Q1 2023 Roper Technologies Inc Earnings Call
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Speaker 2: will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero. I would like to turn the call over to Zach Moxie, Vice President in Special Relations. Please go ahead.
Speaker 3: Good morning, and thank you all for joining us as we discuss the first quarter financial results for ROPR Technologies. Joining me on the call this morning are Neil Hund, President and Chief Executive Officer, Jason Conley, Executive Vice President and Chief Financial Officer, Brandon Cross, Vice President and Principal Accounting Officer, and Shannon O'Callaghan, Vice President of Finance.
Speaker 3: Earlier this morning, we issued a press release announcing our financial results. The press release also includes replay information for today's call.
Speaker 3: 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 page 2.
Speaker 3: We begin with our Save 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 page 3. Today we will discuss our results primarily on an adjusted, non-gap and can-
Speaker 3: and in the appendix of this presentation on our website. And now, if you'll please turn to page four, I'll hand the call over to Neil. After our prepared remarks, we will take questions from our telephone participants.
Speaker 3: results with you which were quite good. As we turn to page four let's look at today's agenda.
Speaker 4: We'll start with our enterprise highlights and financial results.
Speaker 4: then turn to our segment specific discussion.
Speaker 5: Next slide please.
Speaker 4: As we turn to page five, the three main takeaways for today's call are first
Speaker 4: The year is off to a strong operational and financial start as our higher quality enhanced portfolio is obviously performing really well. Second, we're increasing our foliar guidance both in terms of organic revenue growth and adjusted depths.
Speaker 4: As it relates to our first takeaway, a strong start to the year, we saw total revenue grow 15% and organic revenue grow 8%.
Speaker 4: Consistent with our long-standing strategy, we continue to not only scale our enterprise, but also simultaneously improve its underlying quality and recurring revenue base. Importantly, we had very strong cash flow performance with free cash flow margins in excess of 30%. Our results this quarter are another proof point that our higher quality, less cyclical portfolio with purpose-built 2011
Speaker 4: in the quarter, we held our first ever Roper Leadership Summit, where we had our 27 business unit presidents together and shared best practices and learnings across a variety of topics.
Speaker 4: including strategy development, strategy enablement, and team and talent. While honoring our high trust autonomous model, the operating corporate teams left feeling a true sense of community. It was a terrific week. Given the strong start to the year, or increasing our full-year organic growth outlook 100 basis points from 5% to 6%,
Speaker 4: to 6 to 7 percent and increasing our full year DEPS guidance to be 1610 to 1630 or 15 cents at the midpoint. Our previous DEPS guide was 1590 to 1620. And finally, we continue to be well positioned relative to capital deployment. We remain quite active in the market as we evaluate and actively diligence many high quality opportunities.
Speaker 4: Jason, I'll turn the call over to you so you can walk through our first quarter results and our strong financial position. Jason. Thanks, Neil, and thanks everyone for joining us this morning. Turning to slide six, we're very pleased with how Q1 shaped up. You came in at 1.47 billion or 15% over prior year.
Speaker 4: This was through a combination of strong organic growth of 8% and an 8% contribution from acquisitions led by Frontline, and this was slightly offset by a 1% FX headwind. Growth was broad-based across the segments and a little better than expected. Broadly speaking, custom demand was favorable in the quarter and order pipelines remained strong.
Speaker 4: EVA-DAL was $582 million, or 15% of our prior year, with margins roughly flat and in line with expectations. Depths of $3.90 was up 19% of our prior year and 6 cents above the high end of our guidance range of $3.80 to $3.84. Every cash flow of $445 million was 4% higher than prior year.
Speaker 3: In our Q4 earnings call, we highlighted a $45 million settlement of a patent dispute for certain barathon sales dating back to 2004. We paid that this quarter, so adjusted for this settlement, free cash would be 33% of revenue, and up 14% over prior year.
Speaker 4: We saw very good cash performance, especially at our software businesses.
Speaker 4: where Q1 renewals and related collections came in strong as expected. As I mentioned last quarter, Frontline will collect most of their renewals in the third quarter, so it's a bit of a drag on conversion in the first half.
Speaker 3: So overall, just a really great start to 2023.
Speaker 3: Now turning to slide 7, we'll spin through our balance sheet. Coming off solid Q1 cash flow performance, our balance sheet continues to strengthen. Gross debt was around $6.7 billion and our cash balance has grown to just under $1.2 billion, which yields net debt just shy of $5.5 billion.
Speaker 6: This puts our net debt to EBITDA ratio at 2.4, which was down from 2.7 at year end.
Speaker 6: This coupled with our undrawn revolver, 3.5 billion, gives us capacity to deploy 4 billion or more in the near term.
Speaker 6: To that end, we've been quite active in 2023, evaluating a number of platform and bolt-on opportunities. As always, we will remain disciplined and patient in our capital deployment process. With that, I'll turn it back over to Neil to talk about our segment performance and outlook. Neil? Thanks, Jason. Let's turn to page nine and walk through our Q1 highlight for application software segment.
Speaker 4: Revenue is here over 761 million, up 6% on organic basis, and EBITDA margins were 43.2%. Performance in this segment was strong across the board. To highlight a few of our business performance, we'll start with Dell Tech.
Speaker 5: Go Tech with solid.
Speaker 4: As we mentioned last quarter, Deltech did see some slower customer decision making, but that was largely rectified this quarter.
Speaker 4: Deltech had double-digit bookings in a quarter with strength across both enterprise class and SMB-sized customers, as well as government contracting and private sector solutions.
Speaker 4: As usual, both gross and net retention and deltac remain strong and consistent with recent history.
Speaker 4: Adirate, our software business focused on the needs of law firms, continues to compete and win and take share from our competitors.
Speaker 4: In the quarter, added experienced record bookings and continued success in adoption of their staff solutions.
Speaker 4: Great job by Chris, Rafi, and the entire Addern team.
Speaker 4: Verifor, our software business at Tech Enables, property and casualty insurance agencies, have listed another solid quarter and continues to perform quite well for us.
Speaker 4: Of particular note, VertiForce recent acquisition of MGA systems, a software solution targeted to managed general agents or MGAs, is proving to be highly strategic and bookings activity of tracking ahead of plan.
Speaker 4: Frontline continues to perform quite well for us in the first couple quarters of ownership. Frontline's vision is to empower the front line of education.
Speaker 4: As many of you know hiring of teachers and administrators staff is particularly challenging and frontline software solutions better equipped K12 school districts to navigate these challenges.
Because of this, frontline solutions are mission critical and of high importance to their school district customers.
For a segment, even our margins were down 90 basis points year-to-year in line with our expectations.
Our acute care software businesses, especially Clinicsys, Data Innovations, and Strata, are ramping up their implementation capacity based on recent bookings momentum.
We expect to see similar margins in Q2.
Looking to the balance of the year, we expect to see organic growth in the mid-single-digit area for this segment.
based on our leading market positions and growth in recurring revenue. Turning to page 10, revenues in a quarter for a network software segment were 355 million, up 6% on an organic basis, and EBITDA margins were strong at 53.1%.......
As with our application software segment, Grozen Performance was broad-based across the segment.
Relevant to business specific comments, we'll start with our US and Canadian freight matching businesses DAT and Loadlink, which both grew nicely in the quarter.
While freight marketing conditions are softer than this time last year, our businesses in this space are critical to the operation and execution of the spot freight market.
In addition and importantly, the spot market is a long-term secular beneficiary in terms of the volume of future freight shipments.
Throughout and across the freight and economic cycle, DAT and Lodely continue to innovate and launch new products and offerings to help drive enhanced customer value and share of wallet.
with the current products that are already focused on tech enabling the connectivity between brokers and carriers. IPiPwine, our network software business at Tech Enables, the distribution channel for life insurance and annuities, is coming off the terrific 2022 and continued its high level of execution this quarter.
with very strong bookings retention and customer expansions. Foundry continued to string a strong performance in the quarter and had terrific seat growth for their flagship product Nuke, which enabled continues double digit recurring revenue growth.
As we mentioned last quarter, Foundry commenced their subscription pricing transition for Nuke and Q1 had north of 50% of their Nuke seats sold under their new model ahead of their plan.
Finally, our alternate type healthcare businesses, MHA, SoftRiders, and SHP, were strong in the quarter.
Execution was solid and the business was benefited by an improving census in skilled nursing, assisted living facilities, and home health, reaching the highest occupancy levels and patient volumes since the onset of the pandemic.
Turning to the balance of the year, we expect to see mid-single digit organic growth for this segment based on broad and sustained growth across this group.
As we turn to page 11.
Revenues in the quarter for a tech and able product segment were 354 million, up 14% on our organic basis.
Even on margins for this segment, we're 34.7% in the quarter. Across the segment, business performance and execution was solid.
Importantly, the broad-based supply chain issues continue to wane. Though we're not entirely out of the woods, we can now see a path to a more normalized supply chain environment.
Next, our water meter and technology product business continues to be just great.
In the quarter, they had record revenue performance and set records for backlog levels. Importantly, Neptune continues to see increasing demand and momentum for their residential and commercial ultrasonic or static meters.
We remain foolish on Neptune and the market in which they compete, as this market tends to be quite steady as Neptune's customer budgets are typically fixed year to year and not tied to broader macroeconomic trends or cycles.
We remain foolish on Neptune and the market in which they compete, as this market tends to be quite steady as Neptune's customers' budgets are typically fixed year-to-year and not tied to broader macroeconomic trends or cycles. Great job at Neptune and congrats!
Varathon was strong in the quarter as well with double digit order growth. Specifically, Varathon saw strength across their reoccurring single-use products, both bronchoscope or B-flex and video innovation or glide scope, as well as bladder scan capital purchases.
Importantly, Verathon has four product launches scheduled for the next few months, which will help continue their market share gains and momentum.
Northern Digital, or NDI, was also strong in the quarter and continued to see terrific demand for their optical and EM solutions.
NDNI's NBI's enabling measurement technology is used by scores of medical product OEMs and solutions such as robotic assisted surgery and across multiple cardiac specific modalities.
NDI's high level of market focus and operational discipline will enable them to continue to be the market share leader for these measurement technologies long into the future.
Our outlook for the balance of the year for this segment has improved to be in the low double digit area, and it's based on continued strong orders and improving manufacturing productivity at Neptune, as well as an improved growth outlook across our medical product businesses. Now, please turn to page 13 and let's review our increased...
2023 guidance.
For 2023, we expect total revenue growth to be north of 12%. In addition, we're updating our organic revenue growth outlook to be in the 6 to 7% range and increase for original guidance of 5 to 6%.
As a result, we're increasing our depth guidance to be in the range of 1610 and 1630 up for our prior guidance of 1590 to 1620. Assume there is guidance to the tax rate in the 21 to 22 percent area.
Specifically, the second quarter where establishing our debt's got is to be in the $396.4 range. Please turn with us to page 14 and then Jason, I look forward to answering your questions.
As we turn to page 14, we want to leave you with the same three points with which we started.
First, 2023 is off to a great start. We saw revenues increase 15%, so 1.47 billion in the quarter.
This growth was underpinned with 8% organic revenue growth and 8% recurring revenue growth.
In addition, margins were quite strong.
This quarter's financial and operational performance is yet another proof point of our capabilities and frankly the expectations of our improved higher quality portfolio businesses.
Most importantly, our revenue growth translated to impressive cash flow growth, with our underlying free cash flow growing 14%. As you know, we view cash flow growth as the best measure of performance. Second, based on the strong start to the year, the highly occurring nature of our revenue stream, and the importance of our solutions to our customers, we are increasing our full year organic revenue growth outlook to be between $2.5 million and $2.5 million.
So as always, we remain super patient and highly disciplined to ensure optimal deployment of our available capital.
Now as we turn to your questions and if you could flip to the final slide, our strategic flywheel, we want to thank those of you who joined us in New York or online last month for our first ever investor day.
During that long-form overview of Roper, we are excited to share with you our long-term strategy, the high-quality nature of our portfolio businesses, our operating ability to improve our businesses, our process-driven capital deployment approach, and our compelling long-term business model that compounds cash flow in the mid-teens area.
So thank you for your continued interest in ROPER and with that let's open it up to your questions.
We will now go to our question and answer portion of the call. We request that our callers limit their question to one main question and one follow-up. If you would like to ask a question, you may do so by pressing the star key followed by the digit 1 on your touch tone telephone.
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The first question comes from the line of Dean Dre with RBC Capital Markets. Please go ahead.
The first question comes from the line of Dean Dre with RBC Capital Markets. Please go ahead.
Hey, good morning, everyone. Hey, Dean, good morning. Hey, it was great to see everyone in New York last month. Hey, just maybe we can start off, and it's a bit of a follow-up from last quarter with Dell Tech on some of the slowing and decision-making. This is kind of what everyone's watching.
and so forth. But the idea of slower customer decision making, maybe just give us an update on how that played out, you know, time to sign contracts, any new logos, just any call it there would be helpful.
Yeah, sure Dean had to lie to talk about it. It's something that we spent a tremendous amount of time talking to our Earlyorship teams our group of check is about trying to understand the signal You know set set the obvious context we spent the last you know several years trying to really work out the sickle quality the portfolio
And we're also in these very small niche markets where the customers tend to be not that cyclical. So the signal for us is faint.
It's not nonexistent, but it's faint. You know, last quarter we certainly talked about Deltech and them having some slower customer demand, as we said in the prepared comments, that largely, if not fully rectified itself this most recent quarter.
2 or 3 quarters ago, we talked about the same thing going on a power plan that rectified itself the subsequent quarter as well.
Some of the other macro things we listened to, you know, the amount of property casualty insurance written as a sign of sort of business formation or business growth continued to grow. Some of those applications got steady.
DAT, the number of carriers we expected and certainly have seen for a couple quarters carrier declines at touch, but that meaningfully moderated in Q1. So we continue to listen for it, and we certainly have planned for the second half of the year a concern of outlook relative to a slowdown, but the signal's faint at the moment. Jason, anything you want to add?
It was nice to see the boost in organic revenue guides for the back of the year in tech-enabled products, up low double digits. And just with the expectation, look, Neptune continues to do really well, and we see that in the industry. That tends to be a bit steady. So how is it that you're seeing this?
acceleration and must be also on the medical side too.
But thanks. Yeah, there's three parts to this, macro parts to this segment. There's Neptune medical products and then a couple small RF product businesses. All three, they have been, we at the corporate have sort of increased the outlook for the balance of the year. Neptune, it just continued incredible order growth.
and then terrific performance out of the factory at Neptune, which gives us confidence that they can chew into a little bit more of the backlog than we maybe originally thought coming into the year.
At the medical product businesses, as we all know, last year medical procedure volumes were down in the 7-8% range. We plan for that to continue this year. It's actually been a little bit better than that and that flowed through a Verathon CivCo directly and little and less directly through NDI.
And then the Enovonix and RF ideas, the RF product businesses have been riddled with supply chain challenges and coming into the year, we assumed those would continue and they meaningfully improved in Q1. So it was a little bit uplift across the board that gives us the confidence to take the guide up in that segment.
It's all really helpful. Thank you. Yep, you're welcome. The next question is from the line of Scott Davies with Melius Research. Please go ahead.
you. Yep, you're welcome. The next question is from the line of Scott Davis with Melius Research. Please go ahead. Hey, good morning guys.
Hey Scott, good morning. I know it's not there isn't any particular business that's game-changing for you in any particular quarter, but when you think about freight matching and I know the truckers have had some a tough time this quarter some of the guidance has been...
It's been a little cautious, tough comps, etc. How linked is your frame matching business to kind of the miles driven and the...
And the, you know, the BDC kind of truck market is, is there a direct link there? I would assume there is, but I just doesn't seem like you had real any major problems in DAT this quarter. The DAT grew in the quarter year every year, grew sequentially. So, but there is a link. It's an indirect link, you know, we're not paid per mile driven. We're not paid on any utilization metric.
It's a fixed subscription on both the broker side and the carrier side.
The reason DAT historically tends to be less cyclical than the market in which it operates is a couple of things. One is you have this tension between the cyclical nature and the secular growth driver.
where the spot market is just winning more market share of the total freight volumes. So you have more volume generally coming into the spot market over the long-archa time. And the simple version for why that is is because the spot market is becoming more liquid or easier to transact in as the tech enables itself, which DAT has a participant in able or that.
The second thing is understanding the dynamic between what the role the spot market plays in a booming versus a waning market. And it's about the pricing dynamic between contract pricing and spot pricing. Spot pricing changes daily, contract pricing changes on a rolling year basis.
And so when the market is very hot, you obviously have more demand for carriers in the supply rate scope in the spot market. It invites capacity addition, and that's what's driven VAT's growth for the last couple, three years as you have more carriers coming into the market.
When the freight market slows, you actually have spot pricing below that of contract, and you actually at that moment start seeing some of the contract freight come into the spot market so the shippers can save money. So it provides the fuel off floor for the demand of carriers. And so historically DAT grows very nicely in up markets and grows slower in the down market.
for those couple of reasons. That's interesting. I hate to climb in in minutiae here, but I'm just going to do it anyways. What's the, how does this business change over time? Like does AI become a big enabler and a predictor and help drive that?
this space, you know, D8 at the core of it today, I still think on average there's between eight and ten phone calls that go between a broker and a carrier to actually broker a load. Obviously, what we're all trying to do is take that to zero.
DAT is the big part of their product roadmap is to tech enable that. So there's AI in the match, there's AI in the routing, there's AI in future, you know, trucks going from Cincinnati, Chicago, it's going to be there on Tuesday at three. How does it have a pickup in Chicago back to...
where it wants to go four hours later or whatever the time frame is. There's a lot of AI that can go into that. But the principle, the true unlock for the industry is to make the match more efficient. And that's where most of the technology investment is going today. Okay, that's helpful. Thank you guys. Best of luck. Appreciate it. Thanks.
The next question comes to the line of Terry Tillman with Tris. Please go ahead. Good morning. Thanks for taking my questions and congrats on the quarter. I guess I'll be in high knee all Jason and back. I have to make sure I get better too. Good morning. Yep.
Good morning. So the first question I guess is on the front line because that was the last major platform acquisition I think you all talked about 370 million of revenue expected contribution and 170 million EBITDA
And I think also you said it was a stub period it was in the 80s and 4q what I'm curious about is How is it tracking to those targets and I did notice they just announced the new HCM suite There's a new CRO there So it seems like there's some dynamic things going on just maybe double clicking on frontline and then at a follow-up adjacent
You want to do the, you take the first one. Yeah, so they're tracking on the forecast. As you know, there are business that has large renewals in the third and fourth quarter. And so we'll expect the business to take up sequentially in the second half, but they're definitely on track for their revenue and EBITDA numbers of 371.75. Yeah, and as it relates to the new products and a couple new leaders, we're certainly excited to have.
and proud of in the first couple quarters ownership of Frontline is the strategic choice they've made. As a pattern we see from a lot of companies that come out of private equity, there's very limited choice that's made. So they try to do too many things and not do them well. And so very quickly, Frontline doubled down on client experience and R&D productivity, and actually made a choice to take a little bit of resource out of go-to-market, which makes it a little bit easier to do.
That's great, color. Thanks, Deon. I guess just a follow-up for Jason is, you know, you were able to call out the adjustment from the settlement, so it was up 14% in terms of the free cash flow, low 30s on a free cash flow margin. Should we think about that for the remainder of the year in terms of kind of that mid-teeth growth and maintaining a low 30s free cash flow margin? Thank you.
Yeah, that's right. We're on track to deliver north 30% free cash flow. You know, as I mentioned the second half is going to be better than the first half with the renewals of front line But yeah, we're still on track there
Great, good luck. Thank you. Thanks. The next question comes from the line of Steve Tassar with JB Morgan. Please go ahead.
Hey guys, good morning. Good morning. Good morning. A couple of the businesses, I mean you guys didn't mention, but I think the Dean's question around what's going on out there, can struck connect. What do you see in there? And then perhaps a clinicist, another one of your kind of big ones? Sure.
So Construct Connect, as we talked about in the past, tends to be a counter-suckable business for those that are less familiar. Construct Connect, for simplicity, has a near-perfect database of every commercial construction project that's in the planning phase. And so if you're a general contractor, a trade contractor, a building product manufacturer.
You're generally quite interested in understanding for planning purposes, forbidding a project purposes what's in the stage of development planning. When the construction market is white hot, you know, general contractors and subs have more work that they can do, there's less utility and value in paying a subscription fee for future projects that are in the queue.
when the amount of work starts to slow down, there is increased utility in that. So when we look back and back test Construct Connect over a couple cycles, it has a clear counter cyclical demand behavior attached to it. So the market, we think, would be coming to it. As a general matter, Construct Connect has maybe modestly underperformed our hopes.
next level. And so we're quite confident that we're going to be able to reach our expectations in mid there.
Clenesis is been nothing short of great. You know, Simpson has been who has integrated the US some quest business with the European business.
Has just done that almost without error. It's been terrific. The business grew, the combined business grew in the quarter. We haven't been able to say that for quite some time given the drag of the US business. We continue to be just tremendously strong in the UK. We're one of three or four strategic IT vendors to the NHS as we...
run something like 80 or 85% of the laboratory network in the UK. The PAN European strength continues. For instance, we run the largest health system in France and APHP, the PAN, the parasysth system. And in the US, some of the strength comes from the fact that we now have a product offering that is for laboratories outside of that at healthcare.
So I think environmental toxicology, water, etc., which is showing some early signs of promise. And so a lot of congratulations to Simpson and Andy, the CFO , and we're excited to see what happens at Clentisys.
Great. And then just one last one on free cash flow. It's a pretty strong quarter, upside surprised at least, versus what we were expecting. A little bit bigger of a drag from deferred, but maybe a bit lower cash taxes or something. Just talk about the moving parts there and how you expect that to trend sequentially over the next couple quarters on Freetown.
that was, you know, in line with expectations, it was fairly flat to the fourth quarter. And then on taxes, we typically make two tax payments, federal tax payments in the second quarter, and then one in the third and one in the fourth. So we will expect Q2 to be down sequentially, but up year over year, and then just overall for the full year, as I mentioned earlier, just north 30%.
pre-cash flow margins, so on track there. Yeah, great. And then, sorry, just one last quick one. The high single-digit bookings number, was that an organic number for software? Yes. Okay, great. Thanks for the details. Yep. The next question comes from the line of Julian Mitchell with Barclays. Please go ahead. Hi, good morning.
Just a question on tech-enabled products first. So you're seeing a lot of hardware manufacturers in our group with a big flush of revenue right now as component shortages ease. And then there's obviously a lot less visibility on the forward look once that flows through. We just wanted for TEP, you know, very strong revenue performance in Q1.
Yeah, so it's something that we, a couple things we've been really quizzing with our companies is two things. This very thing and then also the stability of the backlog. Has there been any order fall out of the backlog, right? So there's been none, by the way, virtually none on backlog or fallout. The orders are quite strong. You know, book to bill was greater than one in the quarter, so it gives us, I think, good indication that it's not just a flush.
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Hi, Good morning, the robotics all of this conference call will now begin today's call is being recorded all participants will be in a listen only mode.
Need assistance, please signal at golf, especially by pressing Star then zero I would 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 first quarter financial results for Roper technologies. Joining me on the call. This morning are Neil Hunn, President and Chief Executive Officer, Jason Connolly Executive Vice President and Chief Financial Officer, Brandon Cross, Vice President and principal accounting Officer, and Shannon O'callaghan, Vice President of Finance earlier.
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 page 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 page three.
Today, we will discuss our results primarily on an adjusted non-GAAP continuing operations basis for the first quarter. The difference between our GAAP results and adjusted results consists of the following items amortization of acquisition related intangible assets and the financial impacts associated with our minority investment in <unk>.
Reconciliations can be found in our press release and in the appendix of this presentation on our website and now if you'll please turn to page four I'll hand, the call over to Neal after our prepared remarks, we will take questions from our telephone participants Neil.
And we hope everyone is doing well this morning.
We're looking forward to sharing our Q1 results with you which were quite good as you turn to page four let's look at today's agenda, we will start with our enterprise highlights and financial results, then turn to our segment specific discussion.
To wrap up discussing our raised 2023 enterprise guidance.
So with that let's go ahead and get started next slide please.
As we turn to page five the three main takeaways for today's call are first the year is off to a strong operational and financial start as our higher quality enhanced portfolio is obviously performing really well.
Second we're increasing our full year guidance, both in terms of organic revenue growth and adjusted depths.
And third we continue to be very well positioned for disciplined capital deployment.
As it relates to our first takeaway a strong start to the year. We saw total revenue grow 15% and organic revenue grew 8%.
Consistent with our longstanding strategy will continue to not only scale, our enterprise, but also simultaneously improve its underlying quality and recurring revenue base.
Importantly, we had very strong cash flow performance with free cash flow margins in excess of 30%.
Our results this quarter are another proof point that our heart higher quality less cyclical portfolio was purpose built to consistently perform at a very high level.
Finally, and also during the quarter, we held our first ever Roper leadership summit, where we had our 27 business unit presidents together and shared best practices and learnings across a variety of topics, including strategy development strategy enablement and team and talent.
While honoring our high trust the tightest model, the operating and corporate teams left feeling a true sense of community.
It was a terrific week.
Given the strong start to the year, we're increasing our full year organic growth outlook 100 basis points from 5% to 6% to 6% to 7% and increasing our full year depths guidance to be <unk> 10 to $16 30 or 15 at the midpoint of our previous depth guide was 15, 9% to 16%.
<unk>.
And finally, we continue to be well positioned relative to capital deployment.
We remain quite active in the market as we evaluate and actively diligence many high quality opportunities.
Jason I will turn the call over to you. So you can walk through our first quarter results and our strong financial position Jason.
Thanks, Neal and thanks, everyone for joining us this morning, turning to slide six we're very pleased with how Q1 shaped up.
This was through a combination of strong organic growth of 8% and an 8% contribution from acquisitions led by frontline and this was slightly offset by a 1% FX headwind.
Growth was broad based across the segments in a little better than expected.
Broadly speaking customer demand was favorable in the quarter and order pipelines remained strong.
EBITDA was $582 million or 15% of our prior year with margins roughly flat and in line with expectations.
That's a $3 90 was up 19% over prior year and <unk> <unk> above the high end of our guidance range of $3 80 to 384.
Free cash flow of $445 million was 4% higher than prior year.
And our Q4 earnings call, we highlighted a $45 million settlement of a patent dispute for certain verathon sales dating back to 2004.
We paid out this quarter so adjusted for the settlement free cash would be 33% of revenue and up 14% over prior year.
We saw very good cash performance, especially in our software businesses are Q1 renewals and related collections came in strong as expected.
To that end, we've been quite active in 2023 evaluating a number of platform and bolt on opportunities.
As always we will remain disciplined and patient in our capital appointment process.
With that I'll turn it back over to Neil to talk about our segment performance and outlook Neil Thanks, Jason Let's turn to page nine and walk through our Q1 highlights our application software segment.
Revenues here were $761 million up 6% on organic basis, and EBITDA margins were 43, 2%.
Performance in this segment was strong across the board to highlight a few of our businesses performance, we'll start with Deltec.
<unk> was solid.
As we mentioned last quarter Delta did see some slower customer decision, making but that was largely rectified. This quarter <unk> had double digit bookings in a quarter with strength across both enterprise class and SMB sized customers as well as government contracting and private sector solutions.
As usual, both gross and net retention of Delta remained strong and consistent with recent history.
At our at our software business focused on the needs of law firms continues to compete and win and take share from our competitors in.
In the quarter added experienced record bookings and continued success in the adoption of the SaaS solutions.
Great job by Chris Rafi, and the entire <unk> team.
Therefore, our software business, a tech enabled property and casualty insurance agencies posted another solid quarter and continues to perform quite well for us.
Of particular note <unk> recent acquisition of MGA systems, a software solution targeted to manage general agents. Our MGA is proving to be highly strategic and bookings activity is tracking ahead of plan.
Frontline continues to perform quite well for us in the first couple of quarters Motorship Frontline's mission is to empower the frontline of education.
As many of you know hiring of teachers and administrative staff is particularly challenging and frontline software solutions better equipped K 12 school districts to navigate these challenges.
Because of this frontline solutions are mission critical and of high importance to their school district customers.
From a segment EBITDA margins were down 90 basis points year over year in line with our expectations, our acute care software businesses, especially classes data innovations and strata are ramping up their implementation capacity based on our recent bookings momentum we expect to see similar margins in Q2.
Yeah.
Looking to the balance of the year, we expect to see organic growth in the mid single digit area for this segment.
Our leading market positions and growth in recurring revenue.
Turning to page 10.
Revenues in the quarter for our network software segment were $355 million up 6% on organic basis, and EBITDA margins were strong at 53, 1%.
While freight market conditions are softer than this time last year our businesses in this space are critical to the operation and execution of the spot freight market.
In addition, and importantly, the spot market is a long term secular beneficiary in terms of the volume of future freight shipments.
As we mentioned last quarter foundry commenced their subscription pricing transition for nuke and in Q1 had north of 50% of our new seats sold under their new model ahead of their plan.
Finally, our alternate site health care businesses MH, a soft writers.
We're strong in the quarter.
Across the segment business performance and execution was solid.
Though we're not entirely out of the woods, we can now see a path to a more normalized supply chain environment.
Neptune, our water meter and technology product business continues to be just great in.
In the quarter, they had record revenue performance and set record for backlog levels.
Importantly, net to continue to see increasing demand and momentum for their residential and commercial ultrasonic or static meters.
We remain bullish on Neptune in the market in which they compete as this market tends to be quite steady as neptunes customers' budgets are typically fixed year to year and not tied to broader macroeconomic trends of cycles.
Great job at Neptune and congrats.
Verathon was strong in the quarter as well with double digit order growth, specifically verathon saw strength across our reoccurring single use products, both bronchoscope or be flex and video innovation, our glide scope as well as bladder scanned capital purchases.
Importantly, verathon has four product launches scheduled for the next few months, which will help continue their market share gains and momentum.
Northern edge of our MDI was also strong in the quarter and continued to see terrific demand for optical and <unk> solutions.
Eddie Nice MDI is enabling measurement technology is used by scores of medical product Oems and solutions, such as robotic assisted surgery and across multiple cardiac specific modalities NDA.
<unk> high level of market focus and operational discipline will enable them to continue to be the market share leader for these measurement technologies long into the future.
Our outlook for the balance of the year for this segment has improved to be in the low double digit area and is based on continued strong orders and improving manufacturing productivity and Neptune as well as an improved growth outlook across our medical product businesses.
Now please turn to page 13, and lets review our increased 2023 guidance.
Yes.
For 2023, we expect total revenue growth to be north of 12%.
In addition, we're updating our organic revenue growth outlook to be in the 6% to 7% range an increase from our original guidance of 5% to 6%.
As a result, we are increasing our depth guidance to be in the range of 16 to $10 $60 30 up from our prior guidance of 15, 9% to $16 20.
Assuming that this guidance for the tax rate in the 21% to 22% area.
Specific to the second quarter, we're establishing our depth guidance to be in the $3 96 to $4 range.
Now please turn with US to page 14, and then Jason I will look forward to answering your questions.
As you turn to page 14, we want to leave you with the same three points with which we started first 2023 is off to a great start we saw revenues increased 15% to $1 47 billion in the quarter.
This growth was underpinned with 8% organic revenue growth and 8% recurring revenue growth. In addition margins were quite strong.
This quarter's financial and operating or operational performance is yet another proof point of our capabilities and frankly, the expectations of our improved higher quality portfolio of businesses.
Most importantly, our revenue growth translated to impressive cash flow growth with our underlying free cash flow growing 14% as you know we view cash flow growth is the best measure of performance.
Second based on our strong start to the year the highly recurring nature of our revenue stream and the importance of our solutions to our customers. We are increasing our full year organic revenue growth outlook to be between six and 7% and increasing our full year depths to be between $16 10 and $16 30.
Finally, we continue to be active with our capital deployment activities as we have north of $4 billion of available M&A firepower.
As we discussed during our Investor day last month.
Very large universe and pipeline of opportunities, though as always we will remain super patient and highly disciplined to ensure optimal deployment of available capital.
During that long form overview of Roper, we're excited to share with you our long term strategy the high quality nature of our portfolio of businesses, our operating ability to improve our businesses our process driven capital deployment approach and our compelling long term business model that compound cash flow in the mid teens area.
So thank you for your continued interest in Roper and with that let's open it up to your questions.
We will now go to a question and answer portion of the call.
Request that I'll call notes limit their question to one main question and one follow up.
If you would like to ask a question you may do.
Dray with RBC capital markets. Please go ahead.
Okay.
Good morning, Good morning, Hey, It was great to see everyone in New York last month.
Just maybe we can start off and it's a bit of a follow up from last quarter with Dell tack on some of the slowing in decision, making this is kind of what everyone's watching might there be any kind of fallout from bank turmoil are.
Read through into construction markets, and so forth, but the idea of slower customer decision, making maybe just give us an update on how that played out.
Time to sign contracts any new logos, just any color there would be helpful. Yeah sure sure.
Wanted to talk about it.
We spent a tremendous amount of time talking to our leadership teams our group executives about trying to understand the signal.
So the obvious context, we spent the last several years trying to really work out the cyclicality of the portfolio.
And we're also in these very small niche markets, where the customers tend to be not that cyclical. So the signal for us is faint.
And then having some slower customer demand customer demand as we said in the prepared comments that.
Some of the other macro things that we listened to the <unk>.
But we certainly have planned for the second half of the year.
<unk> outlook relative to a slowdown but the signals at the moment, Jason anything you want to add to that I would just say our our software bookings were up high single digits year over year in the quarter. So.
And then just second question was.
Up low double digits, and just would your expectation with Neptune continues to do really well and we see that in.
There's three parts to this macro parts of this segment Theres Neptune medical products and then a couple of small RF product businesses all three.
And then terrific performance out of the factory.
At Neptune, which gives us confidence that they can chew into a little bit more of the backlog that we maybe originally thought coming into the year.
At the medical product businesses as we all know last year medical procedure volumes were down in the 7% to 8% range. We plan for that to continue this year, its actually been a little bit better than that and that flowed through at Verathon SIFCO directly and little less directly through MDI.
And then the.
<unk> and RF ideas.
The RF product businesses have been riddled with supply chain challenges and coming into the year we.
I assume those would continue and they meaningfully improved in Q1. So it was a little bit uplift across the board that gives us the confidence to take the guide up in that segment.
That's all really helpful. Thank you Youre welcome.
The next question is from the line of Scott Davis with Melius Research. Please go ahead.
Hey, good morning, guys.
Hey, Scott anymore.
I know, it's not there isn't any particular business that.
Game changing for you in any particular quarter, but.
When you think about freight matching and the truckers have add some a tough time this quarter.
Some of the guidance has been.
Then a little cautious.
Tough comps et cetera, how linked is your freight matching business to kind of the miles driven in the.
The BDC kind of truck market is there a direct link there I would assume there is but it just doesn't seem like you had really any major problems in <unk>. This.
This quarter, yes.
<unk> grew in the quarter year over year grew sequentially.
So, but there is there is a link.
It's an indirect link we're not paid per mile driven we're not paid on any utilization metric.
Fixed subscription on both the broker side and the carrier side.
The reason historically tends to be less cyclical than the market in which it operates as a couple of things. One is you have this tension between the cyclical nature and the secular growth driver where the spot market is just.
Winning more market share of the total freight volumes. So you have more volume generally coming into the spot market over the long arc of time.
The simple version for why that is is because the spot market is becoming more liquid or easier to transact in as a tech enables itself, which is a participant enabler of that.
The second thing is understanding the dynamic between what the role of the spot marketplace.
And a booming virtual waning market and it's about the pricing dynamic between contract pricing and spot pricing spot pricing changes daily contract pricing changes on a rolling year basis.
So when the market is very hot you, obviously have more demand for carriers and there is supply rates go up in the spot market. It invites capacity addition, and Thats whats driven the growth for the last couple of three years as you have more carriers coming into the market when the freight market slows you actually have spot pricing below that of contra.
<unk> and you're actually at that moment start seeing some of the contracts right come into the spot market. So the shippers can save money. So it provides if you will a floor for the demand of carriers and so historically the AC grows very nicely in up markets and grow slower than the down market for those couple of reasons.
That's interesting.
I hate to climate in minutiae here, but I'm just going to do it anyways.
How does this business changed over time.
Does AI become a big enabler and kind of predictor and help kind of drive that that liquidity that you talked about Neil.
How does that how does it how does technology I guess.
Change the game and help you guys gained share over time, I guess is a better yes.
There is a lot of tech currents and cross currents in this space.
At the core of it today I still think on average there is between eight and 10 phone calls that go between a broker in a carrier to actually broker load, obviously, but we're all trying to do is take that to zero.
<unk> is the big part of their product roadmap as to tech enabled that.
So there is AI and the masters AI in the routing Theres AI in future.
Trucks going from Cincinnati, Chicago, it's going to be there on Tuesday at three how does it have a pickup in Chicago back.
Where it wants to go four hours later or whatever the timeframe is theres a lot of AI that can go into that but the principle that the true unlock for the industry is that take the mix the match more efficient and that's where most of the technology.
Investments going today.
Okay. That's helpful. Thank you guys best of luck I appreciate it.
Okay.
The next question comes from the line of Terry Tillman with choice. Please go ahead.
Yes. Good morning, Thanks for taking my questions and congrats on the quarter, I guess, hi, Neil Jason in back half to make sure I get better to yeah. Good morning, Jeff.
Good morning. So the first question I guess is on the frontline because that was the last major platform acquisition.
Also you said it was a stub period.
<unk> and <unk>, what I'm curious about is how is it tracking to those targets and I did notice they just announced the new HCM suite Theres, a new CRO. There. So it seems like there's some dynamic things going on just maybe double clicking on frontline and then I had a follow up for Jason.
I'll do that you can take the first one yes, yes, so theyre tracking.
On their forecast.
As you know there are business that has large renewals in the third and fourth quarter and so we will expect the business to tick up sequentially in the second half, but there are definitely on track for their revenue and EBITDA numbers.
370 175.
Yeah, and as it relates to the new.
New products in a couple of new leaders, we're certainly excited to have bill.
Bill.
New CFO , Scott, our new CRO and imperatives, the new Chief client operations officer join it's often case times. The case there is a.
A few of leadership changes that happened in the first year or so of ownership.
And so that was expected we're excited to have this team. It's an incredible group has joined US the thing that I'm, particularly excited about and proud of in the first couple of quarters ownership of frontline is the strategic choice they've made.
Return, we see from a lot of companies that come out of private equity. There's very limited choice. That's made so I tried to do too many things and not do them well and so very quickly frontline doubled down on client experience and R&D productivity and actually made a choice to take a little bit of resource out or go to <unk>.
Market, which makes complete sense, when you have 85% to 90% coverage of the customers and the entire strategy or the principle of our strategy is to focus on cross selling and up selling you need to deliver a tremendous experience, hence the focus on client experience and need to be able to innovate and sell them more products, hence the deployment to R&D. So we love the choice that's been made there.
And excited for what that yields in the future.
That's great color, Thanks, Neil and I guess, just a follow up for Jason is.
You were able to call out the adjustment from the settlement. So it was up 14% in terms of the free cash flow at low thirty's on a free cash flow margin should we think about that for the remainder of the year in terms of kind of that mid teens growth and maintaining a low 30 free cash flow margin. Thank you. Yes, yes. That's right. We are on track to deliver north of 30% free cash flow.
As I mentioned in the second half is going to be better than the first half with the renewals at frontline.
But yes, we're still on track there.
Great. Good luck. Thank you.
Thanks.
The next question comes from the line of Steve Tusa with Jpmorgan. Please go ahead.
Hey, guys. Good morning, Good morning, Hey, good morning.
Construct connect what are you seeing there and then.
As we've talked about in the past tends to be a counter cyclical business for those that are less familiar construct connect for simplicity has a near perfect database of every commercial construction project Thats in the planning phase.
When the construction market is white Hot general contractors and sub said more work do they can do there is look theres less utility and value in paying a subscription fee for future projects that are in the queue. When the amount of work starts to slow down there is increased utility and that so when I look back and back test construct connect over a couple.
Demand behavior attached to it so the market, we think will be coming to it as a general matter construct connect is maybe modestly underperformed our hopes it's been more of a low single digit growth business. Our expectations are that should be mid and we're quite confident with the current strategy that will climb to their and get to there. We have a great leader that came out from Dell Tech a couple of <unk>.
And that strategy the operational discipline that strategy. The go to market sort of prowess is just that a next level and so we're quite confident that we're going to be able to reach our expectations amid their clinic.
Has just done that almost without without error. It's been terrific. The business grew the combined business grew in the quarter, we have been able to say that for quite some time given the drag of the U S business. We continue to be just tremendously strong in the U K as you know, we're one of three or four strategic vendors too.
They are Pan European strength continues for instance, we run the largest health system in France, and AP HP Pan the payer system.
And in the U S. Some of the strength comes from the fact that we now have a product offering that is for laboratories outside of that of healthcare. So think environmental toxicology water et cetera, which is showing some early signs of promise and so a lot of congratulations to Simpson.
Steve So yes, the deferred revenues down or I guess, a consumption of cash in the first quarter because of frontline right. So they.
We typically make two tax payments federal tax payments in the second quarter and then one in the third and one in the first so we will expect Q2 to be down sequentially, but up year over year and then just for overall for the full year as I mentioned earlier, just north of 30% free cash flow margin. So so on track there yes.
Great and then sorry, just one last quick one the heightened double digit bookings number was that an organic number for software yes.
Okay, great. Thanks for the details.
Yes.
The next question comes from the line of Julian Mitchell with Barclays. Please go ahead.
Hi, good morning.
Just a question on.
Tech enabled products first.
So youre seeing a lot of sort of hardware manufacturers in all group.
<unk> kind of flush of revenue right now is component shortages ease.
And then there's obviously a lot less visibility on the forward look once that flows through so just wanted to attack.
Very strong revenue performance in Q1, we are.
I'm very confident in the sort of the next three quarters outlook.
Maybe just drill down a little bit more into sort of orders and backlog trends there.
Just kind of the confidence that the strengths right now is sustainable through through year end and not just to kind of a slush as supply chain pieces. Yes. So it is something that we have a couple of things we've been really quizzing and with our companies is to think this very thing and then also the stability of the backlog has there been any oil.
Fall out of the backlog right. So there has been none by the way.
<unk> not on backlog order fallout there the orders are quite strong.
Book to Bill was greater than one and.
In the quarter so.
US I think good indication of that is not just a flush of backlog in.
In terms of the balance of the year, though.
We're waiting for the time when there are a lot of what's happened across the whole complex not just us as order durations extended rate as customers that wanted to be in the queue to make sure. We have supply at some point and at that point I don't know I don't think you never know what's going to happen, we're going to get back into a more normal order sort of duration timing. So there'll be a period of time when <unk>.
There is because of the timing compress.
It's we don't know when that's going to happen, but we're fully expecting it and candidly aren't going to be that worried about it because it's sort of a natural reaction to where we are.
We also so thats commentary for Neptune in the whole segment.
For medical products.
Quite the opposite there isn't really we don't work out of a huge backlog out of that that those businesses and so that dynamic that youre addressing your question doesn't exist and then four we really solve the supply chain challenges at the RF product businesses. They are bespoke and unique to the two businesses there.
And so now we will be able to start clearing some backlog, but thats more of a second half thing than what it was in the quarter.
That's very helpful. Thank you and then.
Just circling back on one of the more.
Potentially cyclical pieces within software and it's already been touched on once or twice, but to try and put a final point on the sort of <unk> and <unk>.
And load linked businesses at network software.
Within that sort of mid single digit growth.
Outlook for the segment for the balance of the year.
How what are you dialing in for sort of <unk> loaded.
You don't have to give me the percentage number just curious sort of versus the segment growth of mid single digit for example, yes. So it's the same I'll give you color to it I think we'll stop short of giving you like specifics at a company level.
As we mentioned last quarter, there is a difference of opinion between the leadership.
In Sarasota about what the outlook of this business for the year.
<unk> is a much more bullish on what the year is the balance of year is going to look like and what we are here in Sarasota. We continue to have a very conservative posture relative to what it looks like especially uniquely on the carrier count.
For the balance of the year, we want to see while we've had a nice proof point in Q1 that the carrier decline started too.
Really flattened.
We are we have not assumed a they continue from that level and improve we can we assume they actually get a little bit worse.
That's helpful. Thank you everyone.
The next question comes from the line of Joe Giordano with Cowen. Please go ahead.
Hey.
Hey, good morning, Good morning, Hey, Joe Hey.
So I just want to talk about this on the medical product side, but we had another company talking about like big inventory levels of component parts in medical.
Kind of like unexpectedly so so we're like their customers just have some of their more of their products than anticipated I'm guessing that's not really relevant to you guys, but just wanted to ask the question.
It's not particularly relevant there is one business Northern digital correct me on this I think it is just the one principally one that sells through as I mentioned in the prepared remarks, the medical product Oems.
We are a critical component a necessary component to <unk>.
The commentary from the northern digital team this quarter as they feel most if not all of that is through the system. It's hard to know exactly for sure, but that's that's really the only place where it happens otherwise it's us directly to a customer.
And in consumer customer.
Some of your competitors on the PE side, we're looking at stuff.
So we're cautiously optimistic over the course of this year that those will present themselves.
Handful of platforms that we are currently evaluating there always is a handful that we're in.
Pretty late stages or detailed work evaluating but on.
Tend to be our very best deals because they are additive to strategically to one of our existing companies. There's normally some synergies that come with those.
<unk>.
As we talked about in the Investor day strategically, we'd like to see more of our capital deployed against the bolt on strategy, but we're not going to force it but it would be nice to be able to see it.
Okay got it that's helpful and then application software the capacity ramp in acute care I know you mentioned, obviously, it's impacting Q2, how should we think about that the balance of the year when does that fully good morning.
That ramp yes, that's right I mean, we thought EBITDA margins were in line with expectations in the first quarter and we did have those implementations also seaboard had some large integrated security.
They finally got some part for some of those projects, but for the second quarter, we're expecting it to be about the same and then it'll pick back up in the second half can expect EBITDA margins to be about flat year over year.
Perfect. Thank you.
You.
Sure.
The next question comes from the line of Joe <unk> with Baird. Please go ahead.
Great.
Hey, good morning, Josh.
Hey, I hope you're well.
One observation on just kind of what we're hearing in the broader environment. It does seem like the system a record company and as for the industries you serve they're holding up pretty well and then I think there is some particular industry. Examples like K 12 education will be one where the spend is actually consolidating a better.
These companies so share of wallet is going up right now.
We would say, yes, right. So we're we say in the Investor day, we say in all of our communication that we are mission critical software system of record sort of software.
Good morning, Yes, most of my questions on your operations have been answered, but I wanted to ask you about how the.
By Clayton Dubilier <unk> rice, they sold it to Honeywell you just announced this week.
The plan is for in the core part of it was to do some portfolio work with this being the principal piece to make and the core less oily and more industrial.
And so this was a strategic this was an asset that was highly strategic to a number of folks in the industry is a very competitive process and we are delighted to be able to sell the business for 19 times This year's EBITDA.
I think Honeywell has a great home for this business that mattered a lot to us the.
The benefit then of course, we now get to take this capital as a company and a 49% owner of the company and then redeploy it to industrial industrial Tech type businesses.
Build the M&A flywheel and hopefully create the next great industrial compounds that'll become a public company in three to five years and that's when we'll get we'll monetize through the whole value creation plan.
Okay.
The cash from this deal.
The only cash we get Alex is we will have it.
Distribution to us for the tax liability the sale, but most of the cash is going to stay in the business. So we will get that cash whenever it closes sometime in the second half.
Okay. Thank you.
Thank you. Thank you.
This concludes our question and answer session. We will now return back to shock moxie for any closing remarks.