Q4 2020 Roper Technologies Inc Earnings Call

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Good morning, the Roper Technologies Conference call will now begin today's call is being recorded all participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing star zero.

I would now like to turn the call over to Zack Mark Thies, Vice President Investor Relations. Please go ahead.

Yeah.

Good morning. Thank you all for joining us as we discuss the fourth quarter and full year financial results for Roper technologies, We hope everyone's doing well joining me on the call. This morning are Neil Hunn, President and Chief Executive Officer, Rob Crisci, Executive Vice President and Chief Financial Officer, Jason Conley, Vice President Controller, and Shannon O'callaghan, Vice President of Finance.

Earlier. This morning, we issued a press release announcing our financial results. The press release also includes replay information for today's call.

We have prepared slides to accompany today's call, which are available through the webcast and are also available on our website.

Now if you'll please turn to slide two we begin with our safe Harbor statement. During the course of today's call. We 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 to today's call in the context of that information.

And now please turn to slide three today, we will discuss our results for the quarter and year, 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 fourth quarter the difference between our GAAP results and adjusted results consists of the following items.

Amortization of acquisition related intangible assets purchase accounting adjustments to acquired deferred revenue.

And related commission expense and lastly transaction related expenses for completed acquisitions and now if you. Please turn to slide four I will hand, the call over to Neal after our prepared remarks, we will take questions from our telephone participants Neil.

Thanks, Zack and good morning, everyone. Thanks for joining us and we hope everyone is doing well for.

For today's agenda will walk through our 2020 financials and operational highlights then we will turn to our 2020 segment detailed results and discuss our 'twenty one segment by segment outlook.

And with our 21 enterprise guidance prior to discussing your questions next slide please.

As we look back on 2020, it was quite a year our businesses performed at a very high level. During this period revenues grew 3% with organic revenue declining a single percent.

EBITDA also grew 3% and free cash flow grew 16%.

This cash flow of perform performance one 7 billion is just astounding.

This is a testament to many things, notably our asset light business model. The intimacy, we have with our customers and the high level of skill and execution of our field teams. This cash flow is just simply a great result.

Perhaps more important 2020 was a year of forward progress for our company, we exit 2020 as a better company.

The company with higher quality revenue streams of company with improved future innovation prospects at.

And the company with foods portfolio had was enhanced with $6 billion of capital deployment.

Of this and we saw our software recurring revenues increase mid single digits in 2020 and were benefited by high levels of retention and the acceleration to the cloud.

We continue to be benefited by having close intimate relationships with our customers. Most often our software is mission critical to our customers' operations.

In addition, we continued to strategically invest throughout our portfolio of during the year.

Based on our historical experience, we find times of market disruption the best time to double down on innovation and market investments, which in turn will drive market share gains in the years to come.

Finally, we were able to deploy $6 billion to further enhance <unk> group of companies headlines by virtue of for acquisition.

So when we look back on 2020, we highlight two key themes first we grew cash flow increased 16% in the middle of the pandemic and second the quality of our enterprise continued to improve during the year net net we got bigger and better during 2020.

Let's turn to the next slide.

Over the past five years, we highlight that our revenue grew at a 9% compounded rate.

EBITDA of 10% and cash flow of 13%.

We continue to grow and compound through macroeconomic cycles.

Also during the time period, the quality of our enterprise meaningfully improved.

We are more software focused with nearly two thirds of our EBITDA coming from software with higher levels of recurring revenue.

Conversely, we are much less tied to cyclical end markets today, a little over 15% of our portfolio.

Given our long term strategy and these factors we are a low risk enterprise.

We compound cash flow through cycle and do so with multiple growth drivers across both organic.

And inorganic fronts.

As we look the 'twenty one we will continue our long term strength of revenue and EBITDA and cash flow compounding.

So with that let's turn to the next page and discussed the macro backdrop for 'twenty one.

As we look the 2021, we're set up for a strong year, we expect revenue and EBITDA will grow well into the double digits likely in the mid teens range with organic revenue growth in the mid single digit plus range.

This is on top of growth in 2020, the compounding continues.

Breaking it down our software businesses, both of our application software and network segments are well positioned heading into 'twenty. One of these businesses entered the year with momentum from strong retention and recurring revenue gains there'll be further aided by growth in perpetual license as pipeline and customer activity are anticipated to recur.

Ever.

To some extent.

Our non Verathon medical product businesses are expected to return to a more normalized pattern of customer activity as health care facilities loosen restrictions, but since 2020 was well below trend, we expect above trend growth here.

Of note Verathon has a challenging comp.

However, the re occurring revenue base will remain strong given the large volume of capital placements in 2020 and continued growth of their new single use bronchoscope business.

We expect Neptune to recover and grow nicely as our customers, especially in the northeast U S and Canada gain access to residential locations.

We expect our industrial and process tech businesses to continue their quarterly improvements and returned to growth after two years of macro headwinds.

Finally, 2021 will be meaningfully aided by the contribution from our 2020 cohort of acquisitions.

To this end, we continue to work with a very full and high quality M&A pipeline.

We are committed to deleveraging, but we also remain active in building and maturing our pipe.

So as I think back over the nearly 10 years I have been with Roper I cannot think of a better set of tailwind heading into a year.

Clearly a lot to do and lots of execution in front of us, but we have a strong momentum heading into 'twenty one.

So now let me turn the call over to Rob Rob.

Thanks, Neil good morning, everyone.

Turning to page eight looking at our Q4 income statement performance total revenue increased 8% as we eclipsed $1 5 billion of quarterly revenue for the first half organic revenue for the enterprise declined 2% versus prior year EBITDA grew 7% in the quarter to a record $552 million each.

The margin was down 40 basis points versus the prior year at 36, 6% tax rate came in at 19, 9% of little lower than last year's 21, 6%. So all in is resulting in adjusted diluted the diluted earnings per share of $3 from 56, which was above our guidance range net slot turning to page.

Nine of during the Q4 results by segment Neil will discuss the full year 2020 segment performance in more detail later, so just touching on some of the Q4 highlights here by segment application software grew 35% with the addition of vertical organic from the segment was minus two with mid single digit recurring revenue growth continuing.

Sharp declines in our deepwater horizon businesses, serving K 12, and higher education impacted the segment as many schools. Unfortunately remain close.

For network software system, plus 2% organic growth with our software businesses, putting up a very solid plus 4% organically transport was flat versus the prior year from.

For measurement of the analytical solutions plus.

1% organic growth as we start to see some sequential recovery at Neptune and our industrial business.

Segment margins were impacted a bit by the acceleration of some product and channel investments at Verathon as we discussed coming into the quarter.

Really net exceptional year of marathon overall lastly from process technology of 21% organic decline with the margins holding up well at 31, 3% and once again here. We started the some early signs of improvement after a couple of years decline.

Next slide.

Turning to page 10, looking at net working capital honestly five mostly speaks for itself ended the quarter with negative 8% net working capital as a percentage of Q4 annualized revenue.

While there are certainly from seasonal trends, primarily around the timing of software renewals. The do typically benefit. Our Q4 performance you can see here of meaningful improvement versus 2018, improving from negative three 4% to negative 8% in 2020.

Our asset light negative net working capital model drives our sustainable high cash conversion and fuels, our cash flow come out of.

Our people focus on what we all believe matters in our culture is built around growing the right way topline growth converts to cash flow and we are always mindful of the impacts of our balance sheet net slot. So turning to cash flow cash flow performance as Neil mentioned was really pretty spectacular no matter. How you look at it Q4 free cash flow of 500 of <unk>.

The $8 million was 23% higher than last year and represented 37% of revenue the <unk>.

Excellent result was driven by the great working capital performance.

The Scott, which is really across the enterprise along with the meaningful cash contributions from vertical more than the other recent acquisition so for the.

The full year of 2020, we generated $1 72 billion of operating cash flow and $1 $67 billion of free cash flow.

The repeat that's $1 7 billion of free cash flow in 2020 truly a great year full.

Full year free cash flow growth was 16% and our free cash flow conversion from EBITDA was a robust 84% so really a tremendous cash flow performance and it was broad based and very durable net.

Sure.

The charge the page 12 updating on our balance sheet as Neil mentioned earlier, we ended the year with total capital deployment of approximately $6 billion, which included the EPS of <unk> acquisition that closed during the fourth quarter on October 15.

We were able to take advantage of attractive market conditions to complete and Opportunistically fund. These acquisitions with the combination of internally generated cash flow proceeds from our 2019% and hand, the passenger and investment grade leverage overall top of the financing was approximately 1%. Thanks.

Thanks to our excellent Q4 cash performance, we are off to a great start on our plan to quickly reduce leverage paying down to around $500 million. Since we closed the EPS ideal looking ahead, we plan to rapidly reduce leverage throughout 2021, taking advantage of our pre payable revolver, which has a current balance of approximately $1 6 billion.

Our solid investment grade balance sheet supports long term cash flow of the compounding, which we are well positioned to continue so with that I'll pass it back over to any of the remainder of the of our prepared remarks.

Thanks, Rob, let's turn to a recap for 2020 to help Orient you to this page we're comparing our full year outlook from last April to that of what actually happened.

Worth reminding everyone that we felt our businesses and our business model had the level of recurring revenue customer intimacy and the business leadership required to guide in the face of the Covid uncertainty both in terms of supply and demand.

In aggregate, we thought our full year organic revenues would be plus or minus flat and we came in at down minus one.

The Transco, New York project as the primary reconciling item between between being down a touch and being flat or slightly up and more on this in a minute.

We guided depths to be between $11, 60% of $12 60 and came in at $12 74.

Looking back on this we are very proud of our team's ability to look forward and operate through the uncertainty of last year.

Also there is no better example of the durability of our model than this past year with that let's walk through the macro drivers across each of our four segments.

Relative to application software. This segment played out as anticipated and was up 1% on an organic basis for the year specifically.

Specifically, we saw recurring revenue up mid single digits aided by very strong retention rates as well as an acceleration to the cloud.

As a reminder, recurring revenue in this segment is about 70% of our revenue stream for.

Perpetual revenues about 10% of this segment's revenue were under pressure as expected.

We saw this revenue stream down mid teens as new logo opportunities and wins were pushed and delayed that said cross selling activity remained active for much of 2020.

Relative to services revenue, we anticipated some pressure tied the shifting to remote installs and having fewer new implementations, which are tied to new perpetual transactions for 2020, we saw mid single digit declines here principally tied to fewer new deals our teams did a wonderful job.

Shifting to remote installs of trend, we anticipate will continue in large part on the back side of the pandemic.

As it relates to our network segment, we expect the organic revenue for the year to be up mid singles to double digits. When in fact, we grew 3% for the full year.

Our network software businesses performed as anticipated with recurring revenues growing low single digits again benefited by high retention rates and high levels of recurring revenue.

This segment underperformed our expectations, primarily due to the Trans cores, New York congestion infrastructure project timing in.

In April we expected approximately $75 million more in revenue from this project than actually occurred in 2020.

More on this when we turn to the segment overview, but we expect this $75 million of pushed revenue to be recognized in 'twenty one.

It's also worth noting that the number of toll tag shipped last year were at historic lows, given the lower traffic volumes, but this was anticipated.

For our EMS segment, we've talked all year about this being the tail of four situations verathon.

The other medical products Neptune and industrial.

For the year again back in April we felt this group would be flat to up mid single digits on an organic basis, we posted 1% growth.

We feel very good about the execution across the group of companies. The primary reconciliation factor is a slower recovery ramp tied to our non verathon medical product businesses and Neptune.

Specifically, we anticipated unprecedented demand for Verathon innovation product family for the year Verathon grew substantially as Covid accelerated the further adoption of video intubation as the preferred technology.

Our other medical product businesses, which grow mid single digits like Clockwork, we're down mid single digits for the year tied directly to lower elective procedure volumes and limited hospital capital spending.

Interestingly interestingly for Neptune, we highlighted municipal budget uncertainty in April this proved generally to be a non factor as municipalities budgets were approved and available.

The impact of the Lockdowns, especially in the northeast U S and Canada had a prolonged impact on our customers' ability to do routine meter replacements. As result, Neptune was down low double digits for the year slightly worse than our initial expectations.

Finally for this segment, we expected sharp industrial declines and that is what happens with these businesses being down low double digits for the year.

That said, we are seeing sequential quarterly improvements across both Neptune and our industrial businesses.

Finally, and as it relates to our process Tech segment, we expect it to be down 20% to 25% and we were logging in at down 21%. This played out as we anticipated with much lower energy related spending project timing pushes and the inability to get field service resources and to <unk>.

Customer locations.

So this is the play by play Rewind for 2020, now, let's turn to the segment pages for a bit more detail.

Next slide please.

Per application softer where revenues here were 181 billion up 1% organically with EBITDA of $772 million.

The broad macro activity for this segment has remained quite consistent from much of 2020.

Specifically, we continue to see accelerating demand for our cloud solutions. This bodes well for our long term recurring revenue growth and customer intimacy.

At a business unit level Dell text Gov Con business continues to be Super solid and grow very nicely, but we did see some headwinds relative to their offerings that target the consulting marketing services and ADC space that said recent customer activity and top of.

Final activity suggest some market following is occurring.

Aderans empower plan delivered flat EBITDA in a year with nice recurring revenue gains.

We experienced very nice growth across our lab software group again doing our part to help fight the Covid War stray.

<unk> delivered double digit organic growth and completed a strategic acquisition in EPS Si, notably the combined business will analyze roughly half of the U S Hospital spin.

Finally, our two businesses that serve the education space Seaboard, and horizon declined double digits in the year simply due to having a customer base that was shut down a decent amount of revenues and these businesses are tied to student volumes.

Importantly, we acquired vertical of last year, they're off to a great start with strong earnings and very strong cash flow in the fourth quarter.

Looking to Q1, we see flat to low single digit organic growth based on continued mid single digit recurring revenue growth of.

Offset slightly by lower perpetual and services revenues given last year's non COVID-19 comp now.

Now, let's turn to our network segment.

Here revenues were $1 74 billion up 3% on an organic basis with EBITDA of 732 million.

Our network software businesses performed well during last year growing low single digits, specifically da.

<unk> was strong growing double digits.

<unk> network scale and innovation focus continues to enable very solid organic gains.

The construct connect grew based on network utilization tied to a tighter construction labor market.

I trade MAA and foundry had some headwinds tied to their end markets being disrupted due to COVID-19 that said each of these businesses had high retention rates and the networks remained very strong.

Our pipeline also performed well during their first year being with Roper and completed two bolt on acquisitions.

Our non software business business has struggled a bit during the year, specifically RFID is RF ideas are multi protocol credential reader business did.

<unk> did well in their health care applications, but it was hampered by meaningful declines in their secure print market.

For the full year transport pushed about $100 million of revenue out of 2020 end of 'twenty, one associated with their New York project.

In addition, EBITDA margins were pressured due to lower tax shipments and a few non New York project push outs.

As we look to the first quarter of 2021, we see organic revenue as you can see in the lower right hand box to be down 3% to 5% for the quarter.

An important distinction of highlight our software businesses will continue to grow in the low single digit range, but are non software businesses driven by trans core will decline in the high teens range in the first quarter due to much lower anticipated tag shipments and timing of revenue associated with the New York projects.

As a reminder, the first quarter of this year is coming off of mid teens growth comp from a year ago.

Now, let's turn to our MFS segment.

Revenues for the year, one $4 7 billion up 1% on an organic basis with EBITDA of $508 million.

Verathon was awesome and 2020 the business grew substantially based on unprecedented demand for their video intubation product line.

Demand was global.

Given verathon the ability to fulfill this demand we expect our meaningfully expanded install base of glide scopes to generate increased levels of reoccurring consumables pull through in the years to come.

In addition, the first year of their single use bronchoscope release was successful.

We believe we gained a substantial foothold in the market during the inaugural year of this product category.

Our other med product businesses decline, but they started is the more normalized patient volumes towards the end of the year further customer interactions are starting to resemble a more normal levels of engagement.

Net tuned declined low double digits tied exclusively to our customers in the north Eastern U S and Canada, not having access to and door meters. Other regions were flat during 2020 Neptunes market share remained strong throughout the year.

Finally, our industrial businesses were down but of shown sequential improvements throughout the year.

For Q1, we expect low single digit organic growth for this segment with similar patterns to that of the fourth quarter.

Now, let's turn to our final segment process Tech.

Revenues for the year were $519 million down, 21% on organic basis, with EBITDA of $156 million or 30% of revenue.

Compared versus two years ago. These businesses are down about $90 million in EBITDA and yet maintained 30% EBITDA margins, congrats and thanks to our leadership team for their continued exceptional execution.

As a side note Roper continue to compound despite the cyclical headwinds.

That said this segment is pretty straightforward and has been the same story all year.

Covid has negatively impacted our oil and gas and short cycle businesses, certainly low oil prices did not help either that said we are seeing some green shoots across the group as capital spending started to improve as we exited 2020.

As we look to the first quarter, we expect declines to moderate in the first quarter to be in the 10% range importantly, we of easing comps as we enter the second quarter.

Also over the last couple of years. These businesses continue to make product and channel investments to be best positioned to fully capture the cyclical upswing. The next few years here should be pretty good.

Now, let's turn to our guidance and the associated framework.

While this slide is somewhat busy we wanted to line up for you. The key macro differences between our 2021 full year outlook on a segment basis versus our actual 2020 results.

In aggregate, we expect total revenue to increase in the mid teens range with organic growth being in the mid single digit plus area.

As we look across the revenue stream for application software segment, we expect mid singles growth spur.

Specifically, we expect a slightly improved recurring revenue growth rate aided by last year's recurring momentum and an increased mix towards SaaS.

We expect flat services revenues and mid single digit plus growth in perpetual as we expect a modest market recovery and easing second half comps.

Similarly, we expect mid single digit organic growth in our network segment with our network software businesses growing mid single digit plus.

We expect transport to complete the New York project and see recovering tag sales when combined transport should grow mid singles for the year.

We expect mass to grow mid single digits as well our medical product businesses were exceptional last year up 20%.

Importantly, the quality of our medical products revenue stream will continue to improve as marathons re occurring revenue streams tied the glide scope and <unk> continued to gain momentum.

As we look the 2021, our medical product businesses are expected to grow low single digits as elective procedures and hospital capital spending returned to more normalized levels. Throughout 2021. This return being partially offset by our difficult 2020 COVID-19 comp.

Net tune it should be up high single digits, plus with easing restrictions and more access to <unk> meter replacements.

And finally, our industrial businesses should recover and grow in the high single digit plus range. After two years of declines.

Our PT businesses are expected to be up high single digits three of the year based on the resumption of deferred projects and field maintenance as well as modest improvements in these end markets. So all in all we expect organic revenues to increase mid single digits plus in total revenue grow in the mid teens range, let's turn to our guidance.

Slide.

Based on what we just outlined when you roll everything together, we're establishing our 2021 full year adjusted <unk> guidance to be in the range of $14 35, and $14 75.

Our tax rate should be in the 21% to 22% range.

For the first quarter, we're establishing adjusted debt guidance to be between $3 26, and $3 32.

Of note our guided Q1, adjusted depths is roughly 22% to 23% of our full year guidance range and is consistent with our long term historical depth seasonality now, let's turn to our summary and get to your questions.

What a year, none of us will ever forget 2020.

Our business performed so very well last year, we grew revenue, 3% in aggregate and only declined of single percent on an organic basis.

EBITDA margins were steady at 35, 8% and cash flow grew 16% to $1 7 billion. This means we had cash flow margins of 30% just amazing.

Given this performance our business models ability to foresee. These this performance we stayed focused on executing our capital deployment strategy, which resulted in $6 billion of the deployment on high quality niche leading vertical software companies.

There is no doubt the quality of our enterprise improved during 2020, something we're incredibly proud to be able to say our recurring revenue grew mid single digits.

We increased innovation investments and increase the quality of our portfolio with our capital deployment spend.

So as we look to 2021, we feel we are incredibly well positioned we expect strong organic growth there'll be further augmented by contributions from our recent acquisitions.

In 2021, we expect about two thirds of our EBITDA the comp from our software businesses, which provides us all of the virtues of an increased mix towards recurring revenues.

We will continue to focus on deleveraging our balance sheet, but we remain committed and focused on our long term capital deployment strategy to this and our pipeline of M&A candidates as active robust and has many high quality opportunities.

So as we look back over 2020, we're proud of our business model durability, and our leaders ability to successfully navigate last year's uncertainties.

We are proud of that we continued to be forward leaning and strategic we.

We are proud that we improved our business last year with an increasing mix of growing recurring revenue and continued innovation focus in short, we got bigger and better during 2020.

As we turn to your questions I'll remind everyone that at Roper, we operate a low risk model, whose strategy centers on acquiring fantastic businesses, and then providing them with an environment, where they can get even better over the long arc of time.

This was certainly the case in 2020.

With that let's turn to our first question.

We will now go to our question and answer the question of the call.

That said our colleagues limit their question Q1 main question and one follow up if you will.

I'd like to ask the question you may do so by pressing the star key followed by the number one on your touch come from thank.

If you are using a speakerphone please pick up your handset before pressing the key.

John Your question. Please press Star then the number.

Again, we request the callers limit their questions Q1, the question and one follow up the first.

First question today comes from Deane Dray of RBC capital markets. Please go ahead.

Thank you good morning, everyone.

Hey, good morning, the entity.

Really appreciate all of the new disclosures, you're providing here, especially pages 14, and 20 of those bridges between your original guidance. What you delivered and then the organic bridge on 'twenty is really helpful. A lot of granularity there.

If we were to start.

Just because the New York City contract is such a high profile and that did have a swing factor.

Can you give us a sense of.

How much just remind us of the revenue you are expecting for the year of how much of it could land in the first quarter and just confirm theres been no change in scope.

Yes, So hey, Dan good morning, its about 100 million for the full year and the first quarter. We only have about 10 to 15 in there as we mentioned there is a bit of a pause, but now it started up and running again the scope is unchanged.

Got it and if you were to highlight all of the areas.

What are you seeing improvement in licenses and the services pipeline what's the.

At the high end in terms of the businesses today.

Good day.

Maybe I can ask you to sort of rephrase. The question I want to make sure that we fully understand the question. Yes, just in terms of the licenses revenues that youre seeing today.

You've taken us through where some of the challenges have been what's on the the.

Upper end of your guidance.

Where you would see potentially that the.

How it would play out on the positive side sure half. Okay. So I. Appreciate the question I think we understand it now so the total perpetual revenue for our core businesses. The software businesses that had been in the portfolio for a while was down.

Obviously in 2020, we expect about the recovery in 'twenty, one to be about half of what we are down.

We're seeing strength, we've seen continued strength all year and the perpetual in 2020, and the perpetual book of business and Delta ex <unk> business.

As I talked about in the in the prepared remarks, we're seeing thawing and some and some activity and our professional services end market that's encouraging.

These are the architects the engineers the contractors the marketing services firms the consulting firms those those debt book of business.

In addition, the other large parts of the perpetual book are at <unk> and power plan Aderans has its own unique set of competitive factors, where the customers have to the customers that have not upgraded their software from the competitive customers of not upgraded their software have to upgrade and we are winning.

A large percentage of those and so all of that activity just got pushed to the right a bit and thats.

Somewhat encouraging and pipeline activity as positive there and then power plans.

Pipeline activity is as full it's has a handful of large opportunities in it which are obviously hard to predict the exact timing, but we actually like the pipeline build across the companies that have the primary book of perpetual business.

Okay. That's helpful and just as my follow up question would be for Rob.

<unk>.

Do you have of specific deleveraging plans for the year debt.

You could share with us in terms of.

Where and how you said you'd be paying down the revolver, but just are there specific goals that you can share for 2021.

Sure. So it'll be as you know when we're in deleveraging mode. All of the free cash flow goes towards deleveraging. So we pay a dividend that will continue but essentially the rest of the free cash flow goes towards deleveraging. So that's a rough probably after you paying a dividend roughly of $1 billion of half of deleveraging is probably a good ballpark number.

Sure.

The next question comes from.

All of the Oppenheimer. Please go ahead.

John.

Yes, thanks, good morning.

So.

That's on all of the capital allocation last year.

Im just curious are you getting a lot of inbounds. After some of your sub segment divisions, given you had some real emphasis on the.

The quality and fullness of the pipeline.

Certainly liquidity in the markets.

So I'm wondering if your calculus has shifted towards.

Any non operating cash flow to fund the deleverage in trade backend of the pipeline a little sooner.

I appreciate the question, it's very routine for us to get inbounds.

I've been here almost 10 years.

A handful of what I would say I would say meaningful.

Credible inbounds of any given year.

We've said for years, though it's just very difficult to make the math work because of when we sell of business.

Let's just look back of the Cotan you sell a business two of strategic buyer, we leak taxes and you have to redeploy it it's just hard with the compounding orientation to make that math work.

Certainly the lower tax rate sort of help to in the container timing. So yes, we get inbounds I would not say the activity in the last few quarters has ramped up more than it has been over the decade I've been here, but yes. There are always there's always inbound inquiry.

And average appetite to entertain that was the other part of that question yes.

Yes, I think it's the appetite we've never not had the appetite is just comes down to the math.

And doing what's best in our view of according to our math for our shareholders. So it's the appetite has remained unchanged.

Understood. Thanks.

Youre welcome.

Yes.

The next question is from.

Lisa of Jpmorgan. Please go ahead.

Hey, guys good morning.

Steve.

The free cash is pretty strong in the fourth quarter.

Like almost 95% of our of EBITDA.

The last couple of fourth quarters, its been around 80% of what was the kind of overdrive there and then when it comes to cash.

Cash and EBITDA, how much did roughly did that vertical Brad.

<unk> was around 90, or so of of both cash and EBITDA and yes, as I mentioned earlier, Steve just great working capital performance across the portfolio very broad based youre getting your software renewals, which were very strong in the fourth quarter you certainly it certainly has some.

Benefit right from those more cyclical businesses being a little bit softer right and that lowers working capital overall, but just great working capital performance, our cash taxes year over year or about flat. So it really was all on working capital.

And then.

Within the guidance I guess, you didn't really quite you don't usually guide for free cash flow for next year. I think you said 1 billion five is that the $1 billion the billion five of the after the dividend and then does that include any of the tax benefit that you guys bought with virtu for the benefit of that.

So the ability of five of the deleveraging numbers Thats an estimate that that's after paying dividends. So for next year, Yes, you're right. We don't guide free cash flow.

I always have very strong conversion as you know, we expect that very high conversion to continue.

As I mentioned is working capital.

Trends are very sustainable right. It's the culture at the type of businesses that we buy at the software business is grow their working capital continues to go down so that all should continue.

In terms of the tax attributes, yes, the arts and tax attributes.

Related to <unk>, which we disclosed a little over $100 million there'll be some benefit from that coming in 'twenty. One. There's also like many other multi industry and really all companies right. We benefited some from deferral of payroll taxes. So that I'll go back the other way next year as you're as you're starting to pay those payroll taxes again.

Those are sort of the doesn't sort of counter each other a little bit but.

But we feel great about cash flow next year, but we don't we don't guide as you know.

Next question comes from Allison Pollinger of Wells Fargo. Please go ahead.

Hey, guys good morning.

Good morning, Ralph.

The Turkey, obviously, the theme of reopening seems pretty pervasive in the number of your businesses.

Can you help me understand maybe the progression of some of those businesses that youre thinking about if in fact, the do start to reopen here is it sort of an outsized.

As things start to get back to work or is it more of a progression out of that any thoughts.

Well I'll give you the.

Neil I'll give you the the headline and I'll, let Rob sort of add his color on the back end. So it's not a like a step function bump up it is a sort of sequential improvement throughout the year. Obviously when you roll past Q1, the comps get a whole lot easier. So that's part of what the what the the <unk>.

<unk> three quarters of the year of it looked like as well when you look at it on the company by company of our sort of segment by segment basis, just rolling through.

Basically it's the perpetual book of business and the associated services that come with that for application software that ramps back up.

And network, there really for the network businesses.

A little bit of ramp back at foundry, it's a little bit of ramp back at.

That I trade, but the other businesses were pretty steady as she goes the construct connect et cetera transport stands by itself. It's tied principally to two things. One is the New York project, completing and second the return of traffic volumes and the.

Associated tags that go with them.

Four four.

The MMS segment, its Neptune, just sequentially coming back and importantly, getting the the access to the indoor meters in northeast U S and Canada.

I said in the prepared remarks market share was super steady, maybe plus a little bit in that business last year.

Just access our customers getting access to do retain replacements.

Verathon I don't have the difficult headwind because of the capital place we've talked about the the other medical product businesses, just rotate up in the sequential basis and then finally, the industrial businesses do the same process is much like industrial just a cyclical rebound modestly higher oil prices help but you have all of this.

And the energy businesses you have all of this deferred maintenance has got to get done there as of.

A lot of it is sort of there was some restocking orders in the fourth quarter. There and then some pipeline activity like we got to get in and do the maintenance and a handful of these important customers. So that'd be in sort of the color of the ramp but no step function, but Rob what would you add if anything.

No I think that's right. We're assuming Q1 is very much clearly still in the middle of the pandemic and then things improve from there.

Got it and then in line with that and obviously, it's been under this closure for a significant amount of time any concerns of the financial impact of some of your existing customers that you would anticipate that ramp from or.

Not at this point.

I would say no and I think the.

I mean, the obviously, there's going be small pockets here and there we're very most of our customers across the portfolio most of our enterprise level of very small percentage of our software companies would be in the small medium size, where it may be more subject to some sort of macro sort of headwinds our business uncertainty.

I think the data point, we point to is just the incredible cash flow I mean, we got paid by our customers right and so last year and so what we do is just critical to what they do and no I don't think theres going to be again the pockets.

Pockets of areas that are ahead of you talked about right colleges and universities most of those customers. We tend to have larger customers. There. So we're not too worried about our our schools being in financial trouble overall, and then on like the high trade network side. They have customers that are in the food area. So there certainly could be an impact from some.

Some smaller restaurants and some of those.

Issues in that market, but overall, not really meaningful impact to us.

The next question comes from John Donahue.

Please go ahead.

Hey, guys good morning.

Joe Hi, Joe.

Hey, I'm in the in the market to refinance my mortgage at 1% blended. So can you guys help me out.

Yeah.

I have a guy in Florida, and I never months range.

Yes.

We won't count that as FERC question by the way.

Okay.

Yes.

And then on the net working capital.

Some of that keeps getting more and more negative and more interesting, but with the current portfolio, whereas debt, whereas like the maximum net debt can get to without doing more deals into debt.

Further push it that way.

Yes, So I think if you go to our working capital page page 10, you'll see all of the benefit here of Q4 to Q4 was on the liability side right. We're basically equal to on the on the asset side, which is that indicates to us and we go business by business, it's structural and driven by an increasing mix towards software. So.

That's the first thing I'd say second is when you look at the art of the possible. If you think about of business that is 100% SaaS recurring revenue that's prepaid a year ahead, let's say that you Bill on January one and you take 90 days to get paid that company is going to have 75% of its revenue.

Net negative net working capital and we certainly have a couple of businesses that don't quite get the 75%, but the approach 40 or 50%. So as we become more software and our and our legacy perpetual business becomes more SaaS youre going to see this number get higher will ever get the 40 to 50 no it won't.

But it will keep inching higher it should over the next five to 10 years, we don't have a target.

It's not that we're trying to drive the business to be ex percent negative. We just have the incentive system and our culture that we get a little bit better every year on this metric.

That's definitely.

Very helpful to frame the frame that up thanks.

The follow up on <unk> I'm sorry.

For the four.

Rob.

How is that business doing since you've been there have you noticed anything like kind of.

What kind of initial changes have been instituted if any and when we did our diligence that was definitely a market where that business was the leader, but there was debt home market seem right for some change there.

How are you guys approaching that other upstart that you look at it in an internal change that drive the market forward like how you're just approaching that business now.

So the most important thing that I think we can say regards of or for that matter of any acquisition is that the way to summarize what we do is we buy the amazingly great businesses, and then provide them environment to get better over a long period of time. So as a result, there is not a short term.

Do these five things to improve the business that's not in our in our strategic M&A strategy that said.

The business is in the.

The piece of research you did we thought was quite good and reflective of ours.

It's basically a duopoly with share market with one principal competitor on the agency side Fortunately for us.

Just after the business, we acquired the business and closed we won the largest deal in the market in the last three or four years and assured partners of the press release that went out the handful of weeks ago. So we're delighted about that it's a slow ramp over a couple of years couple of three years and I think thats just indication of of the quality of.

Of the business debt vertical and the products. They have but also the customer in that case was reassured by being by vertical of being owned by Roper. There's just a long term owner, that's not going to look to sell of the business in a handful of years and therefore, we can make the right investments.

If there is one thing that we are.

If you will doing in the short run is based on our diligence and somewhere to work. You did is we wanted to allocate a little bit more to R&D, which we have done and that's reflected in the numbers. We've given you from the very beginning and so that's going to take a few years to play out just continuing to to add functionality and add features and ways to monetize their customer base.

And Joe just on the obviously the company has performed very very well since we own it but just to clarify my last answer the 90 of EBITDA that since we owned the business Theres a month in there as well and it wasn't all in the fourth quarter, but it was 90 of cash in the fourth quarter.

The next question comes from Blake Gendron of Wolfe Research. Please go ahead.

Yes. Thanks, good morning wanted to follow up on that R&D comment actually kind of in the broader context of your portfolio. So.

The Covid was disruptive.

Number of reason structurally with the end markets and I would imagine competitively.

In addition, the vertical or and maybe ramping R&D. There are there any opportunities to ramp R&D across some of the other business units simply because theres new market opportunities as a result of the pandemic moving forward I know, it's hard for us to really.

Fully fully appreciate all the changes that will that will stick structurally across all of your business units, but I'm just wondering if we should expect.

R&D too to ramp a little bit of across the portfolio of not just sort of work.

Yes, so a few things I'd say there to begin with first is when we when we engage with each of our businesses strategically we talked to them broadly about how to grow sustainably with cri accretive growth over a long arc of time.

The answering the two questions of where to play and how to win but then when you get into how to win it as some some sometimes as the product answer a lot of times. It's a go to market or market go to market effect of sort of answer. So it is not our strategic orientation of each business doesn't narrow into innovation from the from the get go that said.

Obviously innovation and R&D, where mostly of D shop, mostly development across our software and product businesses, you have seen and likely will continue to see a modest increase in R&D spend as a percent of revenue for years to come and 19. It was about seven 5% last year was about little over eight this coming year of probably gonna add about.

100 basis points to be a little over nine there is a vertical mix in there that they are a little bit higher percentage as compared to some of our other businesses, but I think you will see and are seeing an increased and innovation.

There the.

So all of that sort of stop there I mean, if you of any follow ups, we're happy to happy to do it but the short answer is yes, I guess theres one other thing if you compare the roper's the.

Eight or 9% of of.

The revenue that we spend in R&D.

Compared to other software companies. It appears low when you look at our software businesses, we're right in line with the peers, where between 10 and 15, 17% depending on the company the application businesses tend to be on the higher side of that the network businesses tend to be on the on the lower side of that and the reason the mix of Roper is low is because we have quite.

Quite a bit of revenue and trans core MH and others that effectively don't have any R&D in our business model. So it's always important to point out and we get asked the question about R&D.

That's helpful to think about the framework there one of the shift of Deltec. So I thought it was interesting what you mentioned.

<unk> comp stability versus maybe some of the professional services being impacted by Covid.

The Gulf kind of I would imagine youre dealing with large enterprise customers. So we should expect it to be kind of stable. In addition to just general government spending being stable on the professional side is it just a matter of the reopening.

Or is there anything we can think about with respect to customer size large versus SMB.

And then maybe end market, specifically that we should be looking at for the recovery as it just non residential construction on the AC side, how should we think about delta improvement in 2021 of beyond.

I'll give you of goldstar forgetting like seven questions into one question, so I'm going to do our best.

To try to come tick through the so on Dell Tech. It is important to note. It is a combination of large enterprise and the smaller end of the Gov Con space Thats been super strong throughout the year, it's not just been at the high end.

Yes, we expect that to just continue as the.

It's not tied to infrastructure per se. These government contractors go toward the fast turns of government spend is it's gone.

John from military to Education's, maybe infrastructure. They just go to where it is that might drive some M&A M&A activity by the way, which is generally good for us on the professional services side. The book of business here is broad, but if there are pockets of concentration, it's an architects engineers and contractors.

The contractors, mostly non res contractors in this case they are the ones that are a little bit worried and they have sort of tightened up a little bit more as the architect and engineering firms that have shown some green shoots here in Q4 and.

In addition, marketing services firms.

As a leading niche for deltak and those businesses also have started to fall.

So I think that checked off of your questions. If we missed the one or two we're happy to follow up with the after the call.

The next question comes from Julian Mitchell of Barclays. Please go ahead.

Hey, good morning, everyone the gel on for Julien.

Maybe to start with can we get your thoughts on.

Maybe margin expectations.

The segments, obviously, a lot of movement in the.

The software margin from 2020 kind of a lot of the mix shifts you guys are calling out on that slide 20. So I just wanted to get your thought there.

Yes, we can go through the segments in detail.

Later on but I mean overall, our margins are relatively flat year over year in the guide I think theres a little bit of of core.

The decline in the margins given a lot of the cost will come back post COVID-19 travel and things that didn't happen.

Very modest decline there and then the vertical revenue comes in at a higher margin. So overall margins were relatively flat.

And then we would expect some improvement in the in the bottom sort of the more cyclical type stuff in process, we should get some nice bounce back of that starts to grow and margins.

If I could just add one thing there sort of piggybacking your question with the last one.

EBITDA margins are going to be down a bit.

As Rob said these.

These costs are coming back in as hard to spend money on travel and customer meetings for instance, last year and we expect somebody to come back in this year that said I sort of call. It like a trap of leadership.

We're increasing our R&D as a percent of revenue by about the same amount that we expect the core margins to come down so there's going to be some some teams and some companies may choose the hold margins and they're going to have the because there is the opportunity cost inside of the business somewhere in our case, we're very specifically and intentionally not doing that are sort of coming to that.

GAAP and then obviously, we get the benefit of the vertical mix coming in so <unk>.

<unk> margins should be flat to up a touch.

Yeah.

Perfect. Thanks, and then maybe on the services piece of applications thoughtful you guys talk about kind of rebuilding that pipeline.

Does that process look like and any thoughts on some of the cadence or just kind of expectations beyond that sort of flat growth you guys guided for.

Yes, I think so what you have here is the dynamic where the most first is a precursor most the vast majority I should say of our services work.

The applications segment are tied to new implementations, whether they're SaaS or on premise.

So if you look back and think through what happened sequentially in 2020, very quickly and the shutdown the license activity the perpetual activity slowed down.

So you had low license activity basically Q3 through Q4, the services book of business has a little bit of of backlog right. So the services work continued in Q2 continued a little bit in the Q3 T of completed the in flight projects and then it sort of slowed down.

A handful of months behind the license activity. So when you come back on this side of the license activity will pick up sooner, but then you got the services of work will follow back behind it. So you've essentially had a slower ramp down in a slower ramp up for services Thats why you see it flattish where you can see growth in the perpetual book.

Okay.

The next question comes from Alex Blanton of clear Harbor asset management. Please go ahead.

Hi, good morning.

Good morning, Alex you are the here yet.

I wanted to ask could.

Could you characterize your acquisition intentions.

For 2021.

You had said earlier that it would be primarily.

It would be deleveraging for.

12 to 18 months.

But today you mentioned that you had a very active robust.

Pipeline of.

Potential acquisitions with many of.

Opportunities.

So.

Has there been a change in your.

And your intentions there.

In terms of deleveraging how would you characterize the acquisition outlook for this year.

Thank you Alex for the question so.

I would share of two things with the first is we are we or maybe more maybe more of a couple of things. So we are active the pipeline is active we are spending time.

With with <unk> learning businesses spending time with all of the sponsors that we have of relationships with the understand what the cohort of opportunities looks like importantly, every sizable transaction that we've completed since 2016.

We have had a chance to meet the management teams at least once if not multiple times anywhere between six to 18 months before we completed the transaction.

So the work that we're doing now is principally focused on that these are these are getting to getting to understand business as well before they are ready to be transacted right. So of businesses. We're meeting this month are likely going to be businesses that we may acquire at the end of this year or into the first half of next year. So it's the early pipeline work.

The first thing I would say second is we're absolutely committed to deleveraging unwavering on that third thing if the right deal came through there is always a way to figure that out but that's not our primary focus of our primary focus is the early part of the pipeline build as well as the as well as the deleveraging.

Okay and secondly.

How would you.

Characterize the makeup of these companies that you are getting to know.

Well the industries is it still primarily software.

It's still going in that direction.

Absolutely. Its again were characterized our M&A pipeline of process characterized by buying businesses that are better than us through the quantitative of cash return lens.

So that debt yields mostly software informatics types of businesses.

They are a combination of.

A wide variety of end markets of wide variety of SaaS versus perpetual business models.

But yes, that's essentially what the capital deployment over the last seven of 10 years, it's what our pipeline of characterized by that same type of business.

Yes.

This concludes our question and answer the question.

Back to Bob Murphy for any closing remarks.

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

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

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Good morning, the Roper Technologies Conference call will now begin today's call is being recorded all participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing star zero.

I would now like to turn the call over to Zack Mark Thies, Vice President of Investor Relations. Please go ahead.

Yeah.

Good morning. Thank you all for joining us as we discuss the fourth quarter and full year financial results for Roper technologies, We hope everyone's doing well joining me on the call. This morning are Neil Hunn, President and Chief Executive Officer, Rob Crisci, Executive Vice President and Chief Financial Officer, Jason Conley, Vice President Controller, and Shannon O'callaghan, Vice President of Finance.

Earlier. This morning, we issued a press release announcing our financial results. The press release also includes replay information for today's call.

We have prepared slides to accompany today's call, which are available through the webcast and are also available on our website.

Now if you please turn to slide two we begin with our Safe Harbor statement. During the course of today's call. We 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 to today's call in the context of that information.

And now please turn to slide three today, we will discuss our results for the quarter and year, 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 fourth quarter the difference between our GAAP results and adjusted results consists of the following items.

Amortization of acquisition related intangible assets purchase accounting adjustments to acquired deferred revenue and related Commission expense and lastly transaction related expenses for completed acquisitions and now if you. Please turn to slide four I will hand, the call over to Neal after our prepared remarks, we will take questions from our telephone participants Neil.

Thanks, Zack and good morning, everyone. Thanks for joining us and we hope everyone is doing well.

For today's agenda will walk through our 2020 financials and operational highlights.

Then we will turn to our 2020 segment detailed results and discuss our 'twenty one segment by segment outlook and end with our 21 enterprise guidance prior to discussing your questions next slide please.

As we look back on 2020, it was quite a year our businesses performed at a very high level. During this period.

Revenues grew 3% with organic revenue declining a single percent.

EBITDA also grew 3% and free cash flow grew 16%.

This cash flow of perform performance one 7 billion is just astounding.

This is a testament to many things, notably our asset light business model. The intimacy, we have with our customers and the high level of skill and execution of our field teams. This cash flow is just simply a great result for us.

That's more important 2020 was the year of forward progress for our company, we exit 2020 as a better company.

The company with higher quality revenue streams of company with improved future innovation prospects at.

And the company with whose portfolio had was enhanced with $6 billion of capital deployment.

To this end we saw our software recurring revenues increase mid single digits in 2020 and were benefited by high levels of retention and the acceleration to the cloud.

We continue to be benefited by having close intimate relationships, where the customers. Most often our software is mission critical to our customers' operations.

In addition, we continued to strategically invest throughout our portfolio during the year.

Based on our historical experience, we find times of market disruption the best time to double down on innovation and market investments, which in turn will drive market share gains in the years to come finally, we were able to deploy $6 billion to further enhance <unk> group of companies headlined by our value.

For acquisition.

So when we look back on 2020, we highlight two key themes first we grew.

Cash flow increased 16% in the middle of the pandemic and second the quality of the enterprise continued to improve during the year net net we got bigger and better during 2020, let's turn to the next slide.

Over the past five years, we highlight that our revenue grew at a 9% compounded rate EBITDA.

EBITDA of 10% and cash flow of 13%.

We continue to grow and compound through macroeconomic cycles also during the time period, the quality of our enterprise meaningfully improved.

We are more software focused with nearly two thirds of our EBITDA coming from software with higher levels of recurring revenue <unk>.

Conversely, we are much less tied to the cyclical end markets today, a little over 15% of our portfolio.

Given our long term strategy and these factors we are a low risk enterprise.

We compound cash flow through cycle and do so with multiple growth drivers across both organic.

And inorganic fronts.

As we look the 'twenty one we will continue our long term strength of revenue and EBITDA and cash flow compounding.

So with that let's turn to the next page and discuss the macro backdrop for 'twenty one.

As we look to 2021, we are set up for a strong year, we expect revenue and EBITDA will grow well into the double digits likely in the mid teens range with organic revenue growth in the mid single digit plus range.

This is on top of growth in 2020, the compounding continues Bray.

Breaking it down our software businesses, both of our application software and network segments are well positioned heading into 'twenty. One of these businesses entered the year with the momentum from strong retention and recurring revenue gains there'll be further aided by growth in perpetual license as pipeline and customer activity are anticipated to recut.

Over to some extent.

Our non Verathon medical product businesses are expected to return to a more normalized pattern of customer activity as health care facilities loosen restrictions, but since 2020 was well below trend, we expect above trend growth here.

Of note marathon has a challenging comp.

However, the re occurring revenue base will remain strong given the large volume of capital placements in 2020 and continued growth of their new single use bronchoscope business.

We expect net tune to recover and grow nicely as our customers, especially in the northeast U S and Canada gain access to residential locations.

We expect our industrial and process tech businesses to continue their quarterly improvements in our return to growth after two years of macro headwinds.

Finally, 2021 will be meaningfully aided by the contribution from our 2020 cohort of acquisitions.

To this end, we continue to work with a very full and high quality M&A pipeline.

We are committed to deleveraging, but we also remain active in building and maturing our pipe.

So as I think back over the nearly 10 years I've been with Roper I cannot think of a better set of tailwind heading into a year.

Clearly lots to do and lots of execution in front of us, but we have a strong momentum heading into 'twenty one.

So now let me turn the call over to Rob Rob.

Thanks, Neil good morning, everyone.

Turning to page eight looking at our Q4 income statement performance total revenue increased 8% as we eclipsed $1 5 billion of quarterly revenue for the first time organic revenue for the enterprise declined 2% versus prior year EBITDA grew 7% in the quarter to a record $552 million each.

The margin was down 40 basis points versus the prior year at 36, 6% tax rate came in at 19, 9% of low lower than last year's 21, 6%. So all in this resulted in adjusted diluted the diluted earnings per share of $3 56 debt, which was above our guidance range net slot turning to page.

Nine during the Q4 results by segment, Neil will discuss the full year 2020 of debt and performance in more detail later, so just touching on some of the Q4 highlights the year by segment application software grew 35% with the addition of vertical organically. The segment was minus two with mid single digit recurring revenue growth continuing.

Sharp declines at our deepwater horizon businesses, serving in K 12, and higher education impacted the segment as many schools. Unfortunately remain close.

Our network software systems, plus 2% organic growth with our software businesses, putting up a very solid 4% organic transport was flat versus the prior year for measurement and analytical solutions.

1% organic growth as we start to see some sequential recovery net to net in our industrial business.

Segment margins were impacted a bit by the acceleration of some product and channel investments at Verathon as we discussed kind of in the quarter.

Net exceptional year of marathon overall.

Lastly, the process technologies of 21% organic decline with the margins holding up well at 31, 3% and once again here. We started the some early signs of improvement after a couple of years the cost.

Net loss.

Turning to page 10, looking at net working capital honestly, the five mostly speaks for itself any of the quarter of negative 8% net working capital as a percentage of Q4 annualized revenue.

While the SME from diesel brands, primarily around the timing of software renewals. The do typically benefit our Q4 performance you can see here of meaningful improvement versus 2018, improving from negative three 4% to negative 8% in 'twenty one of.

Our asset light negative net working capital model will drive our sustainable high cash conversion and fuels, our cash flow compound our people focus on what we all the lead matters in our culture is built around growing the right way topline growth converts to cash flow and we are always mindful of impact of our balance sheet net.

Now turning to cash flow cash flow performance as Neil mentioned was really pretty spectacular no matter. How you look at it Q4 free cash flow of $558 million was 23% higher than last year and represented 37% of revenue the <unk>.

Actual result was driven by the great working capital performance.

The Scott, which is really across the enterprise along with the meaningful cash contributions from versus more of the other reason acquisition.

So for the full year of 2020, we generated $1 $72 billion of operating cash flow and one of six $7 billion of free cash flow. So to repeat that one 7 billion of free cash flow in 2020 truly a great year full year free cash flow growth was 16% and our free cash flow conversion from EBITDA.

One of the robust, 84%, so really a tremendous cash flow performance and it was broad based and very true net.

Hello.

The chart on page 12, updating on our balance sheet as Neil mentioned earlier, we ended the year with total capital deployment of approximately $6 billion, which included the EPS of <unk> acquisition that closed during the fourth quarter on October 15, we were able to take advantage of attractive market conditions to complete and Opportunistically part of these acquisition with.

The combination of internally generated cash flow proceeds from our 2019 and enhance the passenger and investment grade leverage overall cost of financing was approximately 1%. Thanks.

Thanks to our excellent Q4 cash performance, we are off to a great start on our plan to quickly reduce leverage paying down to around $500 million. Since we closed the EPS. The ideal looking ahead, we plan to rapidly reduce leverage throughout 2021, taking advantage of our pre payable revolver, which has a current balance of approximately $1 8 billion.

Our solid investment grade balance sheet support long term cash flow off of the compounding, which we are well positioned to continue.

So with that I'll hand, it back over to any of the remainder of our prepared remarks. Thanks.

Thanks, Rob, let's turn to our recap for 2020 to help Orient you to this page we're comparing our full year outlook from last April to that of what actually happened.

It's worth reminding everyone that we felt our businesses and our business model had the level of recurring revenue customer intimacy and the business leadership required the guide in the face of the Covid uncertainty both in terms of supply and demand.

In aggregate, we thought our full year organic revenues would be plus or minus flat and we came in at down minus one.

The Trans core New York project as the primary reconciling item between between being down the touch and being flat or slightly up and more on this in a minute.

We guided depths to be between $11 60, and $12 60 and came in at $12 74.

Looking back on this we are very proud of our team's ability to look forward and operate through the uncertainty of last year. Also there is no better example of the durability of our model than this past year.

With that let's walk through the macro drivers across each of our four segments.

Relative to application software. This segment played out as anticipated and was up 1% on an organic basis for the year, specifically, we saw recurring revenue up mid single digits aided by very strong retention rates as well as an acceleration to the cloud.

As a reminder, recurring revenue in this segment is about 70% of our revenue stream.

Perpetual revenues about 10% of this segment's revenue were under pressure as expected. We saw this revenue stream down mid teens as new logo opportunities and wins were pushed and delayed that said cross selling activity remain active for much of 2020.

Relative to services revenue, we anticipated some pressure tied the shifting to remote installs and having fewer new implementations, which are tied to new perpetual transactions for 2020, we saw mid single digit declines here principally tied to fewer new deals our teams did a wonderful.

Job shifting to remote installs of trend, we anticipate will continue in large part on the back side of the pandemic.

As it relates to our network segment, we expected organic revenue for the year to be up mid singles to double digits. When in fact, we grew 3% for the full year.

Our network software businesses performed as anticipated with recurring revenues growing low single digits again benefited by high retention rates and high levels of recurring revenue.

This segment underperformed our expectations, primarily due to the Trans cores, New York congestion infrastructure project timing.

In April we expected approximately $75 million more in revenue from this project than actually occurred in 2020.

More on this when we turn to the segment overview, but we expect this $75 million of pushed revenue to be recognized in 'twenty one.

It's also worth noting that the number of toll tags shipped last year were at historic lows, given the lower traffic volumes, but this was anticipated.

For our EMS segment, we've talked all year about this being the tail of four situations verathon.

The other medical products Neptune and industrial.

For the year again back in April we felt this group would be flat to up mid single digits on an organic basis, we posted 1% growth.

We feel very good about the execution across the group of companies. The primary reconciliation factor is a slower recovery ramp tied to our non verathon medical product businesses and Neptune.

Specifically, we anticipated unprecedented demand for Verathon innovation product family for.

For the year Verathon grew substantially as Covid accelerated the further adoption of video intubation as the preferred technology.

Our other medical product businesses, which grow mid single digits like Clockwork, we're down mid single digits for the year tied directly to lower elective procedure volume and limited hospital capital spending.

Interestingly interestingly for Neptune, we highlighted municipal budget uncertainty in April this proved generally to be a non factor as municipalities budgets were approved and available. However, the impact of the lockdowns, especially in the northeast U S and Canada had a prolonged impact.

On our customers' ability to do routine meter replacements as result, Neptune was down low double digits for the year slightly worse than our initial expectations.

Finally for this segment, we expected sharp industrial declines and that is what happens with these businesses being down low double digits for the year.

That said, we are seeing sequential quarterly improvements across both Neptune and our industrial businesses.

Finally, and as it relates to our process Tech segment, we expect it to be down 20% to 25% and we were logging in at down 21%. This played out as we anticipated was much lower energy related spending project timing pushes and the inability to get field service resources and.

The customer locations.

So this is the play by play Rewind for 2020, now, let's turn to the segment pages for a bit more detail next slide please.

Per application softer where revenues here were 181 billion up 1% organically with EBITDA of $772 million.

The broad macro activity for the segment has remained quite consistent from much of 2020.

Specifically, we continue to see accelerating demand for our cloud solutions. This bodes well for our long term recurring revenue growth and customer intimacy.

At a business unit level <unk> Gov Con business continues to be Super solid and grow very nicely, but we did see some headwinds relative to their offerings that target the consulting marketing services and ADC space that said recent customer activity and top of.

The funnel of activity suggest some market volume is occurring.

Aderans empower plan delivered flat EBITDA in a year with nice recurring revenue gains.

We experienced very nice growth across our lab software group again doing our part to help fight the Covid War.

<unk> delivered double digit organic growth and completed a strategic acquisition in EPS Si, notably the combined business will analyze roughly half of the U S Hospital spend.

Finally, our two businesses that serve the education space Seaboard, and horizon declined double digits in the year simply due to having a customer base that was shut down a decent amount of revenues and these businesses are tied to student volumes.

Importantly, we acquired <unk> last year, they're off to a great start with strong earnings and very strong cash flow in the fourth quarter.

Looking to Q1, we see flat to low single digit organic growth based on continued mid single digit recurring revenue growth offset slightly by lower perpetual and services revenues given last year's non COVID-19 comp.

Now, let's turn to our network segment.

Here revenues were $1 74 billion up 3% on an organic basis with EBITDA of $732 million.

Our network software businesses performed well during last year growing low single digits specifically.

<unk> was strong growing double digits.

The network scale and innovation focus continues to enable very solid organic gains.

The <unk> connect grew based on network utilization tied to a tighter construction labor market.

I trade MH, eight and foundry had some headwinds tied to their end markets being disrupted due to COVID-19.

Said each of these businesses had high retention rates and the networks remained very strong.

The pipeline also performed well during their first year being with Roper and completed two bolt on acquisitions.

Our non software business business has struggled a bit during the year, specifically RFID is RF ideas are multi protocol credential reader business did.

Did well in their health care applications, both hampered by meaningful declines in their secure print market.

For the full year transport pushed about $100 million of revenue out of 2020 end of 'twenty, one associated with our New York project.

In addition, EBITDA margins were pressured due to lower tax shipments and a few non New York project push outs.

As we look to the first quarter of 2021, we see organic revenue as you can see in the lower right hand box to be down 3% to 5% for the quarter.

An important distinction of highlight our software businesses will continue to grow in the low single digit range, but are non software businesses driven by trends core will decline in the high teens range in the first quarter due to much lower anticipated tag shipments and timing of revenue associated with the New York projects.

As a reminder, the first quarter of this year is coming off of mid teens growth comp from a year ago.

Now, let's turn to our Mis segment.

Revenues for the year, one $4 7 billion up 1% on an organic basis with EBITDA of $508 million.

Verathon was awesome and 2020 the business grew substantially based on unprecedented demand for their video intubation product line.

Demand was global.

Given verathon and the ability to fulfill this demand we expect our meaningfully expanded install base of glides scopes to generate increased levels of reoccurring consumables pull through in the years to come.

In addition, the first year of their single use bronchoscope release was successful. We believe we gained a substantial foothold in the market during the inaugural year of this product category.

Our other med product businesses decline, but they started is the more normalized patient volumes towards the end of the year further customer interactions are starting to resemble a more normal levels of engagement.

Net tuned declined low double digits tied exclusively to our customers in the northeastern U S and Canada, not having access to and door meters. Other regions were flat during 2020 net.

<unk> market share remained strong throughout the year.

Finally, our industrial businesses were down but of shown sequential improvements throughout the year.

For Q1, we expect low single digit organic growth for this segment was similar pattern to that of the fourth quarter.

Now, let's turn to our final segment process Tech.

Revenues for the year were $519 million down, 21% on organic basis, with EBITDA of $156 million or 30% of revenue.

Compared versus two years ago. These businesses are down about $90 million in EBITDA and yet maintained 30% EBITDA margins, congrats and thanks to our leadership team for their continued exceptional execution.

As a side note Roper continue the compounds despite the cyclical headwinds.

That said this segment is pretty straightforward and has been the same story all year.

Covid has negatively impacted our oil and gas and short cycle businesses, certainly low oil prices did not help either.

That said, we are seeing some green shoots across the group as capital spending started to improve as we exited 2020.

As we look to the first quarter, we expect declines to moderate in the first quarter to be in the 10% range importantly, we of easing comps as we enter the second quarter.

Also over the last couple of years. These businesses continue to make product and channel investments to be best positioned to fully capture the cyclical upswing. The next few years here should be pretty good.

Now, let's turn to our guidance and the associated framework.

While this slide is somewhat busy we wanted to line up for you. The key macro differences between our 2021 full year outlook on a segment basis versus our actual 2020 results.

In aggregate, we expect total revenue to increase in the mid teens range with organic growth being in the mid single digit plus area.

As we look across the revenue streams for our application software segment, we expect mid singles growth.

Specifically, we expect a slightly improved recurring revenue growth rate aided by last year's recurring momentum and an increased mix towards SaaS we.

We expect flat services revenues and mid single digit plus growth in perpetual as we expect a modest market recovery and easing second half comps.

Similarly, we expect mid single digit organic growth in our networks segment with our network software businesses growing mid single digit plus.

We expect transport to complete the New York project and see recovering tag sales when combined transport should grow mid singles for the year.

We expect mass to grow mid single digits as well our medical product businesses were exceptional last year up 20%.

Importantly, the quality of our medical products revenue stream will continue to improve as marathons re occurring revenue streams tied the glide scope and <unk> continued to gain momentum.

As we look the 2021, our medical product businesses are expected to grow low single digits as elective procedures and hospital capital spending returned to more normalized levels. Throughout 2021. This return being partially offset by our difficult 2020 COVID-19 comp.

Net to <unk> should be up high single digits, plus with easing restrictions and more access to <unk> meter replacements.

And finally, our industrial businesses should recover and grow in the high single digit plus range. After two years of declines.

Our PT businesses are expected to be up high single digits through the year based on the resumption of deferred projects and field maintenance as well as modest improvements in these end markets. So all in all we expect organic revenues to increase mid single digits plus in total revenue to grow in the mid teens range.

Let's turn to our guidance slide.

Based on what we just outlined when you roll everything together, we're establishing our 2021 full year adjusted <unk> guidance to be in the range of $14 35, and $14 75.

Our tax rate should be in the 21% to 22% range.

For the first quarter, we're establishing adjusted debt guidance to be between $3 26, and $3 32.

Of note our guided Q1 adjusted depth is roughly 22% to 23% of our full year guidance range and is consistent with our long term historical debt seasonality.

Now, let's turn to our summary, and get to your questions.

What a year none of us will ever forget 2020, our business performs so very well last year, we grew revenue 3% in aggregate and only declined of single percent on an organic basis.

EBITDA margins were steady at 35, 8%.

And cash flow grew 16% to $1 7 billion. This means we had cash flow margins of 30% just amazing.

Given this performance our business models the ability to foresee. These this performance we stayed focused on executing our capital deployment strategy, which resulted in six of $1 billion of deployment on high quality niche leading vertical software companies.

There is no doubt the quality of our enterprise improved during 2020, something we're incredibly proud to be able to say our recurring revenue grew mid single digits.

We increased innovation investments and increase the quality of our portfolio with our capital deployment Spence.

So as we look to 2021, we feel we are incredibly well positioned we expect strong organic growth there'll be further augmented by contributions from our recent acquisitions.

In 2021, we expect about two thirds of our EBITDA to come from our software businesses, which provides us all of the virtues of an increased mix towards recurring revenues.

We will continue to focus on deleveraging our balance sheet, but we remain committed and focused on our long term capital deployment strategy to this and our pipeline of M&A candidates as active robust and has many high quality opportunities.

So as we look back over 2020, we're proud of our business model durability, and our leaders ability to successfully navigate last year's uncertainties.

We are proud of that we continued to be forward leaning and strategic we.

We are proud that we improved our business last year with an increasing mix of growing recurring revenue and continued innovation focus in short, we got bigger and better during 2020.

As we turn to your questions I'll remind everyone that at Roper, we operate a low risk model, whose strategy centers on acquiring fantastic businesses, and then providing them with an environment, where they can get even better over the long arc of time.

This was certainly the case in 2020.

With that let's turn to our first question.

We will now go to our question and answer the question of the call.

Chris that our callers limit their questions to one main question and one follow up if you will.

I'd like to ask a question you may do so by pressing the star key followed by the number one on your Touchtone phone.

Anthony Speaker phone please pickup your handset before pressing the keys to withdraw your question. Please press Star then the number of Kim again.

Again, we request the callers limit their questions to one main question and one follow up the first.

First question today comes from Deane Dray of RBC capital markets. Please go ahead.

Thank you good morning, everyone, Hey, good morning, the entity.

Really appreciate all of the new disclosures, you're providing here, especially pages 14, and 20 of those bridges between your original guidance. What you delivered and then the organic bridge on 'twenty is really helpful. A lot of granularity there.

If we were to start.

Just because the New York City contract is such a high profile and that did have a swing factor.

Can you give us a sense of.

How much just remind us of the revenue you are expecting for the year of how much of it could land in the first quarter and just confirm theres been no change in scope.

Yes, So hey, Dan good morning, its about 100 million for the full year and the first quarter. We only have about 10 to 15 in there as we mentioned there is a bit of a pause, but now it started up and running again the scope is unchanged.

Got it and if you were to highlight all of the areas.

Are you seeing improvement in licenses and the services pipeline what's.

What is the at the high end in terms of the businesses today.

The Dean.

Maybe if I can ask you to sort of rephrase. The question I want to make sure that we fully understand the question, yes just.

In terms of the licenses revenues that youre seeing today.

You've taken us through.

Some of the challenges have been what's on the the.

Upper end of your guidance.

Where you would see potentially the.

How it would play out on the positive side share half. Okay. So I. Appreciate the question I think we understand it now so the total perpetual revenue for our core businesses. The software businesses that have been in the portfolio for a while it was down.

Obviously in 2020, we expect about the recovery in 'twenty, one to be about half of what we were down.

We're seeing strength, we've seen continued strength all year and the perpetual in 2020, and the perpetual book of business and Delta Gov Con business as the.

As I talked about in the in the prepared remarks, we're seeing thawing and some and some activity and our professional services end markets that's encouraging.

These are the architects engineers the contractors the marketing services firms the consulting firms those those debt book of business. In addition, the other large parts of the perpetual book are at <unk> and power plan Aderans has its own unique set of competitive factors, where the customers have to the customers that are not.

Upgraded their software from the competitive customers of not upgraded their software have to upgrade and we're winning a lot.

Large percentage of those and so all of that activity just got pushed to the right a bit and thats.

Somewhat encouraging and pipeline activity as positive there and then power plants.

Pipeline activity is as full it's.

It has a handful of large opportunities in it which are obviously hard to predict the exact timing, but we actually like the pipeline build across the companies that have the primary book of perpetual business.

Okay. That's helpful and just as my follow up question would be for Rob.

Do you have of specific deleveraging plans for the year.

Debt you could share with us in terms of.

Where and how you said you'd be paying down the revolver.

Are there specific goals that you can share for 2021 share. So it will be as you know when we're in deleveraging mode. All of the free cash flow goes towards deleveraging. So we pay a dividend that will continue but essentially the rest of the free cash flow goes towards deleveraging. So that's a rough probably after you paying a dividend roughly of 1 billion of half a day.

Leveraging its probably a good ballpark number.

The next question comes from Christopher Glynn of Oppenheimer. Please go ahead.

Yes, thanks, good morning.

So congrats on all of the capital allocation last year.

Im just curious do you is getting a lot of inbounds. After some of your sub segment divisions, given you had some real emphasis on the <unk>.

Quality and fullness of the pipeline.

There is certainly liquidity in the markets.

So I'm wondering if your calculus shifted towards.

Any non operating cash flow to fund the deleverage and trade back end of the pipeline a little sooner.

I appreciate the question, it's very routine for us to get inbounds.

I've been here almost 10 years.

There's a handful of what I would say I would say meaningful and credible inbounds of any given year.

Like we said for years, though it's just very difficult to make the math work because when we sell the business.

Just look back at the <unk> you sell a business two of strategic buyer, we leak taxes and you have to redeploy it is just hard with the compounding orientation to make that math work.

Certainly the lower tax rate sort of helped two of the container timing. So yes, we get inbounds I would not say the activity in the last few quarters has ramped up more than it has been over the decade I've been here, but yes. There are always there's always an inbound inquiry.

And average appetite to entertain that was the other part of that question yes.

Yes, I think it's the appetite we've never not had the appetite is just comes down to the math.

And doing what's best in our view of according to our math for our shareholders. So it's the appetite has remained unchanged.

Understood. Thanks.

Youre welcome.

The next question is from Steve.

<unk> of Jpmorgan. Please go ahead.

Hey, guys good morning.

Steve.

The free cash is pretty strong in the fourth quarter.

Like almost 95% of of EBITDA.

The last couple of fourth quarters, it's been around 80% of what was the kind of overdrive, there and then when it comes to cash.

Cash and EBITDA, how much did roughly did that vertical Brad.

<unk> was around 90, or so of of both cash and EBITDA and yes, as I mentioned earlier, Steve just great working capital performance across the portfolio of very broad based.

Youre getting your software renewals, which were very strong in the fourth quarter.

There certainly is some benefit from those more cyclical businesses being a little bit softer right and that lowers working capital overall, but just great working capital performance, our cash taxes year over year or about flat. So it really was all on working capital.

Got it and then.

Within the guidance I guess, you didn't really quite you don't usually guide for free cash flow for next year. I think you said of $1. Five is that is the $1 billion the billion five of the after the dividend and then.

Does that include any of the tax benefit that you guys bought with virtu for the benefit of that.

Yes, so the ability of five of the deleveraging numbers, that's an estimate that that's the.

After paying dividends.

For next year, Yes, you're right, we don't guide free cash flow.

We always have very strong conversion as you know, we expect that very high conversion to continue.

As I mentioned is working capital trends are very sustainable right. It's the culture at the type of businesses that we buy at the software business is grow their working capital continues to go down so that all should continue.

In terms of the tax attributes, yes, the arts and tax attributes related to vertical, which we disclosed a little over $100 million there'll be some benefit from that coming in 'twenty. One. There's also like many other multi industry and really all companies right. We benefited some from deferral of payroll taxes, so that will go.

Back the other way next year as you're as you're starting to pay those payroll taxes again. So those are sort of the doesn't sort of account each other a little bit.

But we feel great about cash flow next year, but we don't we don't guide as you know.

Next question comes from Allison Pollinger of Wells Fargo. Please go ahead.

Hey, guys. Good morning, good morning.

Good morning, Ralph.

On the tuck T. Obviously, the theme of reopening seems pretty pervasive in the number of your businesses.

Can you help me understand maybe the progression of some of those businesses that youre thinking about if we in fact, we do start to reopen here is it sort of an outsized.

As things start to get back to work or is it more of a progression out of that any thoughts.

Well I'll give you the.

Neil I'll give you the the headline and I'll, let Rob sort of add his color on the back end so it's not.

Like a step function bump up it is a sort of sequential improvement throughout the year. Obviously when you roll past Q1, the comps get a whole lot easier. So that's part of what the what the the last three quarters of the year of it looked like as well when you look at it on the company by company of our sort of segment by segment basis, just rolling through.

Basically it's the perpetual book of business and the associated services that come with that the application software that ramps back up.

In network, there really for the network businesses.

A little bit of ramp back at foundry, it's a little bit of ramp back at.

That I trade, but the other businesses were pretty steady as she goes the construct connect et cetera transport stands by itself. It's tied principally to two things. One is the New York project, completing and second the return of traffic volumes in the test.

The tags that go with them.

For for the Emas segment, its Neptune, just sequentially coming back and importantly, getting the the access to the indoor meters in northeast U S and Canada.

I said in the prepared remarks market share was super steady, maybe plus a little bit in that business last year.

It's just access our customers getting access to do retain replacements.

<unk> will have the difficult headwind because of the capital place when we talked about the the other medical product businesses, just rotate up in the sequential basis and then finally, the industrial businesses do the same process is much like industrial just a cyclical rebound modestly higher oil prices help but you have all of this.

And the energy businesses you have all of this deferred maintenance has got to get done. There's a lot of it is that sort of there was some restocking orders in the fourth quarter. There and then some pipeline activity like we got to get in and do the maintenance.

The handful of these important customers so that'd be at sort of the color of the ramp but no step function, but Rob what would you add if anything.

No I think that's right. We're assuming Q1 is very much clearly still of the middle of the pandemic and then things improve from there.

Got it and then in line with that and obviously, we've been out of it.

Of this closure for a significant amount of time any concerns of the financial impact of some of your existing customers that you would anticipate that ramp from or.

Not at this point.

I would say no and I think the.

I mean, obviously, there's going to be small pockets here and there we're very most of our customers across the portfolio most of our enterprise level of very small percentage of our software companies would be in the small medium size, where it may be more subject to some sort of macro sort of headwinds our business uncertainty.

I think the data point, we would point to is just the incredible cash flow I mean, we got paid by our customers right and so last year and so what we do is just critical to what they do and no I don't think theres going to be again the pockets.

Pockets of areas that we talked about right colleges and universities most of those customers. We tend to have larger customers. There. So we're not too worried about our our schools being in financial trouble overall, and then on the <unk> network side. They have customers that are in the food area. So there certainly could be an impact from some.

Some smaller restaurants and some of those.

Issues in that market, but overall, not really meaningful impact to us.

The next question comes from Joe Giordano.

Alan Please go ahead.

Hey, guys. Good morning, Good morning, Joe Joe.

Hey, I'm in the in the market to refinance my mortgage at 1% blended. So can you guys help me out.

Yeah.

I have a guy in Florida, and I never months right.

Yes.

We won't count that as FERC question by the way.

Gotcha.

And then on the net working capital, obviously that keeps getting more and more negative and more interesting, but I think with the current portfolio, whereas debt, whereas like the maximum net debt can get to without doing more deals into debt further.

Further push it that way.

Yes, So I think if you go to our working capital page page 10, you'll see all of the benefit here Q4 to Q4 was on the liability side right. We're basically equal to on the on the asset side, which is that indicates to us and we go business by business, it's structural and driven by an increasing mix towards software.

That's the first thing I'd say second is when you look at the art of the possible. If you think about of business that is 100% SaaS recurring revenue that's prepaid a year ahead, let's say that your bill on January one and you take 90 days to get paid that company is going to have 75% of its revenue.

Net negative net working capital and we certainly have a couple of businesses that don't quite get the 75%, but the approach 40 or 50%. So as we become more software and our and our legacy perpetual business becomes more of SaaS youre going to see this number of get higher will ever get the 40 to 50 no it won't.

But it will keep inching higher it should over the next five to 10 years, we don't have a target.

It's not that we're trying to drive the business to be ex percent negative. We just have the incentive system and our culture that we get a little bit better every year on this metric.

That's definitely helpful to frame the frame that out thanks.

A follow up on the on vertical I'm sorry.

Vertical or.

Rob.

How is that business doing since you've been there have you noticed anything like kind of.

What kind of initial changes had been instituted if any and when we did our diligence that was definitely a market where that business was the leader, but there was that whole market is ripe for some change there.

How are you guys approaching that other.

Theyre up starts that you look at it in an internal change that drive the market forward like how you're just approaching that business now.

So the most important thing that I think we can say regards of or for that matter of any acquisition is that the way to summarize what we do is we buy the amazingly great businesses, and then provide them environment to get better over a long period of time. So as a result, there is not a short term we've got to do these five things to improve the business.

Not in our in our strategic M&A strategy that said.

The business is the piece of research you did we thought was quite good and reflective of ours.

It's basically a duopoly we share market with one principal competitor on the agency side Fortunately for US just after the business we acquired the business and closed we won the largest deal in the market in the last three or four years and assured partners of the press release that went out the enhanced handful of weeks ago.

Delighted about that it's a slow ramp over a couple of years couple of three years, but I think thats just indication of of the quality of the business debt vertical and the products. They have but also the customer in that case was reassured by being by vertical or being owned by Roper, who is just a long term owner it's not.

Going to look to sell of the business in a handful of years and therefore, you can make the right investments.

If there is one thing that we are.

We will doing in the short run is based on our diligence and somewhere to work. You did is we wanted to allocate a little bit more to R&D, which we have done that is reflected in the numbers. We've given you from the very beginning and so thats going to take a few years to play out just continuing to add functionality and add features and ways to monetize their customer base.

And Joe just on the obviously the company has performed very very well since we own it but just to clarify my last answer the 90 of EBITDA that since we own the business Theres a month in there as well that wasn't all in the fourth quarter, but it was 90 of cash in the fourth quarter.

The next question comes from Blake Gendron of Wolfe Research. Please go ahead.

Yes. Thanks, Good morning wanted to follow up on net R&D comment actually kind of in the broader context of your portfolio. So.

Covid was disruptive for a number of reasons structurally with the end markets and I would imagine competitively.

In addition of vertical for and maybe ramping R&D. There are there any opportunities to ramp R&D across some of the other business units simply because theres new market opportunities as the result of the pandemic moving forward I know, it's hard for us to really full.

Fully fully appreciate all the changes that will that will stick structurally across all of your business units, but I'm just wondering if we should expect.

R&D two to ramp a little bit of across the portfolio and not just sort of work, yes. So a few things.

Say there to begin with first is when we when we engage with each of our businesses strategically we've talked to them broadly about how to grow sustainably with cri accretive growth over a long arc of time.

The answering the two questions of where to play and how to win but then when you get into how to win it as some sometimes as the product answer a lot of times. It's a go to market or market go to market effect of sort of answer so it's not our strategic orientation of each business doesn't narrow into innovation from the from the get go that said.

Obviously innovation and R&D, where mostly of D shop, mostly development across our software and product businesses, you have seen and likely will continue to see a modest increase in R&D spend as.

The percent of revenue per year to come in 19. It was about seven 5% last year was about little over eight this coming year of are going to add about 100 basis points be a little over nine there is a vertical mixed in there that they are a little bit higher percentage as compared to some of our other businesses, but I think you will see and are seeing an increased and innovation.

There the.

So as I sort of stop there I mean, if you of any follow ups, we're happy to happy to do it but the short answer is yes, I guess theres one other thing if you compare the roper's the.

Eight or 9% of of.

The revenue that we spend in R&D.

Compared to other software companies. It appears low when you look at our software businesses, we're right in line with the peers, where between 10 and 15, 17% depending on the company the application businesses tend to be on the higher side of that the network businesses tend to be on the on the lower side of that and the reason the mix of Roper is low is because we have.

Quite a bit of revenue and trans core MH and others that effectively don't have any R&D in our business model. So it's always important to point out and we get asked the question about R&D.

That's helpful to think about the framework there wanted to shift of Deltec. So I thought it was interesting what you mentioned.

Gov comp stability versus maybe some of the professional services being impacted by Covid.

The Gulf kind of I would imagine youre dealing with large enterprise customers. So we should expect it to be kind of stable. In addition to just.

The general government spending being stable on the professional side is it just a matter of the reopening.

Or is there anything we can think about with respect to customer size large versus SMB.

And then maybe end market, specifically that we should be looking at for the recovery as it just non residential construction on the AUC side, how should we think about delta improvement in 2021 of the beyond.

I'll give you of goldstar forgetting like seven questions into one question, so I'm going to do our best to try to come tick through the so on Dell Tech. It is important to note. It is a combination of large enterprise and the smaller end of the Gov Con space, that's been super strong throughout the year, it's not just been at the high end.

And yes, we expect that to just continue as the it's.

It's not tied to infrastructure per se. These government contractors go toward the fast <unk> of government spend is gone from military to education, maybe infrastructure. They just go to where it is that might drive some M&A M&A activity by the way, which is generally good for us on the professional services side the book of business here.

The broad, but if there are pockets of concentration, it's an architects engineers and contractors.

Obviously, the contractors, mostly non res contractors in this case they are the ones that are a little bit worried and they've sort of tightened up a little bit more as the architect and engineering firms that have shown some green shoots here in Q4 and.

In addition, marketing services firms.

As a leading niche for deltak and those businesses also have started to fall.

So I think that checked off of your questions. If we missed the one or two we're happy to follow up with the after the call.

The next question comes from Julian Mitchell of Barclays. Please go ahead.

Hey, good morning, everyone the gel on for Julien.

Maybe to start with can we get your thoughts on.

Maybe margin expectations.

The segments, obviously, a lot of movement and the.

The software margin from 2020 kind of a lot of mix shifts you guys are calling out on that slide 20. So I just wanted to get your thoughts there.

Yes, we can go through the segments in detail.

Later on but I mean overall, our margins are relatively flat year over year in the guide I think theres a little bit of of core.

The decline in the margins given a lot of the cost will come back post COVID-19 travel and things that didn't happen.

Very modest decline there and then the vertical of revenue comes in at a higher margin. So overall margins were relatively flat.

And then we would expect some improvement in the in the bottom sort of the more cyclical type stuff in process, we should get some nice bounce back as that starts to grow and margins.

If I could just add one thing there are sort of piggybacking your question with the last one.

EBITDA margins are going to be down a bit.

As Rob said these.

These costs are coming back in as hard to spend money on travel and customer meetings for instance, last year and we expect somebody to come back in this year that said I sort of call. It like a trap of leadership.

We are increasing our R&D as a percent of revenue by about the same amount that we expect the core margins to come down so there's going to be some some teams and some companies may choose the hold margins and they're going to have the because theres the opportunity cost inside the business somewhere in our case, we're very specifically and intentionally not doing that or so coming to that.

GAAP and then obviously, we get the benefit of the vertical mix coming in so on the <unk>.

<unk> margins should be flat to up of touch.

Yeah.

Perfect. Thanks, and then maybe on the services piece of applications thoughtful you guys talk about kind of rebuilding that pipeline.

Does that process look like and any thoughts on some of the cadence or just kind of expectations beyond that sort of flat growth you guys guided for.

Yes, I think so what's the what you have here is the dynamic where the most first is a precursor most the vast majority I should say of our services work.

And the applications segment are tied to new implementations, whether they are SaaS or on premise.

So if you look back and think through what happened sequentially in 2020, very quickly and the shutdown of the license activity the perpetual activity slowed down.

So you had low license activity basically Q3 through Q4, the services book of business has a little bit of of backlog right. So the services work continued in Q2 continued a little bit in the Q3 T of completed the in flight projects and then it sort of slowed down.

A handful of months behind the license activity. So when you come back on this side of the license activity will pick up sooner, but then you've got the services work I'll follow back behind it. So you've essentially had a slower ramp down in a slower ramp up for services. So that's why you see it flattish where you can see growth in the perpetual book.

The next question comes from Alex Blanton Clear Harbor asset management. Please go ahead.

Hi, good morning.

Good morning, Alex Good morning, I'm sure the here yet.

I wanted to ask.

Could you characterize your acquisition intentions.

For 2021.

You had said earlier that it would be primarily.

It would be deleveraging for.

12 to 18 months.

But today you mentioned that you had a very active robust.

Pipeline of.

The potential acquisitions with many of.

Opportunities.

Has there been a change in your.

And your intentions there in terms of deleveraging how would you characterize the acquisition outlook for this year.

Alex for the question so.

I would share of two things. The first is we are maybe more maybe more of a couple of things. So we are active the pipeline is active we are spending time.

With with under the learning businesses spending time with all of the sponsors that we have of relationships with the understand what the cohort of opportunities looks like importantly, every sizable transaction that we've completed since 2016.

We have had a chance to meet the management teams at least once if not multiple times anywhere between six to 18 months before we completed the transaction.

So the work that we're doing now is principally focused on that these are these are getting to getting to understand business as well before they are ready to be transacted right. So of businesses. We're meeting this month are likely going to be businesses that we may acquire at the end of this year or into the first half of next year. So it is the early pipeline work.

The first thing I would say second is we're absolutely committed to deleveraging unwavering on that third thing if the right deal came through there is always a way to figure that out but that's not our primary focus of our primary focus is the early part of the pipeline build as well as the as well as the deleveraging.

Okay and secondly.

How would you.

Characterize the makeup of these companies that you are getting to know.

What industries is it still primarily software.

It's still going in that direction.

Absolutely. It's again, we're characterize our M&A pipeline of the process characterized by buying businesses that are better than us through the quantitative of cash return lens.

So that debt yields mostly software informatics types of businesses.

There are a combination of.

Wide variety of end markets of wide variety of SaaS versus perpetual business models.

But yes, that's essentially what the capital deployment over the last seven of 10 years, it's what our pipeline of characterized by that same type of business.

Okay.

Yes.

This concludes our question and answer the question, we will now turn back to Zack Murphy for any closing remarks.

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

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