Q2 2020 Roper Technologies Inc Earnings Call
[music].
Good morning, the Roper technologies second quarter, two walkie talkie financial results conference call will now be get all participants will be in listen only mode.
Do you need assistance police signaling comfort specialist pressing the star keep followed by zero.
Please note this conference is being recorded.
Now, let's turn the conference over to Sac Moxi, Vice President Investor Relations. Please go ahead.
Good morning. Thank you all for joining us as we discussed the second quarter financial results for Roper technologies. We hope everyone is doing well joining me on the call. This morning are Neil <unk>, President and Chief Executive Officer Rock Creek, Chief Executive Vice President and Chief Financial Officer, decent Connolly, Vice President controller, and Shannon O'callaghan, Vice President Finance.
Earlier. This morning, we issued a press release announcing our financial results Press release also includes replay information for today's call.
We prepared slides to accompany todays call, which are available through the web cast and are also available on our website now if you. Please turn to slide two.
We began with our safe Harbor statement during the course of today's call will make forward looking statements, which are subject to risks and uncertainties. As described on this page in our press release and in our SEC filings you should listen todays call in the context that that information and now please turn to slide three today, we will discuss our results for the quarter primarily on an adjusted.
Non-GAAP basis reconciliations between GAAP and adjusted measures can be found in our press release and in the appendix of this presentation on our website for the second quarter. The difference between our GAAP results and adjusted results consist of the following items amortization of acquisition related intangible assets purchase accounting adjustments to acquire deferred revenue.
A restructuring charge associated with certain businesses in our process technologies segment, these where additional structural actions not contemplated in our prior guidance.
Transaction related expenses for completed acquisitions and lastly, we have adjusted our Castro result to exclude income tax payments differed from Q2 to Q3 due to covert 19 and now if you. Please turn to slide four I'll hand, the call over to meal. After our prepared remarks, we'll take questions from a telephone participants Neil.
Good morning, everyone and thanks for joining us we hope that everybody listening worried and are doing well enjoying the summer with that let's go and start with their agenda.
As usual, we'll start with the enterprise highlights from the quarter, which are quite good given the health and economic challenges associated with the current pandemic.
I will then walk through our key financial and operational levers on a segment basis I compare how we did versus what we thought heading into the quarter.
Rob will discuss our piano or balance sheet, our cash position.
We find ourselves in the very fortunate position have well over a billion and a half of cash on the balance sheet and it completely undrawn, two and a half billion dollar revolver.
Following robs remarks, I'll walk through our detailed segment review on outlook, followed by our Q3 and four your guidance and finally I'll conclude with the highlights for the quarter and discuss our outlook for continued capital deployment, well then look forward to your questions.
Now, let's turn to a brief run through Q2 results next slide please.
Let's start I'm very proud of how Roper performed in the quarter, both on an operating basis and a balance sheet basis.
On an operational basis, our revenues declined 2% in the quarter and 3% on organic basis.
We saw organic growth and each ever to softer segments.
In addition, and as we foreshadowed last quarter, we saw very strong demand for medical product businesses and laboratory software, mostly used in a global fight against Coburn 19.
Worth, noting and broadly our businesses did not experience much if any supply chain disruptions in the quarter, which contributed to our revenue performance.
We also saw gross margins increased 70 basis points the 64.7%.
EBITDA margins were impressively flat versus a year ago at 35.3%.
Deps withdraw and came in at $2.94.
Most importantly, free cash flow increased 10% to 315 million.
Specific to our balance sheet two items of importance first we successfully completed a 600 million dollar 10 year two per cent bond offering in the quarter.
Also we were able to deploy $150 million for to bolt ons, indicating the window for capital deployment is reopening more on these deals as we turn to the segment pages.
No well, 3% organic revenue declines are certainly below normal.
Given the macroeconomic backdrop heading into the quarter I'm very pleased with its performance, especially as it relates to our margin performance and cash flow.
To this end this quarter's performance serves as a great example, the illustrates the intimate knowledge each of our teams have with their business their customers their supply chains.
Their employees.
As we said for many years nimble execution yields great result, and that is certainly the case for this quarter and so far this year.
I will discuss later in the call, we're maintaining our full year organic revenue outlook to be plus or minus flat, which we believe is a testament to our decade long business model transformation.
In addition, our greater than 1.5 billion cash position and our Undrawn two and half billion dollar revolver allows us to be offensive relative to capital deployment, our M&A pipeline remains full of high quality opportunities.
Prior to turning to the next slide I want to thank our entire leadership team and our 16000 employees for your tremendous work this quarter.
Thank you next slide please.
Turning to the second quarter segment results on this page summarizes our key business model levers and how they performed in the quarter.
Starting with application software, we expected revenues to be down mid single digits in the quarter, but actually grew 1%.
As we did expect renewal rates remained high and recurring revenues remained strong.
Also we did see strong demand across our laboratory software businesses as they worked aggressively to enable scores a koby 19 related testing capability on a global basis.
A good guy for the quarter was our software license sales, we saw across the segment better than expected conversion of perpetual Iowa sales pipelines.
Further positive variance was the success our teams had and implementing our software remotely, which led to higher service utilization rates and revenues.
So this segment performed better than expected based on these two factors that are license sales and higher service service utilization rates.
For a network segment, we expected to grow low single digits ended coming in at 2%.
For the software businesses in this segment just about what we expected high levels, the recurring revenues and renewal rates and decent network expansions at Constructconnect MD 80.
More on this later, but the Transcore, New York City congestion pricing infrastructure project continues to push due to write impact be more to second half versus this quarter.
As for the EMEA segment, we expect we expected to decline mid single digits, but didn't modestly better only declining 1% and the quarter.
There are a thought and IP outperformed our expectations and were driven by exceptional demand for their products and solutions throughout the quarter.
Expected our other medical product businesses were negatively impacted and continue to be negatively impacted by reduced elective hospital procedures.
Neptune performed inline with expectations. It was down given the had limited access to meters, especially in Canada, and the northeast United States where meters are installed inside residences.
Finally in the segment, we saw sharp declines as expected and our industrial businesses.
Turning to our process Tech segment, we were down 26% in the quarter versus an expectation are being down 30 plus percent.
The businesses under segment performed generally as expected slightly better than we thought at PDAC anymore.
Finally, the better than expected revenues levered very well the S with deps coming in at 294 first our guidance range up to 50 to 70.
After Rob's comments I'll come back and discuss in more detail our segment by segment performance, Rob I'll turn it over to you.
Thanks, Neil Good morning, everyone. We appreciate your interest in rubber technology, there's always so turning to page seven looking at our Q2 income statement performance Q2 organic revenue declined 3% versus prior year with total revenue coming in at 1.306 billion.
We had positive organic revenue growth in both application software and network software and systems, while sharp declines in our smallest segment process technologies pulled our overall organic growth into low single digit negative territory for the quarter.
Margin performance as Neal mentioned wasn't stand out in the corner as their business. It expanded gross margin by 70 basis points to 64.7% and held EBITDA margins flat at 35.3% as a result, EBITDA declined only 2% to 461 million our tax rate came in at 22.3%.
A little higher than last year, resulting in adjusted diluted earnings per share a $2.94, which was well above our guidance range of 250 to 70. So in summary, really good execution by our business leaders in a very challenging environment next slide turning to page eight and looking at cash flow Castillo performance for the quarter was very strong.
On a GAAP basis, our operating cash flow was 449 million, which represented a 49% increase over last year. However for better compare billion clarity. We are adjusting our results for the hundred 24 million of income tax payments that were deferred from Q2, two Q3 due to cope.
Centene and those taxes were subsequently paid in July.
So after adjusting for the timing of the 124 million of tax payments that pushed in July our Q2 operating cash flow grew 8% to 325 million, which represented 25% of revenue Q2 free cash flow grew 10% to 315 million, which was 24% of revenue looking back at the.
At the past two years, our Q2 free cash flow at compound that a strong 12%.
Congrats and especial. Thank you to the finance teams at each of our businesses for continuing to make cash flow and cash collections a high priority. It truly was outstanding cash flow performance in a challenging environment next slide.
Turning to page nine and our asset light business model, a negative working capital slide we exited the first quarter with working capital of minus 4.4% and in Q2, we further improve this metric with working capital as a percentage of revenue moving to minus 5.4%.
Well, we're certainly happy as always we see our income statement hold up well in Q2, we believe it's just as important if not more important that our cash flow in working capital metrics also remained strong in fact as we continue to improve on these important working capital metrics. Despite the challenging macro environment. This bodes very.
Well for our ability to compound cash flow at higher levels as the economy does eventually rebound from the pandemic next slide turning to page 10, our strong financial position.
So it's really a continuation here of the same story, we discussed last quarter ropers liquidity position and balance sheet remain very strong. We ended June with over 1.8 billion a cash on the balance sheet to date in July as mentioned, we have made some tax payments about $316 million a tax payments have been paid to date in July.
That's the previously mentioned 124 million of deferred payments as well as 192 million of taxes due on the gain from last year's get Tan sale. So after making these payments our cash balance today is approximately 1.6 billion and our $2.5 billion <unk> revolving credit facility facility remains fully undrawn.
In June we took advantage of historically favorable conditions in the bond market issue 600 million a 10 year notes at a coupon of 2.0 up or is that at the time, we tied the record for the lowest coupon ever issued by Triple B S. Youre really great execution by our team and nice to once again see very strong demand for Roper bonds.
Driven by our consistent ability to generate cash flow high levels of recurring revenue and our diversified portfolio of asset light businesses.
At the ended the quarter, our net debt to EBITDA stood at 2.1 times and with our large cash balance and fully undrawn revolver, we remain very well positioned with significant financial capacity to take advantage of our large pipeline of acquisition opportunities so with that I'll turn it back over to Neil.
Thanks, Rob Let's go in turn to our application software segment.
Revenues here were 398 million up 1% organic basis, and EBITDA was 172 million or 43.1% of revenue.
To start our retention rates and other recurring revenues remained strong in the quarter.
In addition, we saw better than expected software license sales in the quarter broadly across Delta Aderant and power plant of note sales pipeline build that occurred prior to the quarter converted at a higher than anticipated rate.
In addition, and discussed earlier, we saw a better service utilization rates in revenues than expected.
Our laboratory softer businesses Sunquest data innovations and Clinisys, all grew and performed nicely aided by the global demand to deploy diagnostic testing software faces and laboratory softer associated with combating covert 19.
Specific to Sunquest, we received for termination fee payment for the Cleveland product in the quarter.
As a reminder, last quarter, we noted that the customer opted to terminate this implementation in the face of Kobin 19 related challenges.
Board, which is our software business it sells nutrition and food management software as well as campus access solutions to hospitals and University did decline given their very limited access to both hospital and University clients.
Broadly across the segment and as and of note. We are absolutely seeing an increase desire from our customers to migrate to our cloud or SAS offerings. One of several trends that cobot appears to be accelerated.
This should be a long term growth driver for our business as we have a large installed base of customers, who will overtime migrate to the cloud.
And turning to the outlook for the segment, we expect to be roughly flat organic basis for the second half a year with a third quarter facing a challenging prior year comp specific to perpetual license revenues.
We continue to expect high levels the recurring revenue retention.
As a reminder, the vast majority of our customers in the segment, our enterprise or larger companies.
A quarter.
Second House Faneuil is increasingly comprise a post covid shutdown activity as a result, we expect our prospects decision timeframes may extend longer than our historical experience.
That said, we are encouraged by the by the fact that the top of the final activity looks good and we like the <unk> SQL conversion rates, but again expect decision timing could be more elongated than normal.
With that next slide please.
Turning to our network segment.
Revenues grew 2% organically to $423 million and EBITDA was $176 million or 41, 5% of revenue.
As a reminder, most of our software businesses in this segment sure highly recurring SAS revenue models, which are further aided by strong network effects that drive high retention rates and network ads, which were certainly the case and this quarter.
So this and our construct connect network expanded and the quarter and was driven by strong customer adds a network utilization.
As a reminder, arkan struck connect businesses primary product provides building contractors with all available commercial building projects better in the planning phase and enables them to bid and wind work.
And an economic environment like this one the value of this product further increases.
R D. A T business grew high single digits and the quarter led by large number of carrier additions to the network and strong growth and Ah right data offering.
To add to Ah right data product capabilities, we acquired F M I C and the quarter.
That's M. I C is the leading benchmarking in right analysis firm focused on the contract freight market.
When combined with D a T.
The F&I SMIC datasets will be a unique product offering that benchmarks, both the contract and spot truck freight markets and the U S.
In addition to SMIC, we also acquired team Tsi.
We're integrating team tsi with our SHP business when complete the combined business will have a comprehensive operating financial and quality benchmarks that spanned the continuum of post acute care, namely skilled nursing and home health.
In addition to helping the post acute providers operate their businesses more efficiently SHP will help improve patient outcomes through innovative real time data and evidence based collaboration among acute care providers and their post acute partners. We're excited to see the strategy unfold.
As I mentioned earlier these bolt on acquisitions have a combined purchase price of $150 million.
Turning to last year's acquisitions, and it's worth noting that foundry ni pipeline continue to perform well and are proving to have quite resilient business models as we expect.
As we look to our Rfid's and ovonics businesses. They were challenge in the quarter directly resulting from having limited access to customers.
And finally, the transporter in New York City congestion pricing infrastructure projects continues and is deemed essential.
However, the project at the election of our customer has slowed and continues to push into 2021.
Execution of the project remains strong, but the time is a long gating.
Turning to the outlook for the segment, we see mid single digit organic growth and the second half.
Relative to <unk> and the New York Project as mentioned, we see this project pushing to the right, notably about 20 of depth is being pushed in the next year as compared to what we thought a quarter ago.
That said, we continue to see growth and resiliency in our network software businesses driven by high recurring revenues strong retention rates expanding networks and solid network participation.
Next slide please.
Turning to our measurement and analytical segment revenues declined 1% organically to $364 million and EBITDA was 132 million or 36, 2% of revenue.
And the current environment this segments activities, our best broken into for boxes, one verathon and IPA two other medical product businesses, three Neptune and for our industrial businesses.
First verathon IPA, both experiencing tremendous demand for their products directly attributable to hospital demand, resulting from Cove at 19.
Verathon experienced strong demand for their glide scope video information intubation products.
As a result of October 19th the percentage of all Intubations not just covid related that are being done using video assistance has meaningfully increased.
Verathon demand as both four capital systems, which means and expanding customer base and the pull through consumables.
We have to give hardy congratulations to Earl Tracy, Tim Jeff and the entire team at Verathon. It's one thing to have unprecedented demand. It's a completely different thing to be able to flex the supply chain to fulfill the demand within a single quarter, Congrats and thanks to the Verathon team.
A similar story of the IPA hospitals rapidly adopted there automated scrubbed distribution systems to help deploy scrubs more broadly to staff within the hospital setting.
Second and relative to our other medical product businesses, we did see revenue headwinds tied directly to government mandated lower patient volumes within acute care hospitals on a global basis.
We also wanted to note that this group of companies consistently grows mid single digits with this growth is conditioned on regular hospital admissions patterns.
Third Neptune was negatively impacted by restricted access to endure meters in particular in Canada, and the northeast United States.
And finally and is expected we did experienced a sharp decline in our of shorts fecal industrial businesses, However, and the second half of the quarter. If we did see modest improvements and consumable demand.
As we turned to the second half outlook, we expect to see mid single digit growth and the segment led by continued strong demand verathon for their reasons just discussed.
In addition, we expect to see reduce levels of non emergency capital procedures, providing continue headwinds for a non verathon and non IPA medical product businesses.
We do expect to see improvements in Neptune on easing lockdowns, especially in the northeast United States, which will provide better access to indoor meters.
Also where cautiously optimistic given that July municipal budgets appear to be largely intact.
And finally, we expect to see gradual improvements in our short cycle industrial and markets.
Next slide please.
Turning to our process technology segment.
Revenues were $121 million in the quarter down 26% on our organic basis, and EBITDA was 33 million or 27, 4% of revenue.
This was certainly a difficult quarter for these businesses and we expect the outlook to remain poor for the balance of 2020.
Despite a uniquely challenging environment for these businesses, they still had high 20% EBITA martens and the quarter and our leadership teams have done a great job of navigating these and markets and continuing to make no regrets investments.
We saw our upstream businesses declined approximately 40% in the quarter.
<unk> business also declined and it was related to week fuel demand in the quarter.
As a reminder, PKC as our laboratory fuel analysis business.
Also CCC was weak based on the inability to perform field service work all related to Cove in 19.
One bright spot in the quarter was the tech, which experienced growth based on the strength of their new non destructive testing products.
Also in the quarter, we initiated targeted restructuring actions across a few of our businesses in this segment, which resulted in a 13 $6 million charge.
None of these structural changes were considered in our guidance from a quarter ago. These actions will position these businesses to better serve it's customers and realized longer term savings.
While the oil and gas markets and customer commitments remained more muted. We believe this is the right time to execute these restructuring activities.
The outlet for in a balance of the year continues to be an extremely challenging one is we expect to see approximately 25% organic declined for the second half.
Specifically, we do not anticipate any recovery upstream oil and gas markets and expect upstream to account for less than $40 million revenues and the second half.
In addition, we expect to continue to have limited customer access, which hampers our ability to perform field service work next slide please.
As we turn to our guidance, where narrowing and modestly raising the midpoint of our full year adjusted depth guidance to be in the range of 11, 90, and 12 40 per sure.
We continue to guide fully organic revenues to be plus or minus flat.
In addition, where initiating depth guidance for three Q and the range of 290% to $3.
Now, let's turn to our summary, and get to your questions next slide please.
Given the global pandemic and associated shut down to the quarter. We're pleased with our performance with revenue only being down 3% organically EBITA margins holding flat versus a prior year at 35, 3% and cash flow growing 10% of $315 million.
From an operating point of view, our businesses remained focused unemployed health and safety continue to improve the efficiency of remote work remains super intimate with our customers and continue to focus on long term durable growth.
To this and our businesses continued to invest in growth oriented operating initiatives.
Our leaders all of whom are long term builders are masterful at maintaining product investments during down cycles, which oftentimes lead to market share gains upon recovery.
As a leadership team we remained steadfastly committed to this concept.
For the full year, we expect to have plus or minus flat organic revenue growth, we believe our portfolio businesses and our government's processes continue to be well suited to navigate these difficult times.
Our balance sheet is stronger than at any point in history with over one 5 billion a cash in two and 5 billion a revolver capacity.
In specific the capital deployment, we do have a high quality an active pipeline of opportunities if private equity sellers have recently re entered the market.
That set and is always are cri based strategy focuses on long term cash flow compounding and we will continue to patiently evaluate and pursue capital appointment opportunities that are consistent with this strategy.
And it'll be turned to your questions I remind everybody that what we do is very simple we compound cash flow by operating a portfolio businesses that have leading positions and niche markets that have the proven ability to generate increasing cash flow as our business is expand.
We provide our business leaders with Socratic coaching about what great looks like relative to driving long term cri accretive organic growth with particular emphasis focus on strategy operations innovation and talent development.
Our business leaders understand that success in our culture is based on their ability to compete in the wind for talent and to compete in win for customers. Then in turn allow us to compete in win for shareholders to this and we Incent our management team spaced on growth and based on these factors and perhaps most importantly.
We have a culture that is rooted in the principles of mutual respect trust and transparency and.
And finally, we take the excess free Castro is generated by our businesses and deploy to buy businesses to have better cash returns on our existing company that in turn helps accelerate our cash flow compounding.
It is these simple ideas that deliver power for results and with that now let's turn to your question.
We will now I'll go to our question and answer portion of the call.
If you would like to ask a question.
And they do so by pressing the star T followed by the digit one on your Touchtone telephone.
You were using a speaker phone please pick up your handset before pressing the keys to withdraw your question. Please press star.
Digit too.
We ask that our callers limit their questions to one main question.
And one follow up.
The first question comes from Dean Dre RBC capital markets. Please go ahead.
Alright.
Thank you good morning, everyone.
Good morning, Dean Hey, can we start with the congestion tolling project and you just give us some contacts of this.
Latest push out.
It would be fair to assume that just logistically Cove it is presenting.
Issues in terms of being able to work on the project.
But is there have been any change in scope that's being considered.
No <unk> no change whatsoever, and the scope contract value that we talked about a few quarters ago remains the exact same and so the only thing that is happening here is the project is pushing a bit to the right in the 2021 for the reason that you said a little bit access the personnel.
Related to Cove, and a little bit just at the election of the customer wind pasted project a little bit.
I think also the highlight of the last quarter I mean, the motivation of the client is never been higher I think it was just around this time last quarter. The proceeds from the project for 2021 and 22 could be used in.
Mta's operating budget, where the initial project it was going to be used for capital only so there's a clear motivation to get the by the customer to get the project up and running it's just flipping to the right a little bit.
Just to clarify there was a discussion of push out in the first quarter. So this 20th.
EPS push out this is new an incremental correct. That's correct, yes, yes, that's correct Dean So the project was originally around $200 million for this year now we've got about 110, or so a million dollars and four 2020 and is Neil mentioned the rest is push it to the right and we expect to be complete and 21.
Got it and then.
Second topic would be.
Net covid impact across your businesses and I'm sorry. This is a fair question to ask but you listed a number of ways that Roper is positioned to help.
Between the lab support system when assess data innovations.
<unk> incubation systems, those would be the positive but that negative is it.
All related to just the deferrals of non emergency procedures. So how do those two net out.
If your if your question is relegated to the medical product businesses versus O'brien isn't related to that or as a broader to roper I want to make sure no no just the medical related sorry.
Okay, Oh, yeah. So.
A meaningful net grower right. When you look at the benefit of those of Verathon and IPA good guy against the bad guys of the other four or five medical product businesses aggregated together, it's a very meaningful positive good guy.
It's worth, noting though the the verathon demand.
Certainly surged in the quarter.
Team works really well to work down the backlog, we've got a little bit more to go in the second half of the year. The team that marathon believes that the demands is will endure a bit right. It's about the number the percentage or the market share of global Intubations that are being done with video assistance versus not.
Going into the pandemic it was somewhere in the 15% of all Intubations we're done.
With video assistance in 85 direct in that market share a video is going it's meaningfully higher now and it will stay it'll be meaningfully above 15% on the backside of this so the market just grew we believe for these products that marathon has.
That's a real helpful. Thank you. Thank you.
The next question comes from South Cadenced.
Search please pull ahead.
Hi, good morning, guys.
Scott Good morning.
I was trying to get a sanction a little bit a follow up on Dan's question, but trying to get a sense of.
Connect.
Commented out the pandemic, perhaps helped.
I was helping catalyzed some some growth there I mean.
Very few of us our experts and many of these businesses I'm checking right not an expert and construct connection by any stretch.
Imagination, but can you give us a sense of how that business grows in this type of environment is it.
Okay, well I'll just leave it at that just open ended how does that grow and how much does impact is there any way to.
The magnitude dependent make really helping get word of mouth or otherwise out there on on the product.
Happy to talk to that so just to remind you and everyone constructing the primary part of the business all four nonresidential or commercial <unk>.
Construction in the United States in Canada, that's in the planning phase so once a shovel goes in the ground.
Other other constituents and the value chain pick up that this is about planning. It allows general contractors subcontractors building product manufacturers to be aware of the projects are being plan. So they can bid for and when those projects and we have software that organizes all of that activity. So when the market is raging hot right all of a sub cause.
Tractors have more work than they can they can possibly do the value of leads or what from new projects is lower right and so we are always sort of said if there is five market conditions five is white hot and one is there's basically zero construction. The construction neck value proposition is best in positions two three and four.
Right, where there's work and activity going on but not so much work that contractors.
Have so much to do right and so what is essentially happened here and construct connect reports on this and Zach and get it to you is.
Non rez construction activity is down 20th% versus prior year. It was up a little bit in June versus may, but that the exact environment, where the value proposition of leads and project awareness sort of thrives and that's why you saw more contractors come into the construct connect market and grow in the quarter.
Just add.
It's SaaS business Scott.
There's not huge swings in the revenue like you get with the perpetual license business, we're seeing increased activity in the network and that leads a little bit more subscriptions more customers and then over time that drives additional growth with a business.
Right and those customers.
Come in and then they generally stick around.
Or are they come out.
Cannot of conditions get weaker really appreciate the question. So history. If you go way back in the arc construct connect some of them will stay in some of them will leave but since our ownership and 16.
Construct connect team has worked really hard to build.
Habituation into the product if you will so now there's integrated take off which is the estimation process and directly linked and so.
We believe the customers when we look at their utilization of the product there in the product on a multi time of day basis now where.
567 years ago they'd be in the products only when they needed to look for any project and so we believe based on that sort of the long term retention rates of the business go up.
Okay. Okay Super helpful. Okay. Congrats guys. Good luck quarter, congrats on the book as well.
Okay.
Okay.
Mr. It seems like still there. Please go ahead, Sir Alright question, Hey, Hey can you hear me, Okay. We can Steve He I think it's Steve right.
Yeah Okay.
Yes.
Sorry, guys, just managing some things here like a different calls.
Just on the acquisitions you recently did can you just give us some color on the.
The the revenues and what you paid.
For those.
General multiples for some of the ones you have done.
Yeah sure Steve So there's the two accidents in the quarter combined purchase price about 150 million and we've got about $25 million, So revenue and the model for 21 and EBITDA margins there in the mid to high forties.
Pretty good cash each business as being integrated into a business that it was not a lot added for the second half because there's some integration going on but that's built a real good strategic adds to the Rover businesses.
Got it and then just just last one on the.
On some of the.
I think you guys had expected a bit weaker performance and some of the software businesses. I know you went through some of this and and the prepared remarks.
But is there anything that kind of.
Gibbs back a little bit in in the second half.
It's notable and it's material any of those software businesses. They just.
Perhaps some some differed downside relative to what you would have expected and the second quarter some timing items.
Oh, so in the second quarter I mean, yeah, I think the second quarter software is for the reasons. We said an application software I mean, it was the better utilization rates on the service side, and we expected more deferral or push out of the license activity and.
That proved to be a little conservative and so that but that was broad that license activity was broad across deltec. Aaron power plan. We saw good good performance across the diagnostic businesses that we just talked about.
Gives me some of that a lot of that was covid related.
A lot of good good thing to have an acute care software and the quarter, we should driven by the demand around Cove. It right right. So that's something that stuff happened in the second quarter that we didn't expect and we'll see if I continued into the second half that difficult to predict.
Okay was there a follow up.
It sounds like you went on okay.
The next question comes from Julian Mitchell Barclays. Please.
Okay.
Good morning, everyone. This is.
Julian Oh, Hey, Jeff.
Maybe just to start application software margins came in pretty strong for the quarter can you just give some color on what contributed there.
And maybe it's part of that just your thoughts on how margin look bear and at other segments for the second half.
I'll take the first part of that Rob takes a second hey, it's directly to the application software margin performance in the quarter is directly tied to better license activity as you know perpetual licenses and quarter R.
Super High margin, 90% 80, 590%. So when you when you're outperform an expectation on license and you tend to it better.
Better.
Margin performance and then we also received the Queensland payment for Sunglass, which but revenue and large high high margin of that revenue in the second quarter as well which helped.
And then as we look at the as we look at the second half the margins don't move around a lot in the software segments, which is a great thing right. It's high recurring revenue.
Stable business models, you don't get this sorted swaying. So we certainly expect EBITDA margins to be.
So in a flat are a little bit better year over year in the software segments.
Perfect.
And then some interesting comments you guys mentioned.
Municipal budgets seem to be in tax so far.
Any thoughts on how much this holds and the second half and then maybe thoughts on.
What level of potential cuts you guys are dialing in for.
Kind of your outlook next year I know that's a bit early.
And then maybe just as part of that can you just remind us kind of what percentage of sales within M&A as it is kind of tied to municipal budgets.
Very low dollars per cent or Avenue, I mean, it's going to be.
[noise] part is Neptune, that's swings around with budget and Neptunes, a pretty stable high recurring revenue business. So it's a real small percentage of the <unk> single digits, it's going to really be driven by swing budgets.
Yeah, and more broadly coming this time last quarter and the height of the shut down a risk item that we were flagged was our neptunes customers budget's going to be intact as they rolled into their new year's because a large percentage. These customers have a july one fiscal year.
Just given the broader economic challenges that municipalities in cities are experiencing the good news is the budgets appear to be largely intact. So that.
The first risk item appears to be mostly retired remaining risk item is now to spend against the budget right and that's that's a to be determined but the first step is a check mark and we'll see how things unfold the rest rest of the year.
Got it thank you guys.
Yep. Thank you.
The next question comes from Joe Richie of Golden.
Go ahead.
Thanks, Good morning, everyone.
Hey, good morning, Joe.
Hey, Neil maybe.
Maybe just some commentary.
That the electric procedure impact in the quarter and obviously like things are still incredibly fluid.
With the virus, but I'm just trying to understand maybe how much of this.
Pushes out into 2021, and whether there's like there's like a revenue boost in 2021, once hopefully elected procedures come back.
So the products the companies that we have that are somewhat indexed to procedure volume. It's it's one derivative behind it right. So very little of our businesses are consumable and a procedure, but are capital and products are used by other companies who are used.
Procedure and so we're buffered a little bit by what our customers are seeing.
We did see a little bit and the second maybe the June time periods. Some of the true consumables sort of pick back up and that's just going to be all her to balance of the year. We would expect as I mentioned in the open a continent prepared remarks, I mean this group of businesses.
Going back for many many years grows like clockwork at mid single digits in that assumes a patient volume yet is that are normalize and so to the extent volumes are normal 2021, then we would see a pick up in that group of businesses.
Okay.
Joe So.
The sort of other medical products businesses, which exclude marathon IPA, which have a huge kobe benefits of everything else those businesses were down double digits in the quarter and they would normally be mid single growers and so I think we will catch up some of that at some point, but it's very difficult to predict Gwen.
Got it that's all for Rob and just maybe my quick follow up thought your commentary around like the acceleration cloud based solutions was interesting.
Neil if you could maybe just just provide some contexts for what that opportunity could be for you guys.
Either qualitative or quantitative that would be helpful. Yeah, I'll leave it it sort of on the qualitative basis right. So as we said for a long time.
As a guiding principle, we allow our customers to pace the transition to the cloud we don't force it or have a forest product migration or is there waiting for that to occur we have some businesses like strata that are born in the cloud we have other businesses like iron power plan that are still vast vast majority on premise.
And then we have companies like deltec that or somewhere in between right sort of in the middle and their journey of the migration what we've seen it deltec is that migration as a net growth driver and we can talk about that more detail later to the extent you're interested but you're basically you're taking a large installed base of customers, who would pay your annual maintenance and your upper.
Lifting them to the cloud so you're providing all the backbone an IP sort of management services, but also youre doing all the release management getting them on the most recent.
Lease, they're more micro releases and so the customers get to take advantage of what you're actually developing and that has real value associated with it in the minds I have the customers and so for that reason as they migrate from on premise to cloud there is an uplifting recurring a pretty meaningful one.
And that's a that's a multi year.
Driver for our enterprise, an application software or an application software.
Oh, that's super helpful. Thanks, Scott Thank you.
The next question comes from Joe G or Donna talent. Please go ahead.
Hey, guys morning.
Good morning Garnett.
Can you thought about maybe there's some of the implications of a potential.
Sure if your bill what that might have maybe on.
Guessing deltec would be the most.
Maybe powerplant I'm not sure how would I might impact overall the portfolio.
It's not I think it would have.
A slight impact and and the reason I say that I'm looking at Robin Shannon, It's not something we talk about right and so about an infrastructure bill or not rooting for one so yeah. The government contractors are always spending money on whatever there isn't spend money on that robs point, there is a very good and right over the contract.
Flow is our government spend and so maybe you get a few more.
Goldman contractors that could be dealt that customers, but that's definitely it.
Okay, that's fair enough.
Can you can I just.
Instead of range, Florida, I, I'm, assuming like within yourself, where businesses it better than I expected, obviously, but I'm guessing there's huge huge differences between.
Businesses like Seaboard, where you couldn't go if people aren't on sorry, you'd like can you kind of scale what was the.
You don't want to get into the specific business names like how big are some of the biggest declined how big with some of the biggest gainers.
Well I'll set it up I'll give you some context, let Rob Sorta give you his view so as we mentioned last quarter and this and this segment about 70% of revenues a recurring.
20% are tied to services and that's generally coming working off some sort of <unk>.
Six to 18 months backlog and then 10% of the revenue was that perpetual license. So the most short term impacted is that 10% so that tends to mute the magnitude of the swing in any given period of time, assuming that the in flight implementation projects don't stall, we see a lot of lots of any of that activity in the quarter, so with that Rob.
Yes. They are just very stable businesses. So I'm just looking through all the software businesses and.
So are they are all kind of between.
Low single digit gain low single digit decline with the exception zebra, which is a little bit worse than that.
So again, a little bit very unexpected because you know a huge part of the businesses are stable. The question is are you going to get any of these license wind in the quarter you able to <unk>.
<unk> services, and we were and so to the extent that continues that certainly helps us there just aren't big swings in these businesses, which of course, we had huge swings in the product businesses, where.
When there's more issues with not being able to access customers et cetera.
Fair enough thanks, guys.
Thank you.
Okay.
The next question comes from Alex plan to have clear Harbor acid manages. Please go ahead.
Hi, good morning.
Morning.
I wanted to ask about the push out.
Transcript business in New York City <unk>.
You mentioned, 20th going into 2021, 20, and new a new <unk>.
And then I think you said I wanted to confirm there's 100.
10 million now and this year verses $200 million before.
So that's a $90 million does that are those the right numbers.
They are Alice.
From step in there that last quarter. We the 200 became 175 and now it's <unk>. So then moved from 175 to 110 is your 20th.
Okay. That's what I wanted to know so that's just 65 million dollar.
Push out <unk>.
Generated.
For sure push out so.
Calculate incremental March in there.
What I'm getting it.
These are all rough numbers, but yeah.
Yeah.
You don't need nurses.
The second thing is.
We haven't really I don't think I'm going to ask about the acquisition pipeline you've got.
Max for $1 billion.
Spending power acquisitions, what does that look like what are you working on.
Small.
What's the timing and some of them getting pushed out because of coded.
The situation there.
Alex I appreciate the question. So I will give you a little bit of context in color. So we we had a pretty the activity coming into covid.
It was as busy as we have been that I can recall since thing here in 2011 in terms of what the funnel activity looked like.
Obviously everything shut down I mean, when the credit markets shut down everything shut down in April and May.
It was there was really no activity anywhere no sellers selling anything for obvious reasons at the end of May 1st part of June we saw some green shoots. We obviously got these two bolt ons complete which were sort of in the pipeline three cove.
And really here since the middle of June until now it's almost as if we're back to January February in terms of private equity seller interests and activity.
The private credit markets are fully back, but they are back enough to give sponsors confident that they can run a processor processes.
And so what we're encouraged by all of that because we're sitting here with what you just said a large amount of cash and borrowing capacity to sort of continue this or long term cri driven sort of compounding strategy I will note.
The things that we see the obviously the things that come out of the shoot first after a slowdown are the very best assets right the ones that have the best.
Which is the best competitive position the best highest level, a recurring revenue durability things like that and those tend to be.
Fairly valued right, there's not a lot of bargains that we would say we see in the software space, but values valuations consistent with what we saw coming into the pandemic.
What kind of pick up.
The code situation.
It is actually worse and it was.
In April.
They're spikes all over the place.
Government doesn't have control over at all they're not even trying.
So what accounts for the the opening.
Acquisition acquisition.
We can only speculate what's what's in the minds I have the sellers right, but a couple of things first is the types of everything I, just said I should've qualified by saying.
R. M&A pipeline is 100% software focused right and so these are businesses even in the public markets that are proving to be resilient sort of the comparable so if you will and so that is.
Colors my comments on water funnel activity it looks like the other thing is private equity sellers, which is where we buy 100% of our assets from have to return capital. They have limited sorta pressures. That's a constant drumbeat and then finally and this is me certainly speculating about private equity view of what might happen an election in taxes, but that certainly <unk>.
B, a motivating factor to get some things done by the end of this year.
Okay.
Okay.
Okay.
Yeah.
I had another question, but no it slipped my mind.
Happens to be all the time, Yeah, you said.
Percent software focused.
Oh I know what it was.
Your sister company.
Over Corp.
Used to say that one of the secret things. They said was during recessions they always gained market share.
Because.
The dominant physicians in their company's in their Marcus.
So we could competitors would lose out some business and even go out of business during the session. So.
Dover actually benefited from March sure standpoint.
Jewelry during.
Economic downturn.
How would you characterize roper in that regard.
What is happening now are you gaining cheryl overall some people.
Having a lot worse time that you are.
So we would would echo those comments that companies like rope or in our history.
As we continue to invest in product.
Through cycle, especially in the downcycle, because your competitors oftentimes are not able to.
We also stay Super close to our customers. The vast majority of what we are companies have direct channel accessories to have to work through a distributor CSA super close to the customers and almost certainly on the back end you gain sure either because of customer intimacy or because you develop relaunched some new product or product capabilities. So.
100% that is the case for Roper and this current environment Okay.
And.
This is this a tough one but.
What percentage of this for 1 billion.
Do you think you might deployed issue.
Yeah, that's really impossible to predict we're going to.
Do the work, we always do and and we can certainly have the capacity, but we only do the best deals and we never feel pressured but certainly in the balance sheet has never been stronger. So we feel good about about our ability to deploy capital. This year as my predecessors said many years ago or discipline is only outmatched by our patients.
Okay. Thank you very much.
Okay. Thank you.
This concludes our question and answer session.
We will now returned back to sack mossy or any closing remarks.
Thank you everyone for joining us today. So we look forward to speaking with you during our next earnings call.
For instance, now concluded. Thank you for attending today's presentation you may know disconnect.
[music].
Mm Hmm.
[music].