year. So I think it's baked in. It's certainly reflected in our balance of the outlook for this year, sort of continued uncertainty. And this but the good news is this will eventually clear itself and then the government to get you back to spending, and that will be a catalyst for Deltek.

Neil Hunn:

Thank you.

Steve Tusa:

Hey, good morning.

Steve Tusa:

Congrats to Janet as well. Yeah. Can you guys just, obviously, great cash in the quarter, I guess, you know, you guys have talked about the seasonality here. How do we kind of think about the 4Q from a working capital perspective now? Like how should we look at history? And you know is there anything that kind of gives back when it comes to Frontline in the fourth quarter? Like what do -- how do we think about working capital? Should we expect another strong working capital performance similar to what we just saw in the third quarter, like history you know?

Steve Tusa:

And anything else year-over-year in Q4 from a cash tax timing perspective or outside of working capital we have to be aware of?

Steve Tusa:

Okay. So effectively, net income growth and then some working capital benefits?

Steve Tusa:

Okay. Great. And then just following up on the environment and enterprise software. You guys mentioned there's like there's pockets of softening. I think can you just clarify like what you're just seeing broadly there from customers into '24. It just seems like the economy is mixed, but a lot of the software businesses out there holding up really well. How would you guys kind of characterize the environment maybe a little bit deeper there?

Steve Tusa:

Got it. Okay. Great color. Thanks a lot.

Operator:

The next question comes from Joe Ritchie with Goldman Sachs. Please go ahead.

Neil Hunn:

So we're in the early stages of doing that, right? So we don't want what we do not and we will not do is do a center-led process from Sarasota and say to any one of our companies, here's something you should buy. We're not going to do that. We will not do that. What we are going to do is we're asking the vast, vast majority of our businesses as they go through their strategic planning cycle to have both an organic and an inorganic strategy. And so, as we go through that vetting exercise, we'll build -- we'll understand the strategic areas of expansion and then we'll have the discussion should it be organic or inorganic. From there, we'll then forward lean to figure out the inorganic opportunities and then go from there. So that's the process. As a general matter, I think, the larger businesses are the most obvious ones. We'll start Deltek, you know, Frontline, Vertafore, but it's not limited to the largest one. I mean, Strata was sort of an average or a mean-size business for us, if you will, and there was a very compelling opportunity. I think we'll ultimately have, if you will, again, the vast majority, maybe as many as 20 of our 27 companies will have some inorganic growth strategy. Whether or not we execute against that, is a whole another thing, but at least we'll have strategies formed across the vast majority of the portfolio.

Neil Hunn:

Yeah. Joe, you know, our fourth quarter is a very strong renewal season for us at Deltek, Vertafore, and Aderant. So -- but I'd say, you know, it is balanced across the year, but more in the fourth quarter. And obviously with Frontline in the third quarter, that's changed the dynamic there. But we expect strong renewals. You know, we had our operating calls this quarter and the renewal process has already kicked off for the fourth quarter for these businesses, and you know, we're hearing positive feedback.

Neil Hunn:

You're welcome.

Brett Linzey:

Hi. Good morning, all. Congrats on a nice quarter.

Brett Linzey:

Hey, just wanted to come back to ConstructConnect. I think in the previous comment you said improving strength. I was just hoping you put a finer point on that improving activity. And just particularly given the -- some of the incoming data on construction is a little bit weaker, higher rates and so on. So I'd just be curious what you're seeing there.

Brett Linzey:

Got it. I appreciate the color. And then just the last question on the margin outlook. Understand you don't want to give full guidance here in October for next year, but just thinking about the moving pieces, you know, the mixed differences in the business, is there a framework to think about in terms of you know percent margin expansion, incremental margins and particularly within network software, I mean, do we build off these high levels for next year?

Brett Linzey:

Got it. I appreciate the color.

Brad Hewitt:

Hi. Thanks. Good morning, everyone.

Jason Conley:

Good morning.

Neil Hunn:

I wouldn't read too much into that. We have a board member and a board observer, and part of us delivering our knowledge, if you will, to that enterprise and also learning from the enterprise comes partially through the board interaction. And so I would not read anything into that other than Tim was the one who helped shepherd the process. He had the relationships. Obviously, the MA team leads the Diligence. And so he's just a name board member. I wouldn't read anything into that. This is one step into a second-step transaction.

Neil Hunn:

Yeah, I mean, I think I've said for about a year, you know, we kind of looked at things as kind of a margin, so as a percent of revenue. And being north of 30% of revenue on free cash flow is kind of the right way to think about it. You know, with EBITDA, obviously, with interest rates changing, it's -- you know, it's good to look at it in a certain point of time. And over time, that can change. So percent of revenue is sort of how we think about it. North of 30% is our target.

Operator:

This concludes our question-and-answer session. We will now return back to Zach Moxie for any closing remarks.

Operator:

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Operator:

Good morning. The Roper Technologies Conference Call will now begin. Today's call is being recorded and all participants will be in listen-only mode. [Operator Instructions] I would like to turn the call over to Zack Moxcey, Vice President, Investor Relations. Please go ahead, sir.

Neil Hunn:

[Technical Difficulty] and thanks to everyone for joining our call. We’re looking forward to sharing our second quarter results with you this morning, which like Q1 were quite good. As we turn to page four, let's look at today's agenda. I'll start with our second quarter enterprise highlights then ask Jason to share our financial results. After that, we'll turn to our segment specific discussion and wrap up outlining our increased 2023 enterprise guidance. So let's go ahead and get started. Next slide, please. As we turn to page five, the four main takeaways for today's call are

Neil Hunn:

Thanks, Jason. Let's turn to page nine and walk through our Q2 highlights for our Application Software segment. Revenues here were $770 million, up 6% on an organic basis and EBITDA margins increased to 43.7% in the quarter. In this segment, we continue to see consistently strong performance across the entire group of companies. We'll start with Deltek. Deltek was once again solid across both our government contracting and private sector businesses. Importantly, Deltek continues to see momentum build with our SaaS offerings and retention rates remain at historically high levels. Also in the quarter and as Jason mentioned earlier, we announced the acquisition of Replicon for Deltek, Roper’s largest bolt-on today. Replicon is a market leading timekeeping and workforce management SaaS solution focused on professional services firms and it's highly complementary to Deltek strategy. We expect Replicon to contribute north of $70 million of revenue and $24 million of EBITDA next year and we expect the deal to close during the third quarter. Finally, as it relates to Deltek, we wanted to brag on them for a moment. During the quarter, the Washington Post award Deltek, the number four top workplace at the D.C. Metro Area for large companies. As you know, we have a closely held belief that talent and culture can create long-term competitive advantage and this is certainly the case for Deltek. During Roper's ownership with Deltek, the company has increased its organic growth rate, retention levels, recurring revenue and margin structure and a big contributor to that success is the structural talent advantage that Deltek continues to build. Congrats to Mike and congrats to your entire team. Aderant, our software business focused on the needs of law firms continues to be excellent. In the quarter, Aderant saw record bookings and continued success in the adoption and cross-sell of their SaaS solutions. Also and importantly during the quarter, Aderant launched their Generative AI enabler, MADDI. Today, MADDI is enabling two solutions outside counsel guidelines management and time entry, with plans to extend this to AR cash receipt matching and docketing over the coming months. Over time MADDI will be integrated widely across Aderant’s product platforms. Generative AI for a legal space has tremendous potential. One such example in the market today is Onyx. Onyx powered by MADDI solves a massive challenge that all law firms face, namely how to navigate outside counsel guidelines or the billing requirements that clients impose on their law firms. It's fairly common for a large law firm to have to navigate 100s of 1,000s of bespoke client billing requirements. Today, Onyx uses Generative AI to extract contractual terms and convert them into business tools used in the time entry and billing processes, a true game changer. More broadly across Roper, we're excited about the potential of Generative AI and large language models. We believe given our deeply verticalized and application specific business model that our businesses are structurally advantaged given that all AI, computational and generative need context specifically dated workflows and wish to train or target the technology. Internally, we're working closely with our businesses on the productivity and product enabled opportunities associated with Gen AI. Certainly much more to come on this. Now back to the segment performance in Vertafore, our software business at tech-enabled property and casualty insurance agencies. Vertafore continues to be a great asset for us with solid performance across our core P&C business and their recent MGA Solutions bolt-on. Our Healthcare/IT businesses also performed very well in the quarter with growth in each of our Healthcare/IT franchises, Clinisys, Data Innovations and Strata. Frontline also continues to deliver for us. Frontline's mission is to empower the frontline of education. As many of you know, the hiring of teachers and administrative staff is particularly challenging and frontline software solutions better equip K-12 school district to navigate these challenges. Because of this, frontline solutions are mission critical and of high importance to their school district customers. As such, frontline's net retention is consistently strong. Looking to the second-half of the year, we expect to see organic revenue growth to be in the mid-single-digits area for the segment. Overall, very strong results and outlook for this segment. Turning to page 10. Revenues in the quarter for our Network Software segment were $358 million, up 5% on an organic basis and EBITDA margins were strong at 54.2%. As with our Application Software segment, growth and performance was solid across the segment. Relative to business specific comments, we'll start with our U.S. and Canadian freight matching businesses, DAT & Loadlink, both of which grew in the quarter despite continued challenges across the broader freight and logistics markets. I'll remind you that our businesses are critical to the operation and execution of the North American spot freight market. In addition and importantly the spot market is a long-term secular beneficiary in terms of the volume of future great ships. Throughout and across the freight and economic cycle DAT & Loadlink continue to innovate and launch new products and offerings to help drive enhanced customer value and share of wallet. As we speak, DAT is launching a Generative AI enabled solution among other initiatives targeted to combat freight industry fraud. This is in addition to their existing set of computational AI and data science driven solutions like DAT iQ, which they deploy at scale over the last three or four years. By pipeline, our network software business that tech enables the distribution channel for life insurance and annuities had very nice ARR gains in the quarter driven by strong retention and customer expansion activity. Foundry continued its string of strong performance and had terrific growth for their flagship product Nuke, which enabled continued double-digit recurring revenue growth. As we mentioned last quarter foundry commenced their subscription pricing transition for Nuke and the first-half of the year had north of 60% of their new units sold under their new model ahead of their transition plan. Finally, our alternate site health care businesses led by SoftWriters and SHP were strong in the quarter. Execution was solid and the business has benefited by an improving census and skilled nursing assisted living facilities and home health reaching the highest occupancy levels in patient volumes since the onset of the pandemic. Turning to the second-half of the year, we expect to see mid-single-digit organic growth for this segment based on sustained ARR momentum. As we turn to page 11, revenues in the quarter for our tech-enabled product segment were $403 million, up 19% on an organic basis. EBITDA margins for this segment were strong at 36.4% for the quarter. Across this segment, business performance and execution was exceptional. Importantly, the broad-based supply chain issues continued to ease. Neptune, our water meter, and technology product business continues to be great. In the quarter, they had record revenue performance. Importantly, Neptune continues to see increasing demand and momentum for their residential and commercial ultrasonic or static meters. We remain bullish about Neptune and the market in which they compete. Given this market tends to be quite steady as Neptune's customers’ budgets are typically fixed year-to-year and not tied to broader macroeconomic trends or cycles. Verathon was awesome in the quarter as well with double-digit order growth and tremendous operational execution. Specifically, Verathon saw strength across their reoccurring single use products, both Bronchoscope or B-Flex and video innovation or GlideScope, as well as bladder scan capital purchases. Northern Digital or NDI was also strong in the quarter setting a record revenue for the business. A group of smaller businesses here, IPA, rf IDEAS and Inovonics were fantastic in the quarter as they substantially work through a series of nagging supply chain challenges. Relative to the second-half of the year, we expect to see high-single-digit organic revenue growth. Recall, we have a tough Q3 revenue and margin comp to lap from the prior year. Now please turn to page 13, and let's review our increased 2023 guidance. Based on our strong second quarter performance, we're raising our full-year 2023 guidance for total revenue, organic revenue, and adjusted DEPS. For 2023, we now expect total revenue growth to be around 13%, an increase from 12% plus last quarter. In addition, we're raising our full-year organic revenue outlook to be in the 7% zip codes, an increase from 6% to 7% last quarter and 5% to 6% in our original guide. As a result of our improved revenue outlook, we're increasing our debt guidance to be in the range of $16.36 and $16.50, up for our prior guidance of $16.10 to $16.30. Assumed in this guidance is a tax rate trending to the high-end our 21% to 22% range. Specific to the third quarter, we're establishing our debt guidance to be in the range of $4.16 and $4.20. Now please turn with us to page 14, and then we'll look forward to answering your questions. We want to leave you with the same four points with which we started. First, the year started strong and we delivered solid second quarter results. In the quarter, we saw revenues increased 17% to $1.53 billion. This growth was underpinned with 9% organic revenue growth and 8% organic software recurring revenue growth. In addition, EBITDA margins were quite strong at 40.3%. Second, based on the strong second quarter performance, the recurring nature of our revenue stream and the importance of our solutions to our customers, we're increasing our full-year total and organic revenue growth outlook and increasing our full-year DEPS outlook to be between $16.36 and $16.50. Third, we're excited by the potential of Generative AI, both as it relates to internal productivity and using our application specificity to provide context for new product development ideas. We look forward to sharing progress and updates in coming quarters and years. And finally, we continue to be active with our capital deployment activities as we have north of $4 billion of available M&A firepower. As we've been discussing over the past several months, we have a very large pipeline of opportunities, though as always, we remain super patient and highly disciplined to ensure the continued optimal deployment of our available capital. Now as we turn to your questions and if you flip to the final slide our strategic flywheel, we'll want to once again thank those of you who joined us in New York for our first ever Investor Day and for the 100s who have watched the replay over the past few months. During that long form overview of Roper, we were excited to share with you our long-term strategy, the high quality nature of our portfolio of businesses; our operating ability to improve our businesses, our process driven capital deployment approach and our compelling long-term business model that compounds cash flow in the mid-teens area. So thank you for your continued interest in Roper. And with that, let's open it up to your questions.

Julian Mitchell:

Hi, good morning. Maybe just the first question around in Network Software, you had a very strong margin performance up over 200 points of only mid-single-digit organic growth. So I just wondered if there was anything driving that perhaps on mix or anything kind of one-time? And then also in that division, how are you thinking about second-half growth in DAT & Loadlink versus first-half?

Neil Hunn:

And relative to your second question, second-half for DAT & Loadlink, our freight match businesses. We continue to be cautious there and conservative. We've been held that posture the whole year. DAT performed very well in the quarter, it grew high-single-digits. The broker part of the business and the data analytics part of the business remains super solid, high retention rates. But as we all know, the carrier side of the market, the excess carriers are trading out of the market and that has a weighing effect on DAT. So we've modeled that in all year long and it's playing out generally in line with what we thought here in Sarasota, maybe a touch better, but we'll just stay in line with Sarasota's expectations. And relative to the second-half for DAT, the big wildcard is what happens with Yellow and [EPSI] (ph). I mean, so we'll see what happens there could be a pickup for the spot market, if something were to turn negative on either one or both of those.

Jason Conley:

Nothing really specific sequentially. I mean, I think we've talked about a little bit about just the seasonal shutdown at Neptune. We've had that historically, but I wouldn't point to any conservatism and we've got, sort of, networks still at mid-single-digits. So maybe in the prior year, you might have seen some acceleration coming in the fourth quarter, but nothing really unusual there. What is your first question, sorry, Julian?

Jason Conley:

Correct.

Julian Mitchell:

Great. Thank you.

Jason Conley:

Thanks, Julian.

Deane Dray:

Thank you. Good morning, everyone.

Jason Conley:

Good morning.

Neil Hunn:

Yes. I would characterize it. Our software businesses are playing out -- about as we expected coming into the year, right, expecting a little bit of a slowdown. So you see delayed decision making that has pushes out net new sales, but it also has the impact of having higher gross retention, because decisions are being deferred. And then also just the amount of expansion activities that we have activity we have with our customers is a little bit less, as our customers are just more cautious as they look forward. So that's playing out about as we expected. It's not acute and any one of our businesses is just sprinkled across the universe of our portfolio. Relative to TEP, I mean, it was just fantastic. We had a lot of demand in the medical businesses remains very strong especially at Verathon and CIVCO, a lot of supply chain clear up in the first-half, especially in the second quarter. And we called out very rarely do we call out the three small businesses that we did on the slide, but they had just terrific supply chain sort of performance and operational performance in the quarter.

Neil Hunn:

Yes. I think it's certainly a consideration today. We're computationally, AI has been a consideration for a few years. Generative is newer this year. I think the thing that is nice about our portfolio, our M&A strategy is it just happens to play into the strength of where generative AI and computation AI is best suited. So more verticalized, more application-specific, more intimacy with customers. And so our M&A approach is well suited given the development of these technologies. And as always, you've heard us say this for decades, we're looking in our capital deployment. If there's a zero in the Monte Carlo, we can envision a doomsday, then we're out. We're just not going to lean into that. So we'll look at -- we always look at that. And to the extent we can dream up as zero in the Monte Carlo, because of generative computational AI, then we're not going to consider it in any way. So that's not a new thing for us. Anything to add, Jason?

Deane Dray:

Thank you.

Joe Vruwink:

Great. hi, everyone.

Joe Vruwink:

Hey, good morning. If I go back to last quarter, I think you referenced the Leadership Summit and the business unit presidents coming together. This quarter, there was an announcement about iPipeline and Vertafore partnering together on product. Is it may be possible to connect these two things together? So by doing more to share best practices across the operating divisions, can Roper actually uncover incremental product opportunities and maybe offering a broader suite when it comes to certain end markets that are jointly served today?

Joe Vruwink:

Okay. That's helpful. Just on the topic of generative AI. As you say, your businesses, they provide the context that the applications need, so growth retention if anything, is biased higher in many aspects. How do you think about net retention and just participating in new avenues for growth. So with some of the early products discussed today, does that really strengthen the core? Or is there a separate monetization that can happen?

Joe Vruwink:

Great. Thank you very much.

Jason Conley:

Thanks, Joe.

Allison Poliniak:

Hi, good morning. I saw the announcement with IntelliTrans sort of stepping out and partnering with the product sensor business. Is that something that's just unique to IntelliTrans? Or is it something that you're doing to sort of leverage that sort of asset-light business that you have? Any thoughts there?

Allison Poliniak:

It helps also covering transports. So -- and then just on tech-enabled products, that business continues to outperform organically. You mentioned difficult comps in Q3. Is there any more color you can give us to the cadence between Q3 and Q4 to, kind of, reach that target? And what sort of drove that outperformance this quarter? Thanks.

Allison Poliniak:

Great. Thank you.

Operator:

Thank you. And the next question comes from Terry Tillman with Truist.

Neil Hunn:

We can hear you perfect.

Terry Tillman:

Wonderful. Happy Friday, Neil, Jason, and such. Maybe the first question, it's almost technically two questions, but I'm going to call it 1.5 questions, is actually back on Deltek, one of your biggest businesses, if not biggest business on the app software side. I'm just curious on the relative health and demand. Somebody earlier asked about macro, but how the government side is performing versus private sector side? And the second part of that first question is it seems like something with Replicon, and I think you said it's about $70 million. You could have some pretty good revenue synergy opportunities. And how do you think about that $70 million business, kind of, unleashing that product into that large Deltek installed base? And then I have a follow-up.

Terry Tillman:

Got it. And thanks for being generous, yes, I guess this technically is the third question. Then on the idea of the M&A pipeline and you talked about you're just kind of working through opportunities and bespoke situations, et cetera. But compared to like 90-days ago, would you suggest that there's more -- it's more actionable on the bolt-ons versus the potential platform deals. Just maybe a temperature gauge on the stack ranking of the two types.

Terry Tillman:

That’s great. Thank you.

Terry Tillman:

Thanks.

Christopher Glynn:

Thanks. Good morning.

Christopher Glynn:

I wanted to touch on foundry. Curious if there's any risk of any followed or perturbations from labor strike risk? And also, if you could revisit the comments on the transition plan for that?

Christopher Glynn:

Thanks for that.

Operator:

Thank you. And the next question comes from Steve Tusa with JPMorgan.

Neil Hunn:

Good morning.

Neil Hunn:

Are you okay?

Neil Hunn:

Yes, okay. You sound a little froggy there, okay.

Neil Hunn:

Yes. So we mentioned before, Frontline is a new dynamic, right, for Roper, where all of their renewals happen in the third quarter. So we're already tracking really strong just month-to-date, if you will, for the renewals there. And they actually consumed cash in the first-half, just to give you a perspective on that. I mean also, I think we historically have very strong second-half seasonality. So that, plus just some of the -- I think some of the timing of working capital in the second quarter points to a much better second-half. First-half, we usually -- we pay out incentive. We had -- this year, we had that legal settlement. So that points to sort of that seasonal change for this year. And so we're still on track to deliver north of 30% of free cash flow to revenue. And then you asked about the trends on. So if we kind of look at enterprise software bookings, and it was up sequentially a bit and up year-over-year. Not quite as strong as the first quarter, maybe like low-singles in area, which is about in line with what we had. It's obviously embedded in sort of our slowdown for the second-half for new activity.

Neil Hunn:

Yes.

Unidentified Analyst:

Hey, good morning, guys. This is [Dave] (ph) [Multiple Speakers] on for Brent. I appreciate you are taking some questions. Maybe just on the AI theme. I appreciate some of the color that you guys gave. I was curious, is there some sort of AI playbook that you guys are laying out for the portfolio of companies to be thinking through? Just curious how you're approaching that across the portfolio, and I appreciate some of those one-off case studies.

Unidentified Analyst:

Got it. That's helpful. And then maybe wanted to just ask about you guys often talk about the portfolio being mostly macro insulated. I think the macro hasn't been as bad as many have feared. But as you guys kind of think through that, have there been any companies that as things have softened a little bit that maybe have stuck out and maybe were a little surprising where you thought, hey, maybe these were a little bit more macro immune than they've been showing up to be?

Jason Conley:

I don't think so.

Jason Conley:

Yes. I mean, Shannon has pointed out, maybe there's a little bit around government contracting, as I mentioned earlier, on the debt ceiling. It's not a macro point per se, but that's not clear at Deltek.

Neil Hunn:

Yes.

Operator:

Thank you. And the next question comes from Joe Ritchie with Goldman Sachs.

Neil Hunn:

Good morning.

Joe Ritchie:

Hey, so maybe just to round out that free cash flow margin point going forward now that the seasonality has maybe changed a little bit. Should we think about them like the second quarter as being kind of like a free cash flow margin around 20% going forward as you kind of think about modeling that business?

Joe Ritchie:

Okay. All right. Great. That's helpful. And then I guess, lastly, we talked a little bit about technology-enabled products and the growth this quarter, tougher comps going forward. I'm just curious, is there a way to potentially quantify the supply chain easing impact that occurred this quarter? And then is that going to continue? I guess is that part of the headwind then potentially as you kind of -- as you think about the second-half of the year?

Joe Ritchie:

Okay, I think we can always follow-up offline. Thank you, guys.

Jason Conley:

Thanks, Joe.

Zack Moxcey:

Thanks, everyone, for joining us today. We look forward to speaking with you during our next earnings call.

Operator:

Good morning. The Roper Technologies Conference Call will now begin. Today's call is being recorded. [Operator Instructions] I would like to turn the call over to Zack Moxcey, Vice President, Investor Relations. Please go ahead.

Neil Hunn:

Thanks, Zach and we hope everyone is doing well this morning. We're looking forward to sharing our Q1 results with you which were quite good. As we turn to Page 4, let's look at today's agenda. We'll start with our enterprise highlights and financial results, then turn to our segment-specific discussion and wrap up discussing our raised 2023 enterprise guidance. So with that, let's go ahead and get started. Next slide, please. As we turn to Page 5, the 3 main takeaways for today's call are, first, the year is off to a strong operational and financial start as our higher-quality, enhanced portfolio is obviously performing really well; second, we're increasing our full year guidance both in terms of organic revenue growth and adjusted DEPS; and third, we continue to be very well positioned for disciplined capital deployment. As it relates to our first takeaway, a strong start to the year, we saw total revenue grow of 15% and organic revenue grow 8%. Consistent with our long-standing strategy, we continue to not only scale our enterprise but also simultaneously improve its underlying quality and recurring revenue base. Importantly, we had very strong cash flow performance with free cash flow margins in excess of 30%. Our results this quarter are another proof point that our higher-quality, less cyclical portfolio was purpose-built to consistently perform at a very high level. Finally and also during the quarter, we held our first ever Roper Leadership Summit, where we had our 27 business unit presidents together and shared best practices and learnings across a variety of topics, including strategy development, strategy enablement and team and talent. While honoring our high trust autonomous model, the operating and corporate teams left feeling a true sense of community. It was a terrific week. Given the strong start to the year, we're increasing our full year organic growth outlook 100 basis points from 5% to 6% to 6% to 7% and increasing our full year DEPS guidance to be to $16.10 to $16.30 or $15.10 at the midpoint. Our previous diluted EPS guide was $15.90 to $16.20. And finally, we continue to be well positioned relative to capital deployment. We remain quite active in the market as we evaluate an actively diligent many high-quality opportunities. Jason, I'll turn the call over to you so you can walk through our first quarter results and our strong financial position. Jason?

Neil Hunn:

Thanks, Jason. Let's turn to Page 9 and walk through our Q1 highlights for Application Software segment. Revenues here were $761 million, up 6% on an organic basis and EBITDA margins were 43.2%. Performance in this segment was strong across the board. To highlight a few of our business' performance, we'll start with Deltek. Deltek was solid. As we mentioned last quarter, Deltek did see some slower customer decision-making but that was largely rectified this quarter. Deltek had double-digit bookings in the quarter with strength across both enterprise class and SMB-sized customers as well as government contracting and private sector solutions. As usual, both gross and net retention at Deltek remained strong and consistent with recent history. Aderant, our software business focused on the needs of law firms, continues to compete and win and take share from our competitors. In the quarter, Aderant experienced record bookings and continued success in the adoption of their SaaS solutions. Great job by Chris, Rafi and the entire Aderant team. Vertafore, our software business at tech-enabled property and casualty insurance agencies, posted another solid quarter and continues to perform quite well for us. Of particular note, Vertafore's recent acquisition of MGA Systems, a software solution targeted to manage general agents, or MGAs, is proving to be highly strategic and bookings activity is tracking ahead of plan. Frontline continues to perform quite well for us in the first couple of quarters of ownership. Frontline's mission is to empower the front line of education. As many of you know, hiring of teachers and administrative staff is particularly challenging and Frontline software solutions better equip K-12 school districts to navigate these challenges. Because of this, frontline solutions are mission-critical and of high importance to their school district customers. For the segment, EBITDA margins were down 90 basis points year-over-year, in line with our expectations. Our Acute Care software businesses, especially CliniSys, Data Innovations and Strata are ramping up their implementation capacity based on recent bookings momentum. We expect to see similar margins in Q2. Looking to the balance of the year, we expect to see organic growth in the mid-single-digit area for this segment based on our leading market positions and growth in recurring revenue. Turning to Page 10. Revenues in the quarter for Network Software segment were $355 million, up 6% on an organic basis and EBITDA margins were strong at 53.1%. As with our Application Software segment, growth and performance was broad-based across this segment. Relative to business-specific comments, we'll start with our U.S. and Canadian freight matching businesses, DAT and Loadlink which both grew nicely in the quarter. While freight market conditions are softer than this time last year, our businesses in this space are critical to the operation and execution of the spot freight market. In addition and importantly, the spot market is a long-term secular beneficiary in terms of the volume of future freight shipments. Throughout and across the freight and economic cycle, DAT and Loadlink continue to innovate and launch new products and offerings to help drive enhanced customer value and share of wallet with the current product strategy focused on tech enabling the connectivity between brokers and carriers. iPipeline, our network software business that tech enables the distribution channel for life insurance and annuities, is coming off a terrific 2022 and continued its high level of execution this quarter with very strong bookings, retention and customer expansions. Foundry continued its string of strong performance in the quarter and had terrific seat growth for their flagship product Newk [ph] which enabled continued double-digit recurring revenue growth. As we mentioned last quarter, Foundry commenced their subscription pricing transition for Newk [ph] and in Q1 had north of 50% of the new seats sold under their new model ahead of their plan. Finally, our alternate site health care businesses, MHA, SoftWriters and SHP were strong in the quarter. Execution was solid and the business has benefited by an improving census in skilled nursing, assisted living facilities and home health reaching the highest occupancy levels in patient volumes since the onset of the pandemic. Turning to the balance of the year. We expect to see mid-single-digit organic growth for this segment based on broad and sustained growth across this group. As we turn to Page 11. Revenues in the quarter for our Tech-enabled Products segment were $354 million, up 14% on an organic basis. EBITDA margins for the segment were 34.7% in the quarter. Across the segment, business performance and execution was solid. Importantly, the broad-based supply chain issues continue to wane. Though we're not entirely out of the woods, we can now see a path to a more normalized supply chain environment. Neptune, our water meter and technology product business, continues to be just great. In the quarter, they had record revenue performance and set records for backlog levels. Importantly, Neptune continues to see increasing demand and momentum for their residential and commercial ultrasonic static meters. We remain bullish on Neptune and the market in which they compete as this market tends to be quite steady as Neptune's customers' budgets are typically fixed year-to-year and not tied to broader macroeconomic trends or cycles. Great job at Neptune and congrats. Verathon was strong in the quarter as well with double-digit order growth. Specifically, Verathon saw strength across the reoccurring single-use products, both bronchoscope or B-flex [ph] and video innovation or GlideScope as well as bladder scan capital purchases. Importantly, Verathon has 4 product launches scheduled for the next few months which will help continue their market share gains and momentum. Northern Digital or NDI was also strong in the quarter and continued to see terrific demand for their optical and EM solutions. NDI's enabling measurement technology is used by scores and medical product OEMs and solutions such as robotic-assisted surgery and across multiple cardiac-specific modalities. NDI's high level of market focus and operational discipline will enable them to continue to be the market share leader for these measurement technologies long into the future. Our outlook for the balance of the year for this segment has improved to be in the low double-digit area and is based on continued strong orders and improving manufacturing productivity at Neptune as well as an improved growth outlook across our medical product businesses. Now please turn to Page 13 and let's review our increased 2023 guidance. For 2023, we expect total revenue growth to be north of 12%. In addition, we're updating our organic revenue growth outlook to be in the 6% to 7% range, an increase from our original guidance of 5% to 6%. As a result, we're increasing our DEPS guidance to be in the range of $16.10 and $16.30 in up from our guidance of $15.90 to $16.20, assuming that this guidance is a tax rate in the 21% to 22% area. Specific to the second quarter, we're establishing our DEPS guidance is to be in the $3.96 to $4 range. Now please turn with us to Page 14 and then Jason and I will look forward to answering your questions. As we turn to Page 14, we want to leave you with the same 3 points with which we started. First, 2023 is off to a great start. We saw revenues increase 15% to $1.47 billion in the quarter. This growth was underpinned with 8% organic revenue growth and 8% recurring revenue growth. In addition, margins were quite strong. This quarter's financial and operational performance is yet another proof point of our capabilities and frankly, the expectations of our improved higher-quality portfolio of businesses. Most importantly, our revenue growth translated to impressive cash flow growth with our underlying free cash flow growing 14%. As you know, we view cash flow growth as the best measure of performance. Second, based on the strong start to the year, the higher recurring nature of our revenue stream and the importance of our solutions to our customers, we are increasing our full year organic revenue growth outlook to be between 6% and 7% and increasing our full year DEPS to be between $16.10 an $16.30. Finally, we continue to be active with our capital deployment activities as we have north of $4 billion of available M&A firepower. As we discussed during our Investor Day last month, we have a very large universe and pipeline of opportunities, though, as always, we remain super patient and highly disciplined to ensure optimal deployment of our available capital. Now as we turn to your questions and if you could flip to the final slide, our strategic flywheel, we want to thank those of you who joined us in New York or online last month for our first ever Investor Day. During that long-form overview of Roper, we were excited to share with you our long-term strategy, the high-quality nature of our portfolio of businesses, our operating ability to improve our businesses, our process-driven capital deployment approach and are compelling long-term business model that compounds cash flow in the mid-teens area. So, thank you for your continued interest in Roper. And with that, let's open it up to your questions.

Deane Dray:

It was great to see everyone in New York last month. Just maybe we can start off and it's a bit of a follow-up from last quarter with Deltek on some of the slowing in decision-making. This is kind of what everyone is watching, might there be any kind of fallout from bank turmoil or read through in the construction markets and so forth. But the idea of slower customer decision making, maybe just give us an update on how that played out, time to sign contracts, any new logos. Just any color there would be helpful.

Jason Conley:

Yes I would just say our software bookings were up high single digits year-over-year in the quarter. So that just put some math behind what he was saying.

Neil Hunn:

Yes. There's 3 parts to this -- macro parts to this segment. There's Neptune, medical products and then a couple of small RF product businesses, all 3, they have and -- we, at corporate, sort of increased the outlook for the balance of the year. Neptune has just continued incredible order growth and then terrific performance out of the factory at Neptune which gives us confidence that they can chew into a little bit more of the backlog than we maybe originally thought coming into the year. At the medical product businesses, as we all know, last year, medical procedure volumes were down in the 7% to 8% range. We plan for that to continue this year. It's actually been a little bit better than that and that flowed through at Verathon, CIVCO directly and less directly through NDI. And then the Inovonics and RF Ideas, the RF product businesses, have been riddled with supply chain challenges and coming into the year. We assume those would continue and they meaningfully improved in Q1. So it's a little bit uplift across the board that gives us the confidence to take the guide up in that segment.

Scott Davis:

I know it's not -- there isn't any particular business that's game changing for you in any particular quarter. But when you think about freight matching and I know the truckers have had some tough time this quarter. Some of the guidance has been a little cautious, tough comps, et cetera. How linked is your freight matching business to kind of the miles driven and the B2C kind of truck market? Is there a direct link there? I would assume there is but I'm just -- it doesn't seem like you had really any major problems in DAT this quarter.

Scott Davis:

That's interesting. Hate to [indiscernible] here but I'm just going to do it anyways. What's the -- how does this business change over time? Like does AI become a big enabler and a predictor and help kind of drive that liquidity that you talked about, Neil? How does technology, I guess, change the game and help you guys gain share over time, I think is a better question.

Scott Davis:

Okay, that's helpful.

Terry Tillman:

Congrats on the quarter. So the first question, I guess, is on the Frontline because that was the last major platform acquisition. I think you all talked about $370 million of revenue, expected contribution and $170 million EBITDA. And I think also you said it was a stub period, it was in the 80s and 4Q. What I'm curious about is how is it tracking to those targets. And I did notice they just announced a new HCM suite, there's a new CRO there. So it seems like there's some dynamic things going on. Just maybe double-clicking on Frontline and then I had a follow-up for Jason.

Jason Conley:

I take the first one. Yes. So they're tracking on their forecast. As you know, they're a business that has large renewals in the third and fourth quarter. And so we'll expect the business to pick up sequentially in the second half but there are definitely on track for their revenue and EBITDA numbers of $370 million, $175 million.

Terry Tillman:

That's great color. I guess just a follow-up for Jason is you were able to call out the adjustment from the settlement. So it was up 14% in terms of the free cash flow at low 30s on a free cash flow margin. Should we think about that for the remainder of the year in terms of kind of that mid-teens growth and maintaining a low 30s free cash flow margin?

Operator:

The next question comes from the line of Steve Tusa with JPMorgan.

Neil Hunn:

Sure. So ConstructConnect, as we talked about in the past, tends to be a countercyclical business. For those that are less familiar, ConstructConnect for simplicity has a near perfect database of every commercial construction project that's in the planning phase. And so if you're a general contractor, a trade contractor, a building product manufacturer, you're generally quite interested in understanding for planning purposes, for bidding a project purposes what's in the stage of development planning. When the construction market is quite hot, general contractors and subs have more work that they can do. There's less utility and value in paying a subscription fee for future projects that are in the queue. When the amount of work starts to slow down, there is increased utility in that. So when I look back and back test ConstructConnect over a couple of cycles, it has a clear countercyclical demand behavior attached to it. So the market, we think, will be coming to it. As a general matter, ConstructConnect has maybe modestly underperformed our hopes. It's been more of a low single-digit growth business. Our expectation is that it should be mid. And we're quite confident with the current strategy that will climb to there and get to there. We have a great leader that came out from Deltek a couple of years ago, Matt Straza, the operational discipline, the strategy, the go-to-market sort of prowess is just at the next level. And so we're quite confident that we're going to be able to reach our expectations of mid there. CliniSys has been nothing short of great. Simpson, who's been -- who has integrated the U.S. Sunquest business with the European business, has just done that almost without error. It's been terrific. The business grew. The combined business grew in the quarter. We haven't been able to say that for quite some time given the drag of the U.S. business. We continue to be just tremendously strong in the U.K. As you know, we're 1 of 3 or 4 strategic IT vendors to the NHS as we run something like 80% or 85% of the laboratory network in the U.K. The pan-European strength continues. For instance, we run the largest health system in France, in APP, the Paris system. And in the U.S., some of the strength comes from the fact that we now have a product offering that is for laboratories outside of that of health care. So think environmental, toxicology, water, et cetera which is showing some early signs of promise. And so a lot of congratulations to Simpson and Andy, the CFO and we're excited to see what happens at Clinisys.

Jason Conley:

Sure. Yes, I can take that, Steve. So yes, the deferred revenue is down or, I guess, the consumption of cash in the first quarter because of Frontline, right? So they -- you'll see that spike back up in the third quarter with those renewals. It was, overall, deferred revenue outside of that was in line with expectations. It was fairly flat to the fourth quarter. And then on taxes, we typically make 2 tax payments

Neil Hunn:

Yes.

Julian Mitchell:

Just a question on tech-enabled products first. So you're seeing a lot of sort of hardware manufacturers in our group with a big kind of flush of revenue right now as component shortages ease and then there's obviously a lot less visibility on the forward look once that flows through. So just wanted to tap -- very strong revenue performance in Q1. You're very confident in the sort of the next 3 quarters' outlook. Maybe just drill down a little bit more into sort of orders and backlog trends there, just kind of the confidence that the strength right now is sustainable through year-end and not just to kind of flush as supply chain eases.

Julian Mitchell:

That's very helpful. And then just circling back on one of the more potentially cyclical pieces within software and it's already been touched on once or twice. But to try and put a finer point on the sort of DAT and Loadlinked businesses at Network Software. Within that sort of mid-single-digit growth outlook for the segment for the balance of the year, how -- what are you dialing in for sort of DAT or Loadlink? Not -- you don't have to give me the percentage number. Just curious sort of versus the segment growth of mid-single digit, for example.

Operator:

The next question comes from the line of Joe Giordano with Cowen.

Neil Hunn:

It's not particularly relevant. There's one business, Northern Digital, correct me on this I think it's just -- principally one that sells through, as I mentioned in the prepared remarks, the medical product OEMs were a critical component, a necessary component to scores of these medical product OEMs. They cannot ship their product without our product, obviously. So there was -- we're worried there might have been a fair amount of inventory in the channel as buffer. The commentary from the Northern Digital team this quarter is they feel most if not all of that is through the system. It's hard to know exactly for sure but that's where -- that's really the only place where it happens. Otherwise, it's us directly to a customer -- and in consumer customer.

Neil Hunn:

Yes. I mean, it's been slow. The number of deals printed in the last couple of quarters has been very low for this reason that you mentioned for the reason that there's just a bid-ask spread between buyers and sellers. -- that continues to exist. And then also just uncertainty on what the exit values are going to be. If you're doing a IRR analysis, the most sensitive variable and the whole thing is your exit value, your exit multiple. And so all in uncertainty, there just hasn't been a lot of deals or recaps. Private equity -- in private equity, there's been a handful of strategic deals that have happened. I'll tell you though, in this our pattern recognition history would say, in times of volatility, it creates opportunity. We saw that coming out of COVID. And very quickly, I mean, it was what, August-ish and 2020 when we did Vertafore, it was an opportunity for us. And so it's our commitment to investment-grade debt, our leverage levels that we could be nimble and flexible and quite opportunistic because this -- moments like this is where opportunities exist for a variety of reasons. So we're cautiously optimistic over the course of this year that those will present themselves.

Allison Poliniak:

Just along the lines of that M&A, I know you mentioned you have certainly have a pipeline platform versus bolt-ons. I guess just even what you're seeing today and sort of the comments that you just made, is there any confidence sort of you'd probably lean towards more bolt-ons in the next few months? Or are there some opportunities that you're seeing on the platform side that could execute?

Allison Poliniak:

Got it. That's helpful. And then Application Software, the capacity ramp in acute care. I know you mentioned, obviously, it's impacting Q2. How should we think about that, the balance of the year? When does that slowly get running, that ramp? .

Operator:

The next question comes from the line of Joe Vruwink with Baird.

Neil Hunn:

Yes. I mean, I would say -- I mean, I have to -- we can take this off-line and sort of go company by company in some level of detail to the extent it would be interesting. But at the highest level, we would say yes, right? So we're -- we say in the Investor Day, we say in all of our communication that we're mission-critical software system of record sort of software. On the application side, if you think about like Deltek or Vertafore I mean, Frontline -- Aderant is a great example where we've gone from number 2 to number 1. We've doubled the size of the company over ownership period. The net retention has gone from like low 1-0, whatever, 102,103 so low 110s, 110, 112, I think which just gives you a sense that all these software companies work for a long time to create a customer base that then they can spend the rest of their life cross-selling into. And so most of our -- all of our companies, 50% to 75% or more of their new bookings come from cross-selling, upselling. And the best example of that is the one you called out which is Frontline which I think it's like 80% plus, where it's -- they've done all the work over their history of basically capturing the customers and now it's about how do you get more share of wallet. And in Frontline's case, in particular, it's a more fragmented state-by-state based on the regulatory environment, competitive environment. And you're right, today, 50% of K-12 health systems -- or excuse me, education systems want to buy from a consolidated vendor, where 5 years ago, that number was 25% or 30%. So the market is coming towards -- in the education space towards companies like Frontline.

Jason Conley:

Yes, I think that's the right way to think about it, Joe. A little bit more of a burn in Q2 -- or Q1, a little less in Q2 and then a big cash inflow in Q3 and a little bit of cash in Q4.

Alex Blanton:

Most of my questions on your operations have been answered but I wanted to ask about the -- how you benefit from the sale of compressor controls. Like Clayton Doble and Rice [ph], they sold it to Honeywell, they just announced this week for $670 million. Are they selling your piece? And do you get any cash from that?

Alex Blanton:

Okay. Do you get any cash from this deal?

Operator:

[Operator Instructions] This concludes our question-and-answer session. We will now return back to Zack Moxcey for any closing remarks.

Operator:

That conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Operator:

Good morning. The Roper Technologies Conference Call will now begin. Today's call is being recorded. [Operator Instructions]. I would now like to turn the call over to Zack Moxcey, Vice President, Investor Relations. Please go ahead.

Neil Hunn:

Thanks, Zack, and good morning, everyone. As we turn to Page 4, we'll walk through our usual year-end agenda, highlights for the most recent quarter and full year, followed by color commentary for each of our segments and then the initiation of our 2023 guidance. Let's go and get started. Next slide, please. As we heard on Page 5, the main takeaways for today's call are First, we delivered another great year of strategic, operational and financial progress. To this end, we concluded our multiyear divestiture program, which was centered on improving the quality of remaining portfolio, namely emphasizing less cyclical, more asset-light and higher-growth businesses. In addition, we successfully deployed $4.3 billion towards market-leading and application-specific software businesses. More on this later, but we also continue to have substantial M&A firepower well north of $4 billion. Organically, we grew just shy of 10% for the year while simultaneously improving the underlying quality of the enterprise. During the course of the year, our businesses did a terrific job of innovating and capturing share, which leads us to our second main takeaway for today's call that we're well positioned for another solid year of performance in 2023. Our higher quality, less cyclical and more highly recurring nature of our portfolio will serve us well during 2023. Now as I hand the call over to our Incoming CFO, Jason Conley, let me take a moment and thank Rob Crisci for all he's done for Roper and for me. Rob has been a significant contributor to our success and an important member of our executive team with meaningful insights and contributions across a variety of topics, including our most recent portfolio repositioning. We're excited to welcome Jason to his new role. Many of you know, Jason, for those of you who do not, Jason has been with Roper for 16 years. He started in corporate IR and FP&A, then the operating CFO at MHA or one of our businesses and most recently serving as Roper's Chief Accounting Officer. Since he has returned to corporate, he has been a member of our capital allocation team and has attended every Board meeting. The team and I are excited to partner with Jason for the next leg of our evolution. So, with that, looking forward to the partnership, Jason, and thank you, Rob, for all of you done to make Roper better than when you joined. Jason, let me turn the call over to you, can walk through the fourth quarter and the full year financial summary. Jason?

Brandon Cross:

Thanks, Jason.

Neil Hunn:

Thanks, Jason, and well done. Let's turn to Page 11 and walk through our 2022 highlights for our Application Software segment. Revenues here were $2.64 billion, up 7% on an organic basis, and EBITDA margins were 44.1%. Performance across this segment was just solid in 2022. Vertafore, our software business that tech enables property and casualty insurance agencies accelerated their growth, led by continued strength in their enterprise class segment. In addition, the two Vertafore bolt-on acquisitions are strategically on point, integrated and performing well. As we've been discussing, SaaS migrations have been a key theme for us over the past few years, and 2022 was no different. Both Aderant and Deltek continued their SaaS migration momentum and both grew nicely based on solid customer adds and strong retention. Deltek was particularly strong in their private sector end markets. But as Jason mentioned, Deltek did see some slower decision-making specific to new bookings in the enterprise segment for their GovCon solutions. At our upcoming March 21 Investor Day, you'll get an opportunity to hear directly from the leaders at Vertafore, Deltek and Aderant about how they're competing and consistently winning in the market. As it relates to Power Plant, we liked what we saw last year. PowerPlan was strong given their refocused and narrowed strategy combined with a highly aligned team. As a result, PowerPlan crossed a meaningful milestone, launching a SaaS solution for their flagship product, tax fixed assets. Congrats to the team for a great 2022 and looking forward to more great things in 2023. 2022 is a very good year for application health care IT businesses as well. Strata's combination with EPSI has just been great. The integration is complete and the number of EPSI, the Strata has conversions and upsell, cross-sell are both meaningfully ahead of our deal expectations. Clinisys and Data Innovations continue to win in the marketplace. The internal combination of Clinisys and Sunquest has rejuvenated and energized their high-performance culture, which is enabling the business to more effectively compete and win in the marketplace. Data Innovations continues to gain share and evolve to become the de facto standard as it relates to Lab Middleware. Finally, Frontline, our cornerstone 2022 acquisition is off to a solid start. We look forward to sharing the strategic and financial success of this business in the quarters and years to come. I'd like to reiterate with what we started with. Performance here strategically, operationally and financially was just great in 2022. Very proud of the team and the performance. Congrats and thanks. Looking to the outlook for 2023, we expect to see organic growth in the mid-single-digit area based on our market positions and growth in recurring revenues. Turning to Page 12. Revenues in 2022 for our Network Software segment were $1.38 billion, up 13% on an organic basis, and EBITDA margins were strong at 53.3%. As we dig into business-specific performance, our U.S. and Canadian freight matching businesses were great in 2022. Their exceptional growth is based on many factors, certainly favorable market conditions, but also continued product and network innovations as well as terrific product and package designs that drove increased value for the network participants. iPipeline and iTrade network were stellar performers throughout 2022 and benefited from having strong renewal and expansion activity. iPipeline like that a PowerPlan is benefiting from having a narrowed and more focused strategy, namely tech-enabling the life insurance and annuity distribution network. Moving to Foundry, which had another great year as part of Roper. Foundry continues to be the market-leading software in postproduction media entertainment. During 2022, Foundry's product innovations were impressive with several new features focused on ML-based automation. Starting in 2023, Foundry's flagship product Nuke will begin its subscription transition, so looking forward for solid progress on that front. Growth in our businesses that focus on alternate site health care was led by SHP and SoftWriters and importantly, retention rates across SHP, SoftWriters and MHA remained extremely high. Broadly, the performance across this segment was great. Congrats to the teams for this terrific year of financial performance. Turning to the outlook for 2023. We expect to see mid-single-digit organic growth for this segment based on broad and sustained growth across the group and a normalization of market conditions for freight and logistics applications. As we turn to Page 13, revenues in 2022 for our Tech-enabled Products segment were $1.35 billion, up 10% on an organic basis. EBITDA margins for this segment were 35.4% for the year. As expected, EBITDA margins expanded in the second half of the year as pricing and supply chain improvements flow through. Let's start with Neptune, our water meter and technology product business. This past year was just terrific with very strong growth based on strong margin conditions, strong share gains and strong adoption of their static ultrasonic meter technology. In addition, Neptune launched their cellular connectivity solution and did a fantastic job migrating a large chunk of their customer base to their newest data management solution. Spectacular job Neptune, congrats you and your team. Northern Digital, which is our precision measurement tech company, continued to see terrific demand for their optical and EM solutions. NDI benefits from having a strategy that is laser-focused on health care applications and an R&D capability that is unmatched in the industry. NDI's core tech is using countless life-saving procedures on a daily basis across the globe. Verathon turned in another solid year performance in 2022 as well. The growth is based on momentum across their video innovation and single-use bronchoscope product lines. As you saw in the press release, we did take the opportunity to clean up a legacy patent dispute. Make no mistake, the innovation capability at Verathon is nothing short of exceptional, and we cannot be more confident about their most recent product launches and the new concepts in the development pipeline. As it relates to the single-use rock space, we hope to see Verathon capture the number one market position in North America in 2023. Our outlook for the year in this segment is in the high single-digit area and is based on continued strength in backlog at Neptune as well as continued growth across our medical product businesses. Specific to the first quarter, we do have easier comps versus a year ago. Now please turn to Page 15, and let's review our 2023 and Q1 guidance. For 2023, we're initiating our DEPS guidance to be in the range of $15.90 and $16.20. Underpinning this guidance is expected organic growth of 5% to 6% and a tax rate in the 21% to 22% area. Specific to the first quarter, we're establishing our DEPS guidance to be in the $3.80 to $3.84 range. Now please turn with us to our final page, Page 16. As we turn to this page, we want to leave you with the same key points with which we started. First, 2022 was a year of great accomplishment for our teams and our enterprise. We grew revenue 11%, 9% on an organic basis. And we did this while continuing to increase the underlying quality of our revenue base. In fact, we delivered double-digit increases in our Software organic recurring revenue during 2022. EBITDA grew 12%. Our EBITDA margins expanded 20 basis points to 40.4%. Also, we successfully concluded our multiyear divestiture program and deployed $4.3 billion against our long-standing capital deployment strategy, headlined by Frontline Education. The second key takeaway is that we're well positioned for double-digit cash flow compounding in 2023 based on our organic revenue growth outlook, contributions from our 2022 acquisition cohort and having well north of $4 billion of M&A capacity. To this end, we continue to be very active in the M&A markets. But as you saw during 2022 and as always, we will remain super patient and highly disciplined to ensure optimal deployment of our available capital. Finally, and perhaps the most important, the new higher quality Roper portfolio is becoming increasingly more evident, and we've never been more excited about the future of enterprise. As we open up to your questions, we'd like to take this opportunity to remind everyone that we're hosting an Investor Day on Tuesday, March 21, in New York. We look forward to seeing many of you there. So with that, let’s open it up to your questions.

Deane Dray:

Thank you. Good morning, everyone. Just start with the best wishes to Rob. I remember when he was a starting as a rookie Investor Relations professional and just wish him all the best. Thank you.

Deane Dray:

It's fabulous. And then, Jason, I think you've been on every one of our callbacks for the 16 years. So you're absolutely -- we know exactly who you are and your experience. And so congrats on the new role.

Deane Dray:

All right. So for a question, maybe we can start with a bit of a macroeconomic sensitivity because you typically, you don't see much of this within Roper, but just called out the Deltek delayed decision-making, Neil, is there any change in the pace of like new customer adds or the migration, new logos? Anything that you would point to that perhaps there is some economic sensitivity reading through in that kind of the pace of business?

Deane Dray:

That's real helpful. And then let's just switch over to free cash flow and maybe I'll be accused of quibbling. The $161 million free cash flow conversion is still elite, but it did lag your five-year average. And I know there's some dynamics here, and you touched on them in the remarks, the Section 174 and the comparison from the tax benefit last year. Anything that on the working capital side or maybe the Frontline contribution because they're on a different school year, so maybe more of a third quarter collection. But is there any change in the seasonal tilt on free cash flow conversion?

Deane Dray:

That’s great. That’s exactly what we’re looking for. Thanks.

Scott Davis:

Good morning, guys. Congrats, Rob, and good luck, Jason, et cetera. I wish you guys well, but [indiscernible]. Jason you get to work a few more years with Neil. Good luck.

Neil Hunn:

Thank you.

Neil Hunn:

I appreciate the opportunity to talk about, anyway our businesses, it's been a while since we've been able to do a double-click on PowerPlan. So just remind you what they do, right? So PowerPlan software and services live at the intersection of the financial system and the asset tracking system for these large utilities, investor-owned and public utilities. And when the PowerPlan software has a perfectly curated view of what the assets look like inside our customer base. When you have that perfectly curated view and these assets are constantly being updated and changed, they're not static, right? And so that's why you have to live between these two systems. And we have this perfectly curated view of what the assets are, then you get the most appropriate tax treatment you can, the most appropriate lease accounting and a series of other financial benefits associated with that. We bought the business. The business was doing that, but it was also reaching outside its core customer base and the core products I just described, looking for growth sort of in all the wrong places, if you will. And then we -- what we did when we did our strategy work with them going back probably a year, 1.5 years ago is the amount of opportunity inside the core of what they do was large enough to support the growth thesis for many years to come. So it's just refocusing back on the core. That's a common theme. We talked about that. I think you'll see that increasingly more inside of Ropers as we do our strategy work, right? So not getting too far away from the core and getting distracted. So that's what they've done. The first impact of that is they now have this 100% SaaS solution for their principal product fixed assets just released in Q4. And we're excited by that because as you lift and shift your customer base from an on-premise to a cloud solution, there's a tremendous value capture opportunity, and it will unlock some growth for the business.

Neil Hunn:

No, that's the value unlock, right? So we're doing more for our customers with the SaaS solution, right? So we're not just hosting it. There's more features. You're on the latest release, where certainly, we know how to operate our software ourselves better than third parties. And so it's the efficiency and the uptime is higher. And as a result of all that, you do get price. We'll see we talked about there's roughly $900 million in legacy on-premise maintenance in our revenue base. And as that is lifting and shifting to the cloud over a long arc of time, that should lift and shift north of 2 times, right? So there's $1 billion of growth that's latent inside the portfolio as we lift and shift that on-premise maintenance to the cloud.

Operator:

And our next question today comes from Julian Mitchell at Barclays.

Neil Hunn:

Yes. So let me take -- let's take those, Jason, I take those in sequence. So I'll set up what the difference between recurring and reoccurring revenue is in our base. I'll let Jason talk about the relative growth rate, then we'll tackle the DAT freight question you're raising. So just to level set what everybody is, if we have a recurring revenue is subscription, contractual recurring revenue, reoccurring revenue is principally located at our MHA business. We take a percentage of the drug and food spend that goes to the network and so it's not technically recurring, it's highly reoccurring. So it's not -- and that's probably the most -- one of the most stable parts of our portfolio, long-term care, health care, residents and buildings, consuming food and pharmaceuticals, right? So it's highly secure for lack of a better word. It's not transactional relative to a macroeconomic sort of situation. So I'll stop just in terms of framing recurring versus reoccurring. I'll let Jason take the relative growth rate question.

Neil Hunn:

Great. Okay. Now let's take to your freight and logistics around DAT specifically. So to remind you, there's this tension between the cyclical freight dynamic and a secular push or a secular benefit that DAT and DAT's customers are experiencing relative to the spot market becoming a more efficient place to place freight. So there's tension between those two. From a cyclical point of view, we expected and have seen the carrier side of the network reduce a little bit. And it's -- and we expect it to reduce over the course or shrink or get a little bit smaller over the course of this year. DAT grew through the 2019 freight recession. I think DAT has grown every year since 2010. So the business is talking about the rate of growth at DAT, not does it expand and contract. It tends to be much more stickier than that. As an early read, January is actually a little bit better. I mean the number of carriers in the network is sort of flattish through January and not declining. And the people in the industry that sort of call like the freight timing and if there's going to be a freight recession, I actually think there's a queuing for a large spring shipping season, mostly around -- this triggered by produce. And we might start to be seeing a little bit of that bleed in, but we'll have to see how the next couple of quarters play out.

Neil Hunn:

Yes. So we have the most visibility we've ever had at Neptune. That's right. The order volume continues to flow. The order duration, meaning the longer date orders continues to flow. And so we feel quite comfortable and good how 2023 is shaping for Neptune. For medical products, there's actually -- I think we've talked about a few quarters ago, the reoccurring elements of Verathon became the largest part of the revenue stream. There's a lot of consumable pull-through in the capital equipment there. Northern Digital has a decently high amount of consumables that are pulled through that zip code [ph]. And so it is more procedure and patient driven. And we like I said a few minutes ago, we feel that were decently well set up there, but it's not in our base case. So we saw 6% to 8% declines in patient volumes in the areas in which we service in 2022, all tied to hospital staffing levels. And we're cautiously optimistic that as the labor market solution, hospitals be able to staff and be able to see patient volumes pick back up the prior levels.

Operator:

Our next question today comes from Steve Tusa at JPMorgan. Please go ahead.

Jason Conley:

Yes, happy to. No, I think we're feeling very good about the 80% Our deferred revenue, our renewals were really strong this quarter, and we felt good how it moved up sequentially, how was up year-over-year. And just what we're hearing from our businesses, we feel good about the renewals. And then we're going to have -- we expect -- I think I said on the call that we'll get some improvement on our inventory ratios next year. We had a little bit of build at the end of this year. Frontline will certainly help with our negative working capital profile. They're at negative 40%. Like I said, most of that will hit in the third quarter when all the renewals take place. Of course, if Section 174 gets repealed, this will be a home run year, but we're not banking on that for now.

Jason Conley:

I'll let you come to your math on that.

Steve Tusa:

And then just Frontline, revenues roughly $95 million this quarter. Is that about right?

Steve Tusa:

Okay. By the way, I really appreciate all the discussion on the businesses and looking forward to the Investor Day, learning more on this portfolio. So very helpful detail on the moving parts of all the different businesses.

Allison Poliniak:

Good morning. Just want to circle back on DAT. I know you talked about it growing historically through cycles, but it's certainly been an unusual one. A lot of new entrants here. Is there any risk to the retention rate should that spot rate not hold in terms of stabilization in some of those new entrants, I guess, can't survive? And then I guess along with that, that premium offering, in this type of uncertainty, does that drive maybe more increase or interest in that premium offering versus just to gain some visibility here in an uncertain market? Just any thoughts there?

Jason Conley:

So different packages, different features and functionality that they've upsold.

Allison Poliniak:

Great. No, that's helpful. And then just in terms of the M&A pipeline, are you still under the new portfolio, PE primarily your source of opportunities here? Have you expanded it? And if I guess if you have, are you looking -- I know CRI is your metric that is your foundation. But are you providing any other controls with maybe some new opportunities out there? Just any thoughts there?

Allison Poliniak:

Great. Thank you.

Brent Hewitt :

Hi, thank you. And good morning. You noted that your adjusted EPS calculation will include the fair value accounting and tax impact of Indicor. But why would you not include the minority interest contribution as well? Just wondering what is the logical downside not including that, shouldn't it be a positive and growing contribution?

Brent Hewitt:

Okay. Great. That's helpful. And then in terms of price contribution in Q4, what did that look like? And then also how much pricing is embedded in your 2023 guidance?

Operator:

Our next question today comes from Brendan Luke with Bernstein. Please go ahead.

Neil Hunn:

Yes. So I appreciate the opportunity there. So let's just take it by those three. So ConstructConnect, to remind you what it is, right, so we have a near perfect database of all the construction -- commercial construction projects that are in the planning phase across North America. As a result, when -- it has a bit of countercyclical demand attached to it. So when there is a tremendous amount of new projects and you're a subcontractor general contract and building product manufacturing and business is flowing from everywhere, then you don't have to look too hard for what you're going to do next. When there's fewer projects, then you subscribe to the subscription service of ConstructConnect so you can identify what projects are coming down the pipe that you want to try to bid for and win. And so the ConstructConnect has been a modestly good performer for us over the years. We expect it to actually have a good run here in '23 as a result. Deltek does have -- it's been a strategic focus of Deltek. Deltek is 60% government contracting, 40% private sector and private sector. The smallest sliver is construction and we sell software to large contractors. That's what we do. That business, we -- in our prepared comments, we talked about how the private sector was very strong in Q4 for Deltek. We would expect and do anticipate some softening on the construction side for Deltek in 2023, and we think we have that fully covered in our guidance. And then Neptune, we believe strongly Neptune is not a cyclical business. As you sell water meters and water meter technology to the municipalities when they're -- they tend to have a budget for meters. When there is a large new residential new construction, then a higher percentage of the budget goes to install new meters. When there's fewer new starts, the budget stays the same, but they take the meters and they do the retrofits and trade outs of the aging fleet and infrastructure. So that is a general cross-cycle sort of view of Neptune, But then we're further -- our confidence is further buoyed by the fact that we have this just unprecedented amount of backlog at Neptune for 2023. So we think that Neptune will perform well for us this year.

Operator:

And our next question today comes from Rob Mason at Baird. Please go ahead.

Neil Hunn:

Let me just set it up, and I'll hand it over to Jason. So in TEP, we talk obviously -- about Neptune, we talk about medical process. There's also a small cohort of RF product businesses [indiscernible] and RF Ideas. The fourth quarter was particularly brutal supply chain wise on those RF product businesses. And so with that, I'll give it to Jason to sort of talk through anything you'd like to.

Neil Hunn:

And as a general matter, we're not the only ones that. But supply chain is generally, as Jason just said, improving and there's essentially the chip shortage and chip issues. There's more of a globally is just -- but we're not -- you're not just hearing that from us. We do think this -- the supply chain issues abate over '23.

Neil Hunn:

Neptune has been just a steady and consistent share gainer made the whole time I've been here, right? I mean, for a decade. And the reasons for that are manifold, but they have a product orientation that starts with, they never want to strand their existing customers with technology. So for instance, this goes back to the prior iteration of communication software, but the proprietary protocols between mobile and fixed point, Neptune has a solution where if you're a municipality and you can have one fixed point, roaming points and still have some manual reads and the master data management software package in Neptune can ingest all that data and you don't strand a customer having to pick piece of technology for the totality of what they have to do. So it comes from a product orientation that starts with flexibility. The second thing is the products are just well thought out for the long arc of what the customer wants to do. For instance, on the large commercial meters for ultrasonic, you have to be able to read high flow and low flow equally accurate our products do that. So think about a big hotel application, a trickle that happened 3 in the morning versus the high flow takes their showers in the morning, our ultrasonic meter will perfectly read the low flow and the high flow and the competitive products have to tend to be focused on one or the other for the precision. More so for that application when the ultrasonic -- the battery that drives the ultrasonic technology needs to be replaced. In our case, it's essentially a drop in battery, the competitors you have to cut the meter out and replace the meter. So it's small things -- it's seemingly small things like that, that help drive market share gains over a long arc of time. Final thing I would say, in 2022, it was particularly beneficial for us because we had product availability throughout the totality of the year. And so some of our competitors were quoting year plus lead times. I think our lead times went from like 8 to 12 weeks. And so just some accounts that we typically have not had any presence in, they need meters, we can deliver meters, all of a sudden, you have presence and the opportunity to compete in that account. So that's helped gain some market share in the relative short term.

Operator:

And our next question today comes from Alex Blanton Clear Harbor Asset Management. Please go ahead.

Neil Hunn:

Noted.

Neil Hunn:

So it's interesting. So I can add Zach -- ConstructConnect publishes, look at that quarterly, quarterly the macro of what they're seeing from a construction planning point of view, and I can have Zack for that to you. I have not read the -- personally, I've not read the most recent report yet, so I don't want to comment on its content, but we can send that to you.

Neil Hunn:

So here's the countercyclical nature of that. And so if you have several hundred thousand construction workers, construction, small subcontracting firms ConstructConnect has tens of thousands of customers. So as those hundreds of thousands are looking for work, it only takes a small percentage of that cohort to become a customer of ours to exhibit countercyclical growth behavior, which is what's happened in every prior slowdown in the history that we've been able to observe with ConstructConnect.

Neil Hunn:

Correct.

Operator:

And ladies and gentlemen, this concludes our question-and-answer session. We will now return back to Zack Moxcey for any closing remarks.

Operator:

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines, and have a wonderful day.

Operator:

Good morning. The Roper Technologies Conference Call will now begin. Today's call is being recorded and all participants will be in listen-only mode. [Operator instructions] I would now like to turn the call over to Zack Moxcey, Vice President, Investor Relations. Please go ahead.

Neil Hunn:

Thanks, Zack, and good morning everyone. As we turn to Page 4, we'll walk through our usual agenda highlights for the most recent quarter followed by color commentary for each of our segments and ending with our increased outlook for the year. Let's go ahead and get started. Next slide please. As we turn to Page 5, the main takeaways for today's call are, first, we had another great quarter of operational and financial performance and we're further increasing our outlook for the year. Second, earlier this month, we acquired another leading niche software business, Frontline Education. Third, we continue to have substantial M&A firepower north of $4 billion. And fourth and perhaps the most important the new higher quality Roper portfolio is becoming increasingly more evident, and we've never been more excited about our future. As it relates to the operating and financial performance in the quarter, we're pleased that revenues grew 10% on an organic basis and that the strength was broad based across our three segments and that margin performance improved as well. Consistent with our commentary during the last several quarters, not only did we grow nicely in the quarter, but the quality of our underlying business also improved as we saw our software recurring revenue base grow 11% on an organic basis, more on Frontline in a moment. Based on the strength in Q3 and our expectations for Q4, we're increasing our organic growth outlook to north of 9% for the year. And for those reasons together with the addition of Frontline, we're increasing our full year DEPS guidance by $0.57 at the midpoint. And finally, we've been active in the M&A market. Over the last few months, we deployed just over $4 billion, $3.7 billion for Frontline and $300 million for two bolt-ons

Neil Hunn:

Thanks, Rob. Let's turn to Page 11 and walk through our 3Q highlights for our Application Software segment. Revenues here were $644 million, up 7% on an organic basis and EBITDA margins were 43.6%. Across this segment, we saw recurring revenue, which is about 75% of the revenue for this segment increased 8% in the quarter. This recurring revenue growth is enabled by strong customer retention and continued migration to our SaaS delivery models. Across this group of companies, the financial strength was broad and it's been quite consistent for several quarters running. As we highlight a few businesses, we'll start with Vertafore, who had another great quarter of bookings growth, revenue growth and margin performance. Vertafore continues to see success in their software solutions targeted to the PNC insurance market with particular strength in the enterprise class market segment. Across both Deltek and Aderant, we continue to see solid new customer adds and nice momentum and migration towards their SaaS solutions. Also in the quarter we acquired TIP Technologies for Deltek, a leading software provider servicing the GovCon manufacturing and QA market and viGlobal for Aderant, a leading human resources and recruiting software tool for global law firms. CBORD, our nutrition and access management software business had strength across both education and healthcare and end markets. CliniSys and Data Innovations continue to exhibit strong demand and operational strength. CliniSys continued its market share gains across Europe and DI continues to demonstrate product market fit by gaining share of wallet across large healthcare systems. Strata continues to be solid for us as evidenced by strong new customer adds, cross-selling and renewal activity. Finally, Frontline will be reported in this segment starting in Q4. Looking at the outlook for the final quarter of the year, we expect to see organic growth in the 6% to 8% area. Turning to Page 12. Revenues in the quarter for our Network Software segment were $347 million, up 10% on an organic basis and EBITDA margins were strong at 54.5%. The 10% organic growth in this segment is underpinned by 16% growth in recurring revenue. As we dig into business specific performance, our U.S. and Canadian freight matching businesses continue to be fantastic. The marketing conditions while slowing a touch on the carrier side of the network remained favorable, these businesses saw nice new customer adds and ARPU increases during the quarter. Moving to foundry, our software business that enables live-action filming and computer-generated graphics to be combined in a single frame – frame again demonstrated their financial strength. Net retention was very strong and ARR grew in the strong double digits again. Foundry's success is rooted in their fast-paced innovation capability and favorable long-term market conditions. Growth in our businesses that focus on alternate site healthcare was led by SHP and SoftWriters and importantly retention rates across each of these businesses remained extremely high. Finally, iTrade, our network food supply chain business and iPipeline, our life insurance SaaS business that tech enables the quoting and underwriting processes, each had solid customer additions, which helped drive strong ARR growth in the quarter. Turning to the outlook for the fourth quarter, we expect to see 8% to 10% organic growth for this segment. As we turn to Page 13, revenues in our tech-enabled products segment were $360 million, up 15% on an organic basis. EBITDA margins for this segment increased nicely to 37.2% in the quarter. It's very nice to see 15% organic growth in the quarter and easing supply chain challenges. While supply chain challenges remain, we experienced demonstrable easing conditions especially as it relates to chips and chipsets. We are cautiously optimistic conditions will continue to improve. Let's start with Neptune, which once again set records for orders and quarter end backlog. For a few quarters running, Neptune has been able to gain market share by successfully maintaining industry leading product lead times while simultaneously launching new products both in terms of cellular connectivity and static meter reading technology. To this end, Neptune continues to experience accelerating demand that are static meter solutions. Verathon was simply strong. They grew nicely in the quarter driven by momentum across all three components of their product portfolio

Deane Dray:

Thank you. Good morning everyone.

Rob Crisci:

Good morning Deane.

Neil Hunn:

Yes, Deane, nothing in a meaningful sustained manner. Right? So I think we attribute that first to the markets that we serve. Right? So think about customers in healthcare, education, insurance, food, government contracting, utilities I mean, the macro forces generally are lessened or less impactful in those end markets. ARRs, I think, they are up the double digits 10%. So that's always a leading indicator of the strength. But there is certainly quarter-to-quarter there can be some noise. And so last quarter we're looking at, for instance, PowerPlan minus off some softening, but that recovered this quarter. And so it's not to say there is not pockets of things we look at, but nothing in a sustained manner at this stage.

Neil Hunn:

Yes, I draw you back. This is the same thing we've been talking about since really over the last four or five years since we became COO and CEO and the team we have in place today. So, we historically – long history this – we've said this is a GDP plus a little bit grower, and as we've restructured the portfolio and as we've talked about here increased the expectation outlook for more organic out of existing portfolio, now it's mid-single digits certainly through cycle. And we are always looking to continue to improve that. We've talked at NASOM [ph] about the desire to improve the organic growth outlook through our governance system of our businesses, thinking about how to do strategy right, where to play and how to win, how to execute that strategy in a process in discipline manner, and then how to build team and talent to sort of use that as a long-term competitive advantage. We've been at this with the portfolio for three or four years, and we're starting to see some signs of improvement. So, we're encouraged, but it's an ongoing body of work that never ends.

Scott Davis:

Hey, good morning guys.

Rob Crisci:

Good morning.

Neil Hunn:

Sure. Appreciate the opportunity to talk about that. I'll tell you, you never have perfect information. And so this is using all of our inputs and reading the tea leaves to really understand what happened. In the process the seller here Thoma had some bespoke reasons they needed to get liquidity from an asset they chose this one. They happened to time it in the market where private equity bidders had a difficult time bidding because there was not, or has not been a private leverage loan market. And so in that result, the process was thinner competitively, meaningfully thinner competitively and that's why we believe we are able to get a very fair price for the asset. So the process dynamics were a little bit different. And just another example of sort of the patience and our commitment to investment grade leverage and the conservative posture of our financial policy enables us to sort of move nimbly when an opportunity presents itself.

Neil Hunn:

It's very difficult for us to sort of bifurcate volume and price. Keep in mind we're 75% software. Inside software the growth algorithm of every one of our software businesses, you would trip a little bit. There is price baked in every year to sort of offset – mostly if not all of attrite. When you're cross-selling and upselling it to the customer base that gives it to your net retention and you are adding new customers to get the total growth. And so pricing and value capture is just completely native to the inner workings of the pricing model inside a software. And it's not – and it would be generally consistent with the past. I mean, there may be a little bit more prices, labor has gone up in the software model. As it relates to the product businesses, our product businesses have done a fabulous job of essentially passing the cost increases through with the margin to our customers. As you know that lags a little bit. It showed up in margins this quarter in [indiscernible]. That will continue to bleed out over the next several quarters as the backlog that was built early in the years is shipped. And so the teams have done a nice job with that.

Joe Giordano:

Hey, good morning guys.

Rob Crisci:

Good morning.

Neil Hunn:

Yes, so, it is company specific, right. So every company is going to adjust as their market demands. As a general matter as large tech employment softens I view that as a good thing for our business because it makes it easier for us to hire the labor and talent that we need to hire. Here is point one. Point two, is keep in mind what we do for our customers. Right? We are selling and delivering to them the thing they need to run their business. So we are mission-critical to what they do and our pricing model is vastly fixed subscription. So it's not volume or transaction based. So we should be relatively muted to sort of short cycle fluctuations and the macroeconomic indicators. And so a little bit better labor environment, I think, is unbalanced a good thing for us.

Neil Hunn:

We're always focused on improving both the scale and the quality of the enterprise. It's been 20 years, it will be the next 20 years and finding the best asset at the best prices we can find. And there is no difference in that going forward.

Christopher Glynn:

Thanks. Good morning.

Christopher Glynn:

Was curious on the NSS margin seem to step out a bit nicely very strong incrementals. I just want to kind of discuss if there is a mixed shift there that's kind of episodic or kind of sticky.

Christopher Glynn:

Okay. And thinking about frontline accretion, if we take the $175 million of EBITDA maybe that's $160 million EBITDA and then there's might be some net interest increase expected there. So just curious how to put that together.

Jason Conley:

Depreciation is about $7 million or $8 million a year.

Operator:

Thank you. And our next question today comes from Julian Mitchell of Barclays. Please go ahead.

Neil Hunn:

Yes, sure. I'll take a crack at it and then ask Rob if he wants to correct or amplify anything I say. So it's been a pretty consistent set of performance across the various businesses. We've talked for many quarters about the strength of U.S. Canadian freight match, right? It's just been fantastic for us. It continues to be good. For the last two or three quarters, we've talked two quarters this quarter and last quarter we've talked about how – the rate of growth is slowing a little bit, but it's still very good. Even this quarter there was a strong number of new career ads, so we would expect that to sort of slow down a bit over the course of the next year. The other businesses, Foundry, SoftWriters, iTrade, SHPI pipeline are just solid performers that have been very consistent and generally don't have that macro sort of tailwind that the freight match businesses have had. So we wouldn't expect any meaningful change from those businesses. Anything you want to add or comment?

Julian Mitchell:

Thank you. And then just on Technology Enabled Products, you have had issues like most manufacturers from cost inflation, from supply chain challenges for some time. Those are starting to ease it looks like. So maybe help us understand what you are assuming for the pace of those supply chain challenges easing? And then assuming you've got volume growth ahead, easier supply chain and inflation, what kind of operating leverage should we expect in the TEP segment, not so much next quarter, but let's say next 12 months?

Rob Crisci:

Yes. I'll just add to that. There's great momentum here. Neptune has been performing really, really well. Neil talked about how they're – they're still seeing great orders and great backlog and great momentum and so that should – that should certainly carry forward. So with the supply chain issues easing as Neil mentioned, I mean, leverage here I think it was 50% EBITDA leverage in the quarter. We should be north of 40% leverage over the long-term as these businesses continue to grow strong organically and so that would tick-up the EBITDA margins a little bit in that segment.

Steve Tusa:

Hey, good morning.