Business Description
Roper Technologies, Inc. is a diversified technology company that operates market-leading businesses focused on designing and developing vertical software and technology-enabled products for various niche markets. The company is structured into three main reportable segments: Application Software, Network Software, and Technology Enabled Products. Roper's strategy emphasizes sustainable growth through continuous improvement and strategic acquisitions, maintaining high margins and a mix of recurring revenue .
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Application Software - Develops and provides vertical software solutions for niche markets, including businesses like Aderant, CBORD, Clinisys, and Deltek, which contribute significantly to the company's operations.
- Aderant - Offers comprehensive legal practice management software.
- CBORD - Specializes in campus card systems and food service management solutions.
- Clinisys - Provides laboratory information management systems.
- Deltek - Delivers enterprise software and information solutions for project-based businesses.
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Technology Enabled Products - Designs and manufactures technology-enabled products, including businesses such as CIVCO Medical Solutions and Verathon, which enhance operational efficiency and effectiveness.
- CIVCO Medical Solutions - Produces medical devices and accessories for ultrasound and other imaging modalities.
- Verathon - Develops medical devices and software solutions for airway management and bladder volume measurement.
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Network Software - Offers network software solutions that facilitate connectivity and data management, featuring products from ConstructConnect, DAT, and Foundry.
- ConstructConnect - Provides construction project information and software solutions.
- DAT - Offers transportation and logistics software solutions.
- Foundry - Develops creative software for digital design, media, and entertainment industries.
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Q3 2024 Summary
What went well
- Strong Growth in Enterprise Software Bookings: Roper's enterprise software bookings showed double-digit growth in the current quarter, following high single-digit growth in the previous quarter, indicating robust pipelines and optimism for future revenue growth.
- Significant M&A Capacity and Plans: Roper has over $4 billion in M&A capacity and plans to be active in pursuing attractive acquisition opportunities in a favorable market, with a robust pipeline in the near term.
- Resolved Production Issues at Neptune with Strong Demand: The production constraints at Neptune have been remedied, and the company is confident in meeting strong demand with improved production output in the fourth quarter and beyond.
What went wrong
- Leadership changes at key businesses ProCare and Frontline reflect underlying performance challenges and potential instability. At ProCare, Roper identified a need to improve the go-to-market function shortly after acquisition, leading to leadership changes ( ). Similarly, Frontline underwent leadership changes due to the retirement of its existing leader, and the new CEO is only "two months into the job," indicating potential risks associated with management transitions ( ).
- The CEO acknowledges that improving organic growth rates across the portfolio takes time, suggesting that current growth levels are below desired targets and may impact near-term performance. They are "four or five years in across the portfolio" for strategy implementation, indicating a lengthy process to achieve higher growth ( ).
- Potential risks from increased competition due to generative AI technologies. The CEO admits that while they believe incumbency is an advantage, "we can't develop software as fast or faster than any startup can build software from a generative point of view," highlighting the risk that new entrants could disrupt their markets ( ).
Q&A Summary
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Shift in Acquisition Strategy
Q: Is there a change in strategy with the Transact Campus acquisition?
A: Yes, Roper has evolved its capital deployment strategy to focus more on multi-activity and faster-growing leaders. Since their Investor Day 18 months ago, they've made acquisitions like combining businesses similar to Transact Campus and ProCare, which are slightly faster-growing businesses. They've leaned into bolt-on acquisitions close to their existing businesses to accelerate organic growth once the bolt-on turns organic. -
Enterprise Software Bookings Momentum
Q: Are enterprise software bookings improving, indicating growth next year?
A: Enterprise software bookings have picked up, with high single-digit growth last quarter and double-digit growth this quarter. Pipelines look robust heading into the end of the year. This momentum may lead to revenue growth next year, depending on implementation time frames and customer go-lives. -
Macro Headwinds and Business Recovery
Q: How are macro headwinds affecting business recovery?
A: Roper has worked to reduce cyclicality by focusing on mission-critical software in stable end markets like education, legal contracting, healthcare, and insurance. While not immune to macro factors like interest rates and economic slowdown, they are cautiously optimistic as enterprise software bookings improve and the freight market stabilizes. -
Outlook for Foundry and Freight Match Businesses
Q: What is the outlook for Foundry and Freight Match businesses next year?
A: The Freight Match businesses, including DAT and Loadlink, are stabilizing. DAT expects modest growth next year, even without improvement in carrier network participation, through pricing and packaging. Foundry is waiting for post-production employment to return to historical levels, which may take until 2025 due to the impact of strikes, leading to limited growth in the near term. -
M&A Activity and Capital Deployment Plans
Q: Will Roper pause M&A activity as it delevers?
A: No, Roper has over $4 billion of M&A capacity for the next 12 months. The company is very active in the M&A market, which is attractive due to a high number of sellers. They plan to continue pursuing acquisitions, especially in faster-growing businesses. -
Pricing Environment and Margins
Q: Is it harder to get price increases now? Back to normal pricing?
A: Roper has always had pricing mechanisms in place, with about 95% gross retention in software. While they did get outsized pricing in software in the past, it's now reverting to normal levels. In their DEPS businesses, pricing is more normalized, with regular inflationary adjustments every year or 18 months. -
Impact of Generative AI on Competitive Landscape
Q: Does generative AI raise barriers to entry or lower them?
A: Generative AI raises barriers to entry for Roper's businesses. Incumbents like Roper have advantages due to their data and understanding of specific customer needs. They can leverage AI to enhance their offerings, while new entrants may lack the domain-specific data and customer relationships. -
Neptune Production Issues and Order Patterns
Q: Are Neptune's production issues resolved, and how are order patterns?
A: Yes, Neptune's mechanical meter production issues have been resolved, and the company is meeting customer commitments. Order patterns are as expected; while order durations have shortened from 12–18 months during COVID to 6–9 months now, the order volume remains healthy. -
TEP EBITDA Margins and Improvement Expectations
Q: Will TEP EBITDA margins return to year-over-year growth?
A: TEP's EBITDA margins were down due to prior supply chain benefits and investments in NDI. For the year, margins are expected to be flat, but they should improve in the fourth quarter and beyond as these headwinds subside. -
Cash Flow Seasonality and Expectations
Q: How will cash flow behave seasonally in Q4 compared to Q3?
A: Q3 is now Roper's strongest cash flow quarter due to contributions from Frontline and Transact. While Q4 is expected to be strong, cash flow won't increase as much as in Q3. -
Leadership Changes at ProCare and Frontline
Q: What's behind the leadership changes at ProCare and Frontline?
A: At ProCare, they identified opportunities to improve the go-to-market function and made leadership changes to drive value creation. At Frontline, the previous leader retired, and they promoted internally, bringing in a growth-oriented leader with a strong track record. These changes aim to enhance performance and growth at both businesses. -
Long-Term Organic Growth Targets and Portfolio
Q: Does Roper have the right portfolio to achieve higher organic growth?
A: Roper believes there is opportunity for every business to improve. They have confidence in their ability to enhance organic growth through strategic initiatives and talent development. Additionally, they are tilting their capital deployment towards slightly higher-growth businesses, which will adjust the portfolio mix over time. -
Vertafore Updates and Product Developments
Q: Any updates on Vertafore's performance and products?
A: Vertafore had significant wins in the quarter and released impactful product updates. Their BenefitPoint product enhancements save 45 minutes per customer per benefit plan, translating to tens of thousands of hours saved for customers. -
Impact of Election Outcome on Businesses like Deltek
Q: Are any businesses concerned about the upcoming election's impact?
A: No, Roper's businesses are generally not impacted by election outcomes. For Deltek, government spending continues regardless of administration; only the nature of spending changes. Appropriations for 2025 are well understood and not expected to change based on the election.
Key Metrics
Revenue by Segment - in Millions of USD | FY 2013 | Q1 2014 | Q2 2014 | Q3 2014 | Q4 2014 | FY 2014 | Q1 2015 | Q2 2015 | Q3 2015 | Q4 2015 | FY 2015 | Q1 2016 | Q2 2016 | Q3 2016 | Q4 2016 | FY 2016 | Q1 2017 | Q2 2017 | Q3 2017 | Q4 2017 | FY 2017 | Q1 2018 | Q2 2018 | Q3 2018 | Q4 2018 | FY 2018 | Q1 2019 | Q2 2019 | Q3 2019 | Q4 2019 | FY 2019 | Q1 2020 | Q2 2020 | Q3 2020 | Q4 2020 | FY 2020 | Q1 2021 | Q2 2021 | Q3 2021 | Q4 2021 | FY 2021 | Q1 2022 | Q2 2022 | Q3 2022 | Q4 2022 | FY 2022 | Q1 2023 | Q2 2023 | Q3 2023 | Q4 2023 | FY 2023 | Q1 2024 | Q2 2024 | Q3 2024 |
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Application Software | 761.4 | 770.3 | 803.4 | 851.8 | 3,186.9 | 895.2 | 931.8 | 984.4 | ||||||||||||||||||||||||||||||||||||||||||||||
- Recurring | 3.8 | 4.2 | 4.3 | 5 | 17.3 | 5.6 | 6.2 | 6.7 | ||||||||||||||||||||||||||||||||||||||||||||||
- Reoccurring | 0 | 0 | - | - | - | 0.0 | 0.0 | 0.0 | ||||||||||||||||||||||||||||||||||||||||||||||
- Non-recurring | 0.4 | 0.4 | 0.3 | 0.4 | 1.5 | 0.0 | 0.0 | 0.0 | ||||||||||||||||||||||||||||||||||||||||||||||
Network Software | 354.5 | 358.1 | 364.1 | 362.7 | 1,439.4 | 370.8 | 364.2 | 367.1 | ||||||||||||||||||||||||||||||||||||||||||||||
Technology Enabled Products | 353.8 | 402.8 | 395.9 | 399 | 1,551.5 | 414.7 | 420.8 | 413.1 | ||||||||||||||||||||||||||||||||||||||||||||||
- Product Revenue | 349.6 | 398.2 | 391.3 | 393.6 | 1,532.7 | 409.1 | 414.6 | 406.4 | ||||||||||||||||||||||||||||||||||||||||||||||
Measurement & Analytical Solutions | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
Process Technologies | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
Software and Related Services | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
Engineered Products and Related Services | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
Medical & Scientific Imaging | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
RF Technology | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
Industrial Technology | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
Energy Systems & Controls | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
Total Revenue | 1,469.7 | 1,531.2 | 1,563.4 | 1,613.5 | 6,177.8 | 1,680.7 | 1,716.8 | 1,764.6 | ||||||||||||||||||||||||||||||||||||||||||||||
Revenue by Geography - in Millions of USD | FY 2013 | Q1 2014 | Q2 2014 | Q3 2014 | Q4 2014 | FY 2014 | Q1 2015 | Q2 2015 | Q3 2015 | Q4 2015 | FY 2015 | Q1 2016 | Q2 2016 | Q3 2016 | Q4 2016 | FY 2016 | Q1 2017 | Q2 2017 | Q3 2017 | Q4 2017 | FY 2017 | Q1 2018 | Q2 2018 | Q3 2018 | Q4 2018 | FY 2018 | Q1 2019 | Q2 2019 | Q3 2019 | Q4 2019 | FY 2019 | Q1 2020 | Q2 2020 | Q3 2020 | Q4 2020 | FY 2020 | Q1 2021 | Q2 2021 | Q3 2021 | Q4 2021 | FY 2021 | Q1 2022 | Q2 2022 | Q3 2022 | Q4 2022 | FY 2022 | Q1 2023 | Q2 2023 | Q3 2023 | Q4 2023 | FY 2023 | Q1 2024 | Q2 2024 | Q3 2024 |
United States | - | - | - | - | 5,427.1 | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
Non-U.S. | - | - | - | - | 903.9 | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
- Canada | - | - | - | - | 254.6 | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
- Europe | - | - | - | - | 453.2 | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
- Asia | - | - | - | - | 75.1 | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
- Middle East | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
- Rest of the World | - | - | - | - | 90.5 | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
Eliminations | - | - | - | - | -153.2 | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
Total Revenue | 1,469.7 | - | - | - | 6,177.8 | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
KPIs - Metric (Backlog [$ million]) | FY 2013 | Q1 2014 | Q2 2014 | Q3 2014 | Q4 2014 | FY 2014 | Q1 2015 | Q2 2015 | Q3 2015 | Q4 2015 | FY 2015 | Q1 2016 | Q2 2016 | Q3 2016 | Q4 2016 | FY 2016 | Q1 2017 | Q2 2017 | Q3 2017 | Q4 2017 | FY 2017 | Q1 2018 | Q2 2018 | Q3 2018 | Q4 2018 | FY 2018 | Q1 2019 | Q2 2019 | Q3 2019 | Q4 2019 | FY 2019 | Q1 2020 | Q2 2020 | Q3 2020 | Q4 2020 | FY 2020 | Q1 2021 | Q2 2021 | Q3 2021 | Q4 2021 | FY 2021 | Q1 2022 | Q2 2022 | Q3 2022 | Q4 2022 **[0000882835-23-000016_rop-20221231.htm:38]** | FY 2022 | Q1 2023 **[0000882835-23-000025_rop-20230331.htm:17]** | Q2 2023 **[0000882835-23-000045_rop-20230630.htm:20]** | Q3 2023 **[0000882835-23-000052_rop-20230930.htm:22]** | Q4 2023 **[0000882835-24-000008_rop-20231231.htm:36]** | FY 2023 | Q1 2024 **[0000882835-24-000018_rop-20240331.htm:17]** | Q2 2024 **[0000882835-24-000037_rop-20240630.htm:22]** | Q3 2024 **[0000882835-24-000044_rop-20240930.htm:23]** |
Roper Technologies | 2,872.5 | 2,746.8 | 2,913.7 | 3,156.6 | - | 2,932.4 | 2,836.4 | 3,026.1 |
Executive Team
Questions to Ask Management
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Given that organic revenue growth has been 4% for back-to-back quarters , what gives you confidence that growth will reaccelerate in Q4 and beyond, especially considering ongoing challenges in segments like Foundry and Freight Matching ?
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With the Foundry business expecting the impact of industry strikes to carry into next year and recovery not until 2025 , how are you mitigating the risks of prolonged underperformance in this segment, and what contingency plans do you have if the post-production pipelines take longer to recover?
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You mentioned leadership changes at Procare and Frontline to improve go-to-market capabilities and growth orientation ; can you elaborate on what drove these changes and what specific improvements you expect under the new leadership?
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Despite continued pressure in your Freight Matching businesses and expectations of stable but muted freight market conditions , what is your strategy to navigate these challenges, and how are you positioning DAT and Loadlink for future growth?
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Considering that Northern Digital declined as expected due to customer program timing and you anticipate recovery beginning in Q4 , what is your level of confidence in the timing of these customer programs, and are there any risks that could delay the anticipated rebound?
Past Guidance
Q3 2024 Earnings Call
- Issued Period: Q3 2024
- Guided Period: Q4 2024 and FY 2024
- Guidance:
- Full Year 2024 Guidance:
- Total year growth outlook: north of 13% .
- Full year organic growth: approximately 6% .
- Full year adjusted DEPS: $18.21 to $18.25 .
- Full year effective tax rate: 21% to 22% .
- Free cash flow margin: Expected to be north of 30% for the year .
- Fourth Quarter 2024 Guidance:
- Adjusted DEPS: $4.70 to $4.74 .
- Organic revenue growth: Expected to improve but remain in the low single-digit area .
- Additional Notes:
- The acquisition of Transact Campus is expected to be $0.03 dilutive in the fourth quarter .
- Transact Campus is expected to deliver about $325 million of revenue and $105 million of EBITDA next year .
- Full Year 2024 Guidance:
Q2 2024 Earnings Call
- Issued Period: Q2 2024
- Guided Period: FY 2024
- Guidance:
- Full Year 2024 Guidance:
- Total Revenue Growth: 12% .
- Organic Revenue Growth: 6% .
- Adjusted EPS: Raised at the bottom end to be in the range of $18.10 to $18.25 .
- Effective Tax Rate:
- Assumed to be in the range of 21% to 22% for the full year .
- Third Quarter 2024 Guidance:
- Adjusted EPS: Expected to be between $4.50 and $4.54 .
- Free Cash Flow Margins:
- Expected to be 30% or more for 2024 .
- Full Year 2024 Guidance:
Q1 2024 Earnings Call
- Issued Period: Q1 2024
- Guided Period: FY 2024 and Q2 2024
- Guidance:
- Full Year 2024 Guidance:
- Total Revenue Growth: Expected to grow in the 12% area, up from the initial guidance of 11% to 12% .
- Organic Revenue Growth: Expected to grow about 6%, up from the original guidance of 5% to 6% .
- Adjusted DEPS: Expected to be in the range of $18.05 to $18.25, up from the previous guidance of $17.85 to $18.15 .
- Effective Tax Rate: Assumed to be in the range of 21% to 22% for the full year .
- Q2 2024 Guidance:
- Adjusted DEPS: Expected to be in the range of $4.42 to $4.46 .
- Full Year 2024 Guidance:
Q4 2023 Earnings Call
- Issued Period: Q4 2023
- Guided Period: FY 2024 and Q1 2024
- Guidance:
- Total Revenue Growth: Expected to be between 11% and 12%, including the impact of Procare Solutions .
- Organic Revenue Growth: Expected to be between 5% and 6% for the full year .
- Adjusted DEPS: Expected to be in the range of $17.85 to $18.15, which includes about $0.10 to $0.15 of DEPS dilution associated with the Procare deal .
- Tax Rate: Assumed to be in the 21% to 22% range .
- First Quarter Adjusted DEPS: Expected to be in the range of $4.30 to $4.34 .
- Free Cash Flow Margin: Expected to be 30% or more in 2024 .