Q2 2021 Roper Technologies Inc Earnings Call
[music].
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 conference specialist by pressing the star key followed by zero.
After today's presentation there'll be an opportunity to ask questions I would now like to turn the call over to Zack Moxie, Vice President Investor Relations. Please go ahead.
Good morning, and thank you all for joining us as we discuss the second quarter financial results for Roper technologies. 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 and Chief Accounting Officer, and Shannon O'callaghan, Vice President of Finance earlier. This morning, we issued a press release announcing our financial result.
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 2.
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 3.
Today, we will discuss our results for the quarter, primarily on an adjusted non-GAAP basis reconciliations between GAAP and adjusted measures can be found in our press release and in the appendix of this presentation on our website for the second quarter. The difference between our GAAP results and adjusted results consists of the following items amortization of acquisition related intangible assets.
Purchase accounting adjustments to the commission expense and now if you'll please turn to slide 4 I will hand, the call over to Neal after our prepared remarks, we will take questions from our telephone participants Neil.
Morning, everyone and thanks for joining us this morning, I'll provide the highlights of which there were several for the quarter.
Rob will then discuss our P&L performance of balance sheet metrics, and then turn it back to me to review our segment details our increased outlook for the year and are concluding comments as usual, we'll leave plenty of time to talk to all your questions towards the end of next slide please.
As we turned the page 5 we delivered an excellent second quarter with strength across all 4 of our segments.
Specific to the financial metrics, which Rob will detail shortly revenue each.
EBITDA debt.
And cash flow all grew north of 20% in the quarter.
Also during the quarter, we are encouraged to see the post pandemic recovery gained momentum and brought on at the same time.
Specifically not only did we experience continued improvement across virtually all of our businesses the <unk>.
Strength within each business was broad.
Our software businesses, which now make up over 55% of our revenue base performed very well in the quarter.
Specifically on an organic basis, we grew our application software segment, 9% and grew our software businesses within our NSS segment, 10%.
Across our software businesses, we saw the acceleration of our recurring revenue growth of approximately 80% of our soft revenues from mid singles to high singles and of solid recovery of perpetual license activity.
Relative to our product businesses of very similar pattern acceleration in recovery of our consumables revenue sources and very nice ordering patterns for our capital equipment type products.
In addition, our 2020 acquisition cohort led by virtue of 4 is performing very well.
Importantly, and consistent with our guidance over the last 3 quarters, we continued to delever our balance sheet at a rapid pace now under 4 times debt to EBITDA and.
And finally before handing things over to Rob just a great first half 2 of the year. Our teams have performed magnificently. Thanks to each and every team member at Roper.
Given the great start and the positive momentum across our enterprise. We are once again, increasing our full year guidance, Rob Let me hand, it over to you Hey, Thanks, Neil and congrats again on the Lightning Lane of the Stanley Cup.
Turning to page 6 looking at some of the key financial highlights for Q2 total revenue increased 22% to $1.5.9 billion. Another record for any Roper quarter Q2 organic revenue growth was 7% versus last year's comp of -3 all 4 segments performed well.
With strong organic growth across our portfolio of software and product businesses Q2, EBITDA grew 26% of $579 million and EBITDA margin increased 110 basis points to 36, 4% adjusted depths was $3.76.
28% above prior year and also above our Q2 guidance range of $3.61 to $3.65 free cash flow was $409 million up a very strong 30% versus last year. As a reminder, last year. We adjusted our Q2 cash flow to account for the income tax payments that were deferred from Q2 to Q3.
Due to 2000 Twenty's delayed tax deadlines net working capital was negative 8%, we continue to benefit from ropers transformation to a high recurring revenue majority software business model that is structurally designed to consistently drive high cash conversion.
Lastly, we have been laser focused on debt reduction this year after last year's record capital deployment, and we continue to make great progress on that front with an additional $375 million Paydown in Q2. So in summary of excellent second quarter wrapping up a very strong first half Rover next slide turning to page 7.
The update to the charge, we introduced last quarter, showing a rapid deleveraging due.
Through the first half of 2021, we have now reduced our net debt by nearly $900 million raising the total debt reduction to approximately $1.4 billion since completing the 2020 acquisition late last year, our debt reduction along with the meaningful contributions from our 2020 acquisitions has enabled us to rapidly lower on <unk>.
Net debt to EBITDA ratio from 4.7% of 3.8 and only 6 months.
We expect this downward trend in leverage ratios to continue moving forward, which positions us well for a return to meaningful capital deployment in the coming quarters, So with that I'll turn it back over to Neil to discuss our segment performance.
Thanks, Rob, let's turn to page 9 and walk through of application software segment.
Revenues in this segment were $592 million up 9% on on organic basis. As a reminder, this segment grew 1% organically last year aided by strong results from our lab software franchises that were critical to the Covid response.
EBITDA margins were 43, 7% in the quarter.
Across the segment, we saw organic recurring revenue, which is a touch north of 75% of the revenue for the segment increased approximately 9%.
This recurring revenue strength is based on strong customer retention continued migration to SaaS delivery models, new products cross selling activity and new customer adds to that in the.
The non recurring organic revenue in the segment grew 9% as well.
Specific to business unit performance Deltec, our enterprise software business that serves the U S. Federal contractor architect engineering, and other services and market had an excellent quarter.
Strength was rooted in large scale of <unk> customer wins and expansion activity Delta.
<unk> was further benefited by the recovery on the professional services end markets terrific job by Mike and the entire team at Deltec.
Our legal software business continues its momentum and market share gains. In addition, and encouragingly there customers are beginning of the journey of migrating to <unk> cloud solutions. This will take many years for the entire customer base. The migrate but will result in increased customer intimacy and higher levels of recurring revenue.
<unk> and data innovations continue their long string of market share gains in the quarter.
Seaboard grew based on strength in healthcare and in particular their higher education product offerings.
Finally, our 2020 cohort of acquisitions continue to perform very well, both the vertical and EPS Si.
As we turn to the outlook for the balance of the year, we expect high single digit organic growth for the segment based on strength in both of our recurring and nonrecurring revenue streams of solid quarter here for sure.
And with that let's turn to our next slide.
Turning to page 10 revenues in our network segment were $459 million up 5% on on organic basis, and EBITDA margins were 42, 5% in the quarter.
Our software businesses in this segment about 65% of the revenues were up 10% on on an organic basis.
This growth was broad based among our software businesses and driven by organic recurring revenue growth of approximately 11%.
At the business level, our freight match businesses, both in the U S and Canada continued to be solid growers.
As a reminder, our freight match networks are critical and necessary elements to help organize interact and transact the trucking shipping spot markets.
<unk> of our businesses have been on both sides of the network brokers and carriers, but with particular strength in this quarter on the carrier side of the network.
We also continue to see nice organic gains of construction net as our network enables commercial construction planning and bidding to occur in a more efficient and transparent manner.
Foundry, our media and entertainment software business, which enables the combination of live action and computer generated graphics to be combined into a single frame recovered nicely in the quarter with particular strength in the mid market.
Importantly, we continue to see very strong customer retention levels across each and everyone of our network software businesses.
The strong growth in our software businesses was partially offset by project delays in our Transco, New York congestion pricing project.
These delays are based on pending federal environmental approvals.
While we all believe the federal approval will be granted the approval process to complete our work is taking longer than originally anticipated.
Conversely transport tagged demand appears to be normalizing for the balance of the year.
As we look to our second half outlook, we expect to see high single digit growth in this segment the growth will be underpinned by strength in our network software businesses, which we expect to grow in the low double digit range in the second half of the year.
Based on the New York Trans core projects pushing to the right. We now expect about $40 million of this projects revenue of the push out of the second half of the year on end to 2022, all in all of high single digit organic increases in this segment for the balance of the year. Please turn to the next slide.
As we turned the page 11 revenues in our Mds segment were $397 million up 7% on organic basis organic growth in this segment, excluding verathon was north of 20%.
EBITDA margins for the segment were 33, 4% in the quarter.
Verathon coming off of unprecedented demand for their intubation family of products a year ago is roughly 40% larger today versus 2019.
The momentum within this business continues given the larger installed base of intubation capital equipment, which enables recurring consumable pull through volumes. In addition, verathon continues to experience impressive growth within the bronchoscope product family and the recovery in the bladder scan ultrasound product group.
EBITDA margins in the segment were lower due to verathon as extraordinary prior year quarter and the associated margin benefit.
Our other medical product businesses accelerated nicely in the quarter based on hospitals and hospital equipment Oems resuming normal levels of activity.
Demand at Neptune was very strong as well the northeast opened up and the balance of the country experienced normalizing levels of activity of activity.
Our industrial businesses were strong as I mentioned the in the opening the strength was buoyed by improving consumables activity and solid returns to capital equipment spending.
Our businesses within this segment have done a nice job navigating the difficult supply environment and supply environments like the 1 we're in right now are decentralized highly nimble organization tends to perform quite well this quarter was no exception.
For the balance of the year, we expect double digit growth for this segment. This is based on broadly improving conditions, both in medical and industrial markets and easing prior year comps are verathon.
Now, let's turn to our final segment process Tech.
As we turned the page 12 revenues in our process Tech segment were $140 million up 13% on organic basis.
EBITDA margins improved by over 500 basis points to 32, 8% in the quarter the.
The short story here is we're seeing improving end market conditions across virtually every 1 of our businesses in this segment.
After over nearly 2 years of declines.
Our upstream oil and gas business has started to recover nicely.
Cornell continues to perform well for US. This is partially based on market conditions, but also based on Cornell's product innovation as they're seeing very nice demand pickup for the Iot connected pumping solutions.
And finally at CCC, we're seeing the resumption of previously deferred projects and the demand for field services to come back online.
Also of Greenfield bidding activity is back in full swing, especially on an international basis.
As we turn to the outlook for the balance of the year, we expect 20% plus organic growth based on improving market conditions and continued easing comps.
Now please turn to page 14, and I'll highlight our increased guidance for 2021.
Based on strong first half performance improvement to our recurring revenue growth rates and improving market conditions, we are raising our full year adjusted depths to be in the range of 15% and $15.20 per share.
Of note our prior high end depth guidance was 15 now of the bottom end of our range also we are increasing our guidance notwithstanding pushing roughly $40 million of the Transco, New York City project into next year, providing everyone. A good sense of how strong the balance of our portfolio is performing.
Our full year organic growth is expected to be 7% or a touch higher.
This full year growth outlook implies low double digit organic growth in the second half.
Our tax rates should continue to be in the 21% to 22% range.
For the third quarter, we're establishing adjusted <unk> guidance to be between $3.80, and $3.84.
Now, let's turn to our summary, and get to your questions.
Turning to page 15 in our closing summary, this was a very strong quarter for enterprise with software revenue is growing on an organic basis, 9% and our application software segment and 10% for our software businesses in our NSS segment and.
In addition, the recovery pattern is characterized is gaining momentum and being broad strength in product and software strength and our recurring and nonrecurring.
We performed very well virtually every financial metric growing 20% plus on revenue EBITDA EPS.
And cash flow.
EBITDA margins expanded by 110 basis points and free cash flow increased 30% the $409 million in the quarter.
As promised we continue to delever, our balance sheet, reducing debt by $375 million in the quarter and by $1.4 billion since completing our 2020 acquisitions in Q4 of last year.
As we look forward positive momentum continues to build.
Over the last decade, we have worked to improve the quality of our portfolio to be more software base, resulting in the enterprise, having higher levels of recurring revenue and be increasingly asset light.
In addition to having this improved quality within our business portfolio, we're seeing a recurring revenue growth rates improve from mid singles to high singles <unk>.
Finally, our businesses will benefit from improving end market conditions.
Given each of these improved portfolio quality, improving recurring revenue growth rates and improving market conditions, we expect to see double digit organic growth in the second half of the year also our 2020 cohort of acquisitions continue to perform very well and solidly contribute to an improved the quality of.
Our enterprise.
Given all of these factors, we are increasing our outlook for the full year.
Finally.
While we continue to focus on deleveraging our balance sheet. We also remain committed to our long term capital deployment strategy to this and our pipeline of M&A candidates as active robust and has many high quality opportunities.
As our balance sheet becomes more offensive towards the end of the year, our active pipeline of M&A targets will enable us to resume capital deployment in our usual process oriented and disciplined manner and with the.
Let's turn to your questions.
We will now go to our question and answer portion of the call we request that our callers limit their questions to 1 main question and 1 follow up.
If you'd like to ask a question you may do so by pressing the star key followed by the digit 1 on your Touchtone telephone if youre using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then 2.
Again, we request that callers limit their questions to 1 question and 1 follow up.
At this time, we will pause momentarily to assemble on our roster.
Our first question comes from Deane Dray from RBC capital markets. Please go ahead.
Hey, everyone.
Good morning, Deane, and maybe we can start and measurement and analytical.
The point is there were some soft spots on the margin side I know you called out supply chain is how much of an impact was that higher input costs, and then for Verathon and no really tough comp and.
But and sadly it looks like this latest COVID-19 surge has kind of put this product back in demand for ventilators. So just are you ready for that capacity.
And.
Just start there please.
Yes sure good morning, Dean on margins really it's driven by Verathon and just that exceptional quarter last year and so with the with the decline this year a little bit lower there is certainly some supply chain things going on everywhere like every other company.
Not really a meaningful impact for us and I'll, let neel talk about the merits of my question, Yeah, and again just to Echo what Rob said the margin pressure. There is just verathon was amazing last year and they were deleveraged as you'd expect them. This year in terms of the capacity of their the companys perfectly fine.
<unk> ramped up the last year in a way that was unprecedented and as we look back in <unk>.
We're sort of amazed at how the company operation was able to do that.
I would also just highlight for Verathon. It was the demand there was a little bit driven by buy ventilators, but a lot of bits by the anesthesiologist in the people do the intubations wanting to do it at an arm's length away for general surgery.
As opposed to when you do a direct.
A direct intubation, you'll have the visualize the vocal cords and Youre right on top of the patient or product allows you to do with the monitor and be arms length, and so it's less of the demand is less about about the ventilators and more about just a better more effective way to do on intubation. So much so that the total percentage of intubation has done now versus.
The 2018 or 19 using video assistance, we believe is permanently meaningfully higher so it should be a long term tailwind for the business.
Great and then just second question for US is the deleveraging, which has been happening faster.
Yeah, no the target has been to get to the mid 3 times leverage it looks like you could be there next quarter.
And notably you talk about back playing offense.
Talk about the funnel. It's interesting that you are using a new data point of.
The size of the funnel at 150 billion as opposed to talking about the number of potential assets. So just flesh out what the funnel looks like and the <unk> the.
The assumption that you could be getting to that mid threes sooner than originally projected.
Yes, so relative to the leverage and getting there I mean, we.
Essentially when we did the larger transactions last year, we thought we'd be and strike zone of being back in the M&A business sort of late this year into early next year and I think we're just on track of that made the pacing of touch ahead, but cash flow has been amazingly strong in Q4, Q1, and Q2, which has certainly helped relative.
The relative to the pipeline of the characterization of the pipeline.
It is just there is a lot of great things, but for my 10 years here Theres always been a lot of great things of any moment of time to buy.
I would remind you and everybody that.
We do a lot of work well ahead of when assets are actually for sale I'll remind you that vertical where we met with Amy and the team 8.
18 months before we ultimately bought the company and so we do a lot of early spade work understanding of the business is understanding the management teams and tracking and that's the activity. We've done this year the sort of position us for late this year on into next year of deploying capital.
That's helpful. Thank you. Thank you.
The next question comes from Christopher Glynn from Oppenheimer. Please go ahead.
Yes, thanks, good morning good.
Good morning.
I'm curious about adder in the share gain that's been going on for some time just curious how you see the duration on that dynamic yes. I. Appreciate the question about add on and it's a business that we don't get a chance to talk about very much and dean and Chris and Rafi and the whole team there has just done.
Really a remarkable job I think the success here at <unk> is a combination of a great leadership team and a great market with a great product, but also complemented by our governance system that focuses over the overall success of our long arc of time, so the share gains of our principal competitor as you mentioned has been happening for essentially since we've owned the business.
There is just a couple of years of inventory left in terms of those large law firms that have yet to make a decision on their enterprise system between us and our primary competitor, but thats been of known issue for 3 or 4 years now of that inventory is going to run out in 2023, 2024, and so out of it goes to work on their product offering.
They go to work on their cloud solutions, we've done a couple of bolt on acquisitions in that business to where the if you will the debit that existed on 2023 of 2024 relative to the growth rate 4 of 5 years ago. Now there was no longer exists in any capacity and we believe at or it will grow easily grow through the debit.
Of the product portfolio of the cloud migration and really the long term planning and execution of that team.
Thanks, a lot of information there.
Just curious if there is any particular second half mix dynamics across the segment, we should be mindful of.
Not really.
We laid out each of the segment of what we see for organic for the second half of it's really great results.
We're expecting in <unk>.
Q3, and Q4 relatively similar margin dynamics.
The leverage as you know as the businesses start to grow, especially the the industrial and the process things. It's always very strong on the rebound and then the software businesses are always strong no matter, where you are.
And any sort of the cycle. So we feel we feel really good about the second half.
Sounds good thanks, guys. Thank you.
The next question is comes from Allison <unk> from Wells Fargo. Please go ahead.
Hey, guys good morning.
People want to keep on the application software segment and I know you have a pretty strong outlook in the second half in terms of that high single digit organic growth.
And on political carrying and the non recurring revenue I started in the non recurring more specifically of starting to grow how do we think of those dynamics in the second half, particularly just given easier comps at least on the nonrecurring side.
Any thoughts there.
Yes, I think so Allison.
Tackle that sort of recurring and nonrecurring broadly in application software and if I don't exactly land on your question then circle back to us on that so the second half for organic recurring is strong right. So the dynamic there is that in the middle of Covid recurring was.
More generally speaking across our enterprise mid singles, that's ticking up the high singles. The reason for that is twofold..1 is that you have more additions product and customer additions today, both perpetual and SaaS related that drive the recurring but then also you have the our software businesses that were most negatively impacted by <unk>.
<unk> now being coming out of the ditch think of like in the application software think of Seaboard for instance, so not only do they have good bookings performance in the quarter, but they saw a bit of a tick up in their transactional revenue stream.
In Q2 and that will continue even more of Q3 and Q4 is as kids get more on campuses in K through 12 and higher education.
No. That's helpful. That's helpful and kind of a similar dynamic with measurement and analytics.
And businesses like net recovery there is there a way to kind of say relative to what you would think is normal there in terms of that volume army far off of it or are we kind of there are a little bit of bonds, just trying to sense of any pent up demand that's coming out of that so of Neptune. We're returning to normal. So think this we believe.
<unk> of that 2021 revenue will be equaled 2 ish 2019, maybe a touch higher so in terms of actual activities June for Neptune I believe was their highest bookings month in the history of the company of the guys are nodding their heads. So the actual current momentum is great I don't think we expect that to some.
<unk> itself for the balance of the year, just get more normalized as the northeast is open Canada is not open quite yet we expected to come online here in <unk> and <unk>, but that gives you a sense of what's happening at Neptune and I will just add to that is you talked about SaaS. You also have the medical product businesses that arent marathon right that were impacted negatively.
Lee throughout the Covid those are now really rebounding very strongly and that's just the beginning as we are getting to sort of more normalized.
All of it.
In the medical world outside of the <unk>.
It's an issue.
Perfect. Thanks, I'll pass it on.
Thanks.
The next question comes from Julian Mitchell from Barclays. Please go ahead.
Thanks, very much good morning.
Thank you.
Just wanted to circle back firstly on the software businesses Neal you talked about I think there was obviously the the cyclical aspect to an extent of the the recurring revenue growth profile improving also it sounds like as if there's something more structural going on in driving that.
So maybe help us understand what those aspects might be I know your R&D to sales has gone up substantially in recent years.
And also then.
Within within application just give us some update on the it's a full of performance relative to expectations on accretion and the returns.
Okay. So let's take the software recurring question other than what I just mentioned about the the shorter term dynamics of mid singles going the high singles on the recurring revenue base. The structural element that's underpinning of this the migration to the cloud.
Do you think we have our network businesses are almost all of our almost all cloud as it speaks today delivered in that in that manner. The application businesses you have deltec. That's on its journey of add on is just starting its journey you have power plan. That's just starting his journey of seaboard. The just starting its journey and as we mentioned many times.
510 years to complete the migration maybe longer but as you do that youre lifting customers that are paying your maintenance and getting them into the cloud our large installed base and thats accretive meaningfully accretive to the recurring net revenue growth rate.
Relative to the vertical I appreciate the question of vertical for US just just the rock solid business.
As we mentioned we bought it's 90 plus percent recurring in terms of its revenue stream. It's on track for against our models on our deal.
The models and sort of our expectations Q2 was a touch better than we thought but all in all I'll call. It on track.
Relative to the financial performance and are specific to the company itself Amy and her team.
They've demonstrated it.
Wonderful ability to land new large customers I think we mentioned in Q4 of last year. Maybe Q1, we've won the largest deal in the market. Since we've owned the company, which is encouraging the customer base really appreciates the steady hand of ownership of Roper as opposed to trading every 3 to 5 years.
The private equity and so it's still early but the early days are certainly positive.
Thank you and then just my follow up around the measurement and analytical solutions. It was touched on a little bit earlier, but the margin. Obviously you had sort of 3.
300 bps of year on year pressure in Q2 on that margin line just wanted what's baked into the second half guidance on margins year on year in that segment I think last second half day with sort of.
The 34, 5% roughly.
Just wondered why you think this second half shakes out in and those margins relative to that.
Yeah. So in our guide we are assuming a little bit lower than that because you still had.
Verathon very very strong in the third quarter in the fourth quarter was more normalized so we have built on the guidance a little bit down from last year, but better than Q2 from the from a year over year. The standpoint, yes, it's principally verathon and we baked on a little supply chain pressure.
Great. Thank you.
Yes.
The next question comes from Joe Giordano from Cowen. Please go ahead.
Hey, good morning, guys.
Good morning, Joe.
Hey, Mike.
John.
World year, I guess, we continue to be where markets are at highest rates keep pushing lower than everyone kind of scrambling to.
Transact deals with really good balance sheet. So I'm just curious when you talk about the funnel.
Have you seen kind of increased pressure on competition, just because of the nature of where liquidity is and where rates are.
So we haven't we've while we've been in the market and talking with companies. We haven't been actively bidding on a large number of assets in this interim period as we have been deleveraging. So I can't speak with specificity to deals that we've done but what I can speak to is what we are observing from other other company.
These and other transactions that are happening here in the last quarter.
I want the time bound it since the beginning of the year valuations for the assets that we look at actually feel like they've pulled back of touch they've actually gotten a little bit better maybe moderate maybe they're flat, maybe they're a little bit better, but theyre certainly not increasing.
It seems to be the case really since 2013 of 2014, So let me be that bodes well, but we will be able to speak more of that as we get more into the market and the start bidding on activity here of late this year on the next year.
And then just a question on on the New York Project.
And this is kind of the.
An initial foray into this type of work for Big cities and do you think that the amount of regulatory problems of this is Ed.
<unk> makes it less likelihood of the city's tried to explore this or is that and the revenue potential for something like this outweigh a way debt from the from the point of view of the city leaders.
Well first I'd say I wouldn't characterize this as the regulatory problem I would characterize it as the regulatory process that has slowed down the project and so it's not as though people are saying no. It's just the process of the take time.
We all believe by the way the federal approval will occur at the end of the day, it's an environmental approval and this is about reducing cars the congestion.
And of pollution.
In New York right. So it is on environmental friendly exercise I think this is just the first in the United States I think MTA in New York or sort of sort of carving out what this looks like and sort of setting an expectation for the other cities in the U S. But eventually follow suit. So no I don't think it will slow things down if anything that might speed up because of the known road road bumps or sort of.
Well understood now.
Thanks, guys.
Thank you.
The next question comes from Steve Tusa from Jpmorgan. Please go ahead.
Hey, guys good morning.
Morning, Steve.
Just a question on on.
On the vertical for.
The and the acquisition contributions at the E&S I think last quarter it was like 39%.
The quarter was 38 is there any like revenue volatility at all seasonally at Virtu for I mean, it's only like 10 million bucks or something but.
You also had the Spi in there wherever the the smaller 1 is.
And any of any seasonality to those revenues at all.
Hey, Steve there is the type of seasonality. So very force Q1 is usually season of their best quarter, but youre right. Its just a few million dollars difference and then CSI acquisition of our integration with strata is ongoing.
So thats going very very well I think there are some customers that are choosing to go with strata instead of EPS, which is a wonderful thing.
That thing is coming together and so that again could give you a couple of million dollars of revenue here and there and that ends up in <unk> versus the EPS.
But overall, they're both of the deals are on track to our model as Neil mentioned got it and then just lastly could you just remind us of anything seasonally on the on free cash flow.
This year is kind of unusual.
Or maybe it's not.
With the first quarter being strong in the second quarter kind of getting back a little bit sequentially.
Anything in the second half moving mechanically that moves around seasonally.
How the how do we think about kind of the sequential for free cash of 1 yeah. So as you know the second quarter has 2 federal tax payments. So it's always our lowest conversion quarter now as we've talked about there is the benefit from the verdict for tax attribute.
Which we've which helped us in the second quarter against the payroll tax headwind as we talked about last last quarter. So if you net the 2 together probably $40 million benefit for the second quarter.
Then for the second half of the year, though of those things really cancel each other out there's really no benefit from that of the second half of the year.
Or.
Any sort of of headwinds so as you move forward Q3, and Q4 conversion should be.
Pretty normal to what we normally see which is 80% plus when you look on the EBITDA to free cash flow, Okay got it so like.
There are a number of like so $1.9 billion for the year something like that in cash.
Yes, I think 80% EBITDA to free cash flow conversion in the second half is kind of of we're expecting again.
The math that was the second half of them. Okay got it awesome. Thank you. Thanks, John Thank you.
The next question comes from Alex Blanton from clear Harbor asset management. Please go ahead.
Good morning.
Hi, Allison.
Net core it's great.
Could you comment on seaboard.
It looks like for the fall with the universities.
Getting back into operation the more normal way.
New items.
Yes delighted to talk about Seaboard ahead of great. They had a great quarter.
On the bookings activity in the quarter was just was just fantastic.
The vast majority of the bookings activity in the quarter wasn't higher education. So you'll see these of universities.
Really preparing the ramp up it is a combination of the integrated security.
Platforms and the.
The payments platform.
And as you know we of integration with the iPhone now for <unk>.
The access to the campuses and so there are certainly preparing and it was just a great bookings quarter on that front for seaboard.
Okay. Thank you very much.
Thank you.
The next question comes from Rob Mason from Baird. Please go ahead.
Yes, good morning, John and thanks for taking the question just back to the MTA project real quick.
Could you just clarify how that will shake out how the rest of the.
The revenue will shake out first half second half I think we were originally expecting about $100 million for the year. So now maybe that goes to 60, but just how that 60 would break down first half second half.
Happy to do it Rob yes, so we had about 35 in the first half and we're assuming about 25% in the second half and it's relatively split between Q3 and keep on the project continues its just sort of everything is slowing down so we're continuing to work and Thats what.
If they can turn the switch tomorrow and that could speed up but thats. The we're assuming from a from a modeling standpoint, okay.
Okay, and then completion would be assumed of the installation would be assume next year then.
Best of the current that's the working assumption yes.
Just the second question Neil.
Spoken about the freight matching business day.
And that continues to be a very dynamic space.
And you obviously have a very strong legacy position there.
But I'm just curious if you could speak to how.
You are evolving the product given the way the market's evolving in that space and some of the things you've done or maybe what.
Youre contemplating for future investments around that business Yeah I appreciate the question.
Youre right its a wonderful business and a wonderful space that enjoys a 3 to 4 ex relative market share advantage are our principal competitor. So we have tremendous scale advantage in this freight match spot market for freight in North America. It is the marketplace. It's a 2 sided network it's paid by.
Both the carriers and the brokers theres value on both sides of the equation for sure the Big thing Thats happening in the space as the brokers are becoming more tech enabled right. So how do you match and connect.
Shipments with fewer and fewer calls and sort of complete automation straight through a dynamic is very similar to our business and the life insurance is very similar to vote of 4 conceptually how do your tech enabled the agencies to do their job and that's precisely the product roadmap of the Ats endeavor endeavoring right. So you'll have the high end of folk.
That are going to do a lot of this on their own and then you have the very long tail of thousands and thousands of brokers that are going to rely on our technology to do that it's part of the reason of why the strength of this in the market today strengthening the business today. It's also what we believe will happen when you can organize the spot market and a more efficient way with less.
Friction cost match of load than the spot market will compete very favorably against the contracted market, which is much larger so we believe there'll be a permanent market share shift into the spot market, which will further benefit our business the brokers et cetera. So it's.
We're very bullish on this for the long term.
Is there the need to stretch back to the the shipper the origination side for this business.
We did an acquisition last year.
That.
That works with the shippers to understand volumes and rates and pricing and we of an integrated offering now that shares sort of that provides pricing between the contracted market in the spot market. So we have an increasing relationship with the shippers, but the brokers provide.
A high and legitimate value in this value chain right. So I think there will always be shipper, principally shipper to broker carrier relationship is just going to be of more automated.
With the.
Our relationship.
This concludes our question and answer session. We will now turn the call back to Zack Moxie 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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