Q4 2023 Roper Technologies Inc Earnings Call

Good morning, the Roper Technologies' conference call will now begin.

Today's call is being recorded and all participants will be in listen only mode.

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After todays presentation, there will be an opportunity to ask questions.

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I would now like to turn the conference over to Zack Moxie, Vice President of Investor Relations. Please go ahead Sir.

Zack Moxcey: Good morning, and thank you all for joining us as we discuss the fourth quarter and full year 2023 financial results for Roper technologies joining.

Zack Moxcey: 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 Janet 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.

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

Zack Moxcey: Now if you please turn to page two.

Zack Moxcey: 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.

Zack Moxcey: Now please turn to page three.

Zack Moxcey: Today, we will discuss our results primarily on our adjusted non-GAAP continuing operations basis.

Zack Moxcey: For the fourth quarter the difference between our GAAP results and adjusted results consists of the following items.

Zack Moxcey: Amortization of acquisition related intangible assets, the financial impact associated with our minority investments in the core in Virginia, and lastly transaction related expenses associated with our completed acquisitions.

Zack Moxcey: Reconciliations can be found in our press release and in the appendix of this presentation on our website.

Zack Moxcey: And now if you please turn to page four I will hand, the call over to Neal after our prepared remarks, we will take questions from our telephone participants.

Zack Moxcey: Zack and thanks to everyone for joining our call.

Neal: Looking forward to sharing are quite good 2023 fourth quarter and full year results with you. This morning.

Neal: As we turn to page four let's look at today's agenda.

Neal: This morning, I'll start by walking through our full year highlights and then were turned to commenting on our most recent acquisition Pro care solutions. Jason will then go through our quarterly results, but with an aggregate at the segment level share in results and review our strong balance sheet position.

Jason Connolly: Then I'll pick up and discuss our segment level annual results.

Speaker Change: Our 'twenty 'twenty for outlook wrap up and turn to your questions. So let's go ahead and get started next slide please.

Speaker Change: If we turn to page five the two key takeaways for today's call are first we delivered a very strong 2023, and second we remain well positioned and are carrying positive momentum into 2024.

Speaker Change: As we look back on the full year, we're proud of what the organization accomplished.

Speaker Change: From a financial perspective, we delivered 15% revenue growth, 16% EBITDA growth and 32% free cash flow growth with free cash flow margins at 32%.

Speaker Change: Our total revenue growth of 15% was underpinned with 8% organic revenue growth.

Speaker Change: Jason will cover this in a few minutes, but Q4 was strong as well with 13% total revenue growth and 8% organic revenue growth.

Also during the year, we deployed $2 1 billion and the high quality vertical software acquisitions highlighted by our bolt on acquisitions of Centel us and Replicon.

Jason Connolly: As we all know last year was a challenged year relative to available acquisition opportunities given that I'm super proud of our team's ability to grind through the market conditions and successfully convert to outstanding value creation M&A opportunities.

Given all this we entered this year with positive momentum.

Jason Connolly: We continued to see strong demand for our mission critical solutions as.

Jason Connolly: As a reminder, each of our businesses as a leader in their respective market and deliver system of record network critical or vital <unk> lifesaving technologies.

Jason Connolly: As a result, we continue to see strong demand for our solutions.

Jason Connolly: Also as we head into 2024, we have meaningful contributions from our recent acquisitions and Telus Replicon and broke her.

Jason Connolly: It is important to highlight these additions to our portfolio of businesses also improved the underlying quality of our enterprise in terms of reoccurring revenue mix and organic growth profile.

Jason Connolly: Finally, we continue to be very active in the M&A market and environment that we expect to be notably improved in 2024 with a strong balance sheet and a large pipeline of attractive opportunities.

Jason Connolly: So a strong twenty-three and solid momentum in both organic and inorganic behind us as we enter 2024.

Jason Connolly: Now please turn to the next page page six where I will discuss our most recent acquisition broke her solutions.

Jason Connolly: Broke air solutions is a fantastic addition to the Roper portfolio.

Jason Connolly: With the fundamentals.

Jason Connolly: Paying $1.75 billion net of $110 million tax benefit for the business we.

Jason Connolly: We expect pro care to contribute about $260 million of revenue and 95 million of EBITDA for the 12 months ended Q1 25.

Jason Connolly: Broker will be accretive to our free cash flow in 'twenty, four and tour adjusted depths in 'twenty five.

Jason Connolly: We'll fund the acquisition with a portion of our three and a half million dollar revolver.

Jason Connolly: And we'll report pro care and our application software segment expected deal to close this quarter.

Jason Connolly: Broker.

Jason Connolly: All our longstanding acquisition criteria leader in a smaller market delivers mission critical vertical I software solutions.

Jason Connolly: Compete based on customer intimacy.

Jason Connolly: It's an asset light business model and is led by a skilled passionate leadership team.

Jason Connolly: Well it is incrementally different for US is the maturing leader nature of this company.

Jason Connolly: As we outlined during Investor day last year, our corporate strategy leans on implementing to modest improvements.

First continue to improve our long term sustainable organic growth rate and second capture more value from our capital appointment capacity.

Relative to additional capital deployment value capture we are focusing on doing a higher proportion of bolt on activity as evidenced by last year's capital deployment record and adding higher growth or mature eight liter business profiles to our enterprise.

Jason Connolly: Broke her as a prototypical maturing liter archetype, beating all our long standing criteria that I mentioned above, but a structurally faster growth business that possesses the opportunity to improve margins as the top line scales.

Jason Connolly: For pro care, we expect mid teens top line growth with improving margins from it.

Jason Connolly: <unk> strong position for the years to come.

Speaker Change: Let's talk about what the company does.

Speaker Change: Broker is the leading provider of mission critical and purpose built software to 37000 owners and operators of early childhood education centers, whereas they used to run their business.

Speaker Change: The software provides all the needed functionality through the childcare center, ranging from parents and family engagement staff and teachers scheduling classroom management tuition billing and payment processing.

Speaker Change: The market itself is quite attractive.

Speaker Change: In the midst of a long term secular tailwind of young dual income families seeking higher levels of early childhood education first daycare.

Speaker Change: In addition, like most industries. This one is undergoing long term tech enabling.

Speaker Change: Given these factors this market is growing annually in the low double digits area.

Speaker Change: As mentioned procure as the leading player with a one five times for all of their market share advantage in this space given their super compelling value proposition that combines both software and the integrated payments capabilities.

Speaker Change: Given this broker has very high grocery tension and compelling net retention as well.

Speaker Change: Finally from our extensive due diligence of the business. We're encouraged by the fact that broker has multiple strategic and operating pathways available to deliver mid teens growth and long term margin expansion.

Speaker Change: Net net this is a highly compelling value creation opportunity for Roper and our shareholders.

Speaker Change: And to Joanne your leadership team and all the broker family welcome to Robert.

With that Jason Let me turn the call over to you. So you can walk through our fourth quarter and full year results as well as our very strong financial position Jason.

Jason Connolly: Great. Thanks, Neil I'll walk through the enterprise and segment results for Q4 and enterprise results for the full year, along with a review of our balance sheet.

Jason Connolly: Starting with Q4 on slide seven.

Jason Connolly: We had an excellent finish to a strong year revenue of over $1 6 billion was 13% over prior year led by 8% organic growth with acquisitions, adding four points and less than a point of currency benefit.

Speaker Change: Organic outperformance was led by our <unk> segment highlighted by Neptune and marathon.

Speaker Change: Gross margin of 69, 7% was down 30 basis points versus prior year, given a higher mix coming from our <unk> segment.

Speaker Change: EBITDA grew 11% to $659 million with EBITDA margin coming in at a solid 48%.

With the offsetting impact of interest and taxes. This translated into depths growth of 11% to $4 37.

Speaker Change: All of our guidance range of $4 28 to $4 32.

Speaker Change: Also from a cash perspective free cash flow finished strong at $596 million up 30% over prior year.

Speaker Change: This was in line with our expectations with a good renewal season across our software businesses.

Speaker Change: Turning to slide eight I'll briefly click into the segment performance in Q4.

Speaker Change: Application software delivered revenue growth of 15% over prior year to 852 million with organic growth contributing seven points and the balance coming primarily from our bolt on acquisitions of Centel us and Replicon.

Speaker Change: EBITDA margin of 43, 2% in the quarter was below prior year's high watermark of 45, 6%.

Which as we discussed last year was driven by lower incentive based compensation.

Speaker Change: Network software was up 3% to $363 million with EBITDA up 10% to $208 million.

Speaker Change: As we have discussed before our freight matching businesses are navigating a drawdown of carriers following exceptional marketplace growth over 2021 and 2022, which is mixing down the growth rate for the segment.

Speaker Change: However, our business leaders are D T and lovely to have align the cost base with reduced carrier subscribers to still drive solid EBITDA growth in the quarter.

Speaker Change: Our <unk> segment grew by 17% in the quarter to $399 million with EBITDA up 13% to $134 million.

Speaker Change: Growth was led by exceptional performance at Neptune with continued increasing demand for ultrasonic technologies and overall favorable market conditions.

Speaker Change: Also verathon continued its remarkable growth with strength in single use products that cross laryngoscopy bronchoscopy.

Speaker Change: EBITDA margin of 33, 6% was down from prior year, given some one time investments and it's an incentive compensation in the quarter.

Speaker Change: Turning to slide nine I'll walk through our full year 2023 performance.

Speaker Change: As Neil mentioned revenue was just under $6 2 billion up 15% over prior year with organic growth of 8% and acquisitions contributed seven points, mainly frontline and say tell us.

Speaker Change: Looking at a three year revenue CAGR on the slide similar to 2023, it's also at 15%.

Speaker Change: Further with the organic average organic growth rate over this three year period has been about 8%.

Speaker Change: So as Neil mentioned.

Speaker Change: We benefited from some <unk>.

Speaker Change: Conditions over that time period.

Speaker Change: EBITDA just over $2 5 billion was up 16% over prior year, yielding EBITDA margin of 46%.

Speaker Change: Our three year EBITDA over this period was also up 16%.

Speaker Change: So the story remains the same at Roper, we own and continually grow a portfolio of high gross margin businesses and generally convert EBITDA growth to EBITDA in the 45% range, which allows for ample investment back into the business for future sustainable growth.

Speaker Change: Free cash flow for the year was just shy of 2 billion, which represents a 32% margin and is coincidentally at 32% over 2022.

Speaker Change: Full year contribution from our frontline acquisition and excellent performance across the enterprise drove this result, underpinned by strong renewals favorable DSO and improving inventory turns.

Speaker Change: Of note our networking capital as a percent of annualized revenue was negative 19% in Q4, which is a new record for Rover.

Speaker Change: Importantly over a three year period, we have compounded cash flow at 16%.

Speaker Change: Our consistent focus on growing cash flow and the strength of our new portfolio. Following our divestitures demonstrates a solid base from which to continue our long term growth algorithm.

Operator: Good morning. The Roper Technologies conference call will now begin. Today's call is being recorded, and all participants will be in listen-only mode.

To that end, we expect free cash flow margin to be 30% or more in 2024.

Operator: If you need assistance, please signal a conference specialist by pressing star then zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad.

Speaker Change: With that we can flip to slide 10 to discuss our strong financial position.

Speaker Change: From a liquidity standpoint, we finished the year with $3, one 4 billion available on our revolver with over $200 million of cash.

Operator: To withdraw your question, please press star. I would now like to turn the conference over to Zack Moxcey, Vice President, Investor Relations. Please go ahead, sir.

Speaker Change: Regarding leverage we brought down net debt to EBITDA from $2 seven X at the beginning of 2023 to year end figure of two point Forex, Despite deploying 2.1 billion towards acquisitions.

Zack Moxcey: Good morning, and thank you all for joining us as we discuss the fourth quarter and full year 2023 financial results for Roper Technologies. Joining me on the call this morning are Neil Hunn, 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. Earlier this morning, we issued a press release announcing our financial results. The press release also includes replay information for today's call. We have prepared slides to accompany today's call, which are available through the webcast and are also available on our website. Now, if you'll please turn the page.

Speaker Change: We expect to close on pro care later in Q1 and will utilize our revolver to fund the transaction.

Speaker Change: So this will be our pro forma leverage to about three times.

Speaker Change: Our solid balance sheet, coupled with strong cash generation gives us capacity to deploy $4 billion or more of capital while remaining committed to our solid investment grade rating.

Since our October call deal activity has demonstrably increased with a corresponding lift in asset quality.

Speaker Change: That said our off our market optimism remains balanced by our disciplined process and patient posture.

Zack Moxcey: We will 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. Now, please turn to page three.

Speaker Change: With that I'll turn the call back over to Neil to talk about our full year segment performance and the indications for 2020 for Neil.

Laurence Neil Hunn: Thanks, Jason as we turn to page 12, let's look back on the year for application software segment.

Laurence Neil Hunn: Total revenues grew 21%.

Zack Moxcey: Today, we will discuss our results, primarily on an adjusted, non-gap, and continuing operations basis. For the fourth quarter, the difference between our gap results and adjusted results consists of the following items. Amortization of Acquisition-Related Intangible Assets, the financial impacts associated with our minority investments in Indicor and Certinia, and lastly, transaction-related expenses associated with our completed acquisitions. Reconciliations can be found in our press release and in the appendix of this presentation on our website. And now, if you please turn to page four, I will hand the call over to Neil. After our prepared remarks, we will take questions from our telephone participants. Neil.

Laurence Neil Hunn: Ganic revenues grew 6% to $3, one 9 billion, while EBITDA margins remained strong at 43, 7%.

Laurence Neil Hunn: Within the segment results were consistent with strength that Delta adamant virtu for strata and frontline.

Don't check continued to see strong gains in our SaaS solutions, especially in the private sector markets.

As discussed throughout the year. The go cart market was tempered given all the uncertainty regarding government spending notwithstanding don't took delivered mid single digit organic growth for the year.

Laurence Neil Hunn: In addition, they continue to innovate and add capabilities during times of uncertainty, which is a hallmark of broker strategy highlighted by the bolt ons that replicon and pro pricer.

Laurence Neil Hunn: Thank you, Zack, and thanks to everyone for joining our call. We're looking forward to sharing our quite good 2023 fourth quarter and full year results with you this afternoon. As we turn to page four, let's look at today's agenda. This morning, I'll start by walking through our full year highlights, and then we'll turn to commenting on our most recent acquisition, ProCare Smart. Jason will then go through our quarterly results, both in aggregate and at the segment level, share our annual results, and review our strong balance sheet position. Then I'll pick up and discuss our segment-level annual results. Our 2024 Outlook, wrap up and turn to your, Let's go ahead and get started. Next slide, please.

Laurence Neil Hunn: From a price or a smaller transaction of about $80 million purchase price that closed late last year and delivers the leading contract pricing solutions and software for government contractors and federal agencies and ideal strategic fit for Delta cost point product family.

Laurence Neil Hunn: Adamant was just amazing last year.

Laurence Neil Hunn: They had record bookings and significant adoption of their anchor SaaS solutions and add on products.

Laurence Neil Hunn: <unk> average is one of the leaders within Roper and the legal software market as it relates to product ties a generative AI solutions within their product stack.

Speaker Change: Great job by Chris Rafi and the entire team at Arrow.

Laurence Neil Hunn: As we turn to page five, the two key takeaways for today's call are first, we delivered a very strong 2023. And second, we remain well positioned and are carrying positive momentum into 2024. As we look back on the full year, we're proud of what the organization accomplished.

Speaker Change: Continuing on.

Speaker Change: <unk> four was solid with strong air our gains throughout the year. Additionally.

Speaker Change: Additionally, <unk> made great strides with our product strategy deployment and the MGA systems bolt ons is trending well ahead of our investment case.

Speaker Change: Greta also was quite good last year, both in terms of organic air our games and their acquisition and integration work associated within tell us.

Laurence Neil Hunn: From a financial perspective, we delivered 15% revenue growth, 16% EBITDA growth, and 32% free cash flow growth, with free cash flow margins at 32%. Our total revenue growth of 15% was underpinned by 8% organic revenue growth. Jason will cover this in a few minutes, but Q4 was strong as well, with 13% total revenue growth and 8% organic revenue. Also, during the year, we deployed $2.1 billion into high-quality vertical software acquisitions, highlighted by our bolt-on acquisitions of Centelis and Replica. As we all know, last year was a challenging year relative to available acquisition opportunities.

Finally, frontline executed well delivering strong retention and cash flow during the year.

Speaker Change: As I mentioned earlier, we will report broker solutions in this segment and expect the deal to close this quarter.

Speaker Change: As it relates to our 'twenty 'twenty four outlook for this segment, we expect to see mid single digit organic revenue growth.

Speaker Change: Please turn whether it's the page 13.

Speaker Change: Full year organic revenue for our network segment grew 5% to 1.44 billion and margins were strong at 55, 2%.

Laurence Neil Hunn: Given all this, I'm super proud of our team's ability to grind through the market conditions and successfully convert two outstanding value creation M&A opportunities. Given all this, we enter this year with positive momentum. We continue to see strong demand for our mission-critical solutions. As a reminder, each of our businesses is a leader in their respective market and delivers system of record, network critical, or vital and life-saving technology. As a result, we continue to see strong demand for the solution.

Speaker Change: We'll start with our freight matching businesses D. T had load link which both grew in the year. Despite the year long muted right market conditions.

Speaker Change: Similar to that of Deltec, both businesses continued to innovate during the sluggish market with particularly interesting journey I innovations at D. A T to help combat industry fraught.

Speaker Change: I pipeline delivered record bookings and had very strong customer retention and expansion activity leading to strong AOR growth.

Speaker Change: Boundary or post production media and entertainment software business muscled through the year, given the writers and actors strikes and made meaningful progress in the transition to a full subscription revenue model.

Laurence Neil Hunn: Also, as we head into 2024, we have meaningful contributions from our recent acquisitions, Sintelis, Replicon, and Procat. It is important to highlight these additions to our portfolio of businesses also improve the underlying quality of our enterprise, in terms of the recurring revenue mix and organic growth profile. Finally, we continue to be very active in the M&A market, an environment that we expect to be notably improved in 2024 with a strong balance sheet and a large pipeline of attractive opportunities. So, a strong 23 and solid momentum, both organic and inorganic, behind us as we enter 2024. Now please turn to page six, where we'll discuss our most recent acquisition, ProCare Solutions, which is a fantastic addition to the Roper portfolio. Let's start with the fundamentals.

Speaker Change: Finally, our alternate site health care businesses M. H, a soft riders and S. H P were strong throughout the year as census levels and senior care facilities improved.

Speaker Change: As it relates to our full year 2024 guide for the segment, we expect to see low single digit organic revenue growth based on the expectation of continued viewed it freight market conditions, but with continued strong EBITDA margin performance.

Speaker Change: Now please turn to page 14, let's review our attempts segment's results.

Speaker Change: Organic revenues for the year grew 15% to 155 billion EBIT and EBITDA margins remained consistent at 35, 3%.

Speaker Change: As we look back over the year, we entered the year with a high degree of supply chain uncertainty during the year. The vast majority of these uncertainties are resolved and our businesses did a tremendous job of capturing the opportunity.

Laurence Neil Hunn: We're paying $1.75 billion net of a $110 million tax benefit for the business. We expect ProCare to contribute about $260 million of revenue and $95 million of EBITDA for a 12-month-ended Q125. ProCare will be accretive to our free cash flow in 2024 and to our adjusted debts in 2025, and we'll fund the acquisition with a portion of our $3.5 billion revolver. And we'll report ProCare in our application software segment and expect the deal to close this quarter. ProCare meets all our long-standing acquisition criteria, a leader in a smaller market, delivers mission critical verticalized software solutions, competes based on customer intimacy, operates an asset-light business model, and is led by a skilled, passionate leader. What is incrementally different for us is the maturing leader nature of this company.

Speaker Change: As we exit 'twenty three and looked at 24, we do not see meaningful supply chain constraints.

As usual, we'll start with Neptune, our water meter and technology business.

Speaker Change: Neptune was just great and continues to see strong demand and momentum for the residential and commercial ultrasonic or static meters.

Speaker Change: And increasing adoption of their meter meter data management software.

Speaker Change: We remain bullish about Neptune and the market in which they compete.

Speaker Change: Verathon was awesome as well for the year.

Verathon was strong across all three of their product families ultrasonic bladder volume measurement.

Speaker Change: Video assisted innovation and single use bronchoscopy.

Laurence Neil Hunn: As we outlined during our investor day lesson, our corporate strategy leans on implementing two modest improvements. First, continue to improve our long-term sustainable organic growth rate, and second, capture more value from our capital deployment capacity. Relative to additional capital deployment value capture, we are focusing on doing a higher proportion of bolts on, as evidenced by last year's capital appointment, and adding higher growth or maturing leader business profiles to our enterprise. ProCare is a prototypical maturing leader architect.

Speaker Change: As a reminder, marathons reoccurring single use offerings now make up about 55% of the business is annual revenue stream.

Speaker Change: Just an amazing product and business execution journey to both scale and improve the underlying quality of the business.

Speaker Change: Finally, our RF product businesses antibiotics in RF ideas did a terrific job managing through their supply chain challenges and delivered very strong 2023 financial performance.

Speaker Change: Looking to our 2024 guidance for this segment, we expect to see high single digit organic revenue growth for the full year and the expectation that Q1 will grow in the mid teens area.

Laurence Neil Hunn: Meeting all our longstanding criteria that I mentioned above, but a structurally faster growing business that possesses the opportunity to improve margins as a top line scale. For ProCare, we expect mid-teens top-line growth with improving margins from an already strong position for the years. Now, let's talk about what the company does. ProCare is the leading provider of mission-critical and purpose-built software to 37,000 owners and operators of early childhood education centers, which they use to run their business. The software provides all the needed functionality to run a child care center, ranging from parent and family engagement, staff and teacher scheduling, classroom management, tuition billing, and payment processing.

Speaker Change: Now please turn with us to page 16.

Speaker Change: This morning, we're establishing our 2020 for full year and first quarter guidance.

Speaker Change: For the full year, which includes the impact of procure solutions, we expect to see total revenue growth between 11 and 12%.

Speaker Change: On an organic basis, we expect to see full year 2024 revenue grow between five and 6%.

Speaker Change: And finally, we expect to see full year adjusted depths to be in the range of 17, 85, and 18 15, which includes about 10 to 15 cents of depths dilution associated with the broker dealer.

Speaker Change: Assumed in this guidance the tax rate in the 21% to 22% range.

Laurence Neil Hunn: The market itself is quite attractive, and in the midst of a long-term secular tailwind of young dual-income families seeking higher levels of early childhood education versus daycare. In addition, like most industries, this one is undergoing long-term technological disruption. Given these factors, this market is growing annually in the low double digits area. As mentioned, ProCare is the leading player with a one-and-a-half times market share advantage in this space given their super compelling value proposition that combines both software and integrated payments capability.

Speaker Change: Do you want to take a moment and set our guide in context of our long term strategy and execution model.

Speaker Change: To remind everyone. Historically, we operated a 5% to 6% organic growth portfolio.

Speaker Change: Our strategy and ambition to structurally improve organic growth rate to be in the 8% to 9% area.

Speaker Change: Over the last three years, we grew 8%, 9% and 8% on an organic basis, though these years were benefited to some extent from certain market conditions.

Speaker Change: As such our view is our current course and speed organic growth rate is in the 7% seven 5% area.

Laurence Neil Hunn: Given this, ProCare has very high gross retention and compelling net retention. Finally, from our extensive due diligence of the business, we're encouraged by the fact that Broker has multiple strategic and operating pathways available to deliver mid-teens growth and long-term margin. Net-net, this is a highly compelling value creation opportunity for Roper and our shareholders. And to Joanne, your leadership team, and all the ProCare family, welcome to Roper. So with that, Jason, let me turn the call over to you so you can walk through our fourth quarter and full results, as well as our very strong financial position.

Speaker Change: We are very pleased with our progress to date and continue to work to achieve organic growth aspirations.

Speaker Change: As it relates to organic revenue outlook for 'twenty four we entered the year mindful of two factors.

Speaker Change: Continued subdued large customer activity in our application software segment and our freight matching businesses within our network segment being below trend based on our expectations for continued muted freight market conditions.

Speaker Change: As it relates to the first quarter, we expect to see adjusted depths in the range of $4 30, and $4 34.

Speaker Change: Now please turn to page 17, and then we'll look forward to your questions.

Jason Conley: Great. Thanks, Neil. I'll walk through the enterprise and segment results for Q4 and enterprise results for the full year, along with a review of our balance, starting with Q4 on slide 7. We have an excellent finish to a strong year. Revenue of over $1.6 billion was 13% over the prior year, led by 8% organic growth, with acquisitions adding four points and less than a point.

Speaker Change: As per our custom we will conclude with the same key takeaways with which we started one we delivered another great year performance and two we have continued positive momentum heading into 2024.

Relative to 2020 threes performance, we delivered 15% revenue growth, 16% EBITDA growth and 32% free cash flow growth with free cash flow margins also at 32%.

Jason Conley: Organic outperformance was led by our TEP segment, highlighted by Neptune. Rose Martin of 69.7% was down 30 days. Pryor, given a higher mix coming from our TEP.

Speaker Change: Our total revenue growth of 15% was underpinned by 8% organic revenue growth.

Jason Conley: EBITDA grew 11% to $659 million, with EBITDA margin coming in at a solid $40.8 billion. With the offsetting impact of interest and taxes, this translated into debt growth of 11% to $4.37, above our guidance range of 428 to 432. Also, from a cash perspective, free cash flow finished strong at $519,000, which was 30% over prior years. This was in line with our expectations, with a good renewal season across our software. When we turn to slide 8, I'll briefly discuss the segment performance in Q4. Application software delivered revenue growth of 15% over the prior year to $852 million, with organic growth contributing 7 points and the balance coming primarily from our bolt-on acquisitions of Centelis and Repco. The EBITDA margin of 43.2% in the quarter was below the prior year's high watermark of 45.6%, which, as we discussed last year, was driven by lower-incentive-based competition. Network Software revenue was up 3% to $363 million, with EBITDA up 10% to $208 million.

Speaker Change: Importantly, free cash flow is growing 16% on a three year compounded basis, and we delivered our first ever quarter of a $1 billion of software recurring and reoccurring revenues quite an important milestone for enterprise.

Speaker Change: In addition, we deployed $2 1 billion towards high quality vertical software acquisitions highlighted by our bolt ons us entellus and Replicon in a year, where deploying capital with structurally challenged and we did so at very compelling values, leading to strong value creation for our shareholders.

Speaker Change: As we enter 2024, we do so with strong momentum.

Speaker Change: Continue to see robust demand for our mission critical solutions, a strong outlook for organic growth.

Speaker Change: Also you can count on route or to improve the underlying business quality as we scale our enterprise.

Speaker Change: Due to the momentum for the year are the contributions from our 2023 acquisition cohort and last week's announcement of procure solutions.

Speaker Change: Finally, we are well positioned to continue our capital deployment execution.

Speaker Change: We remain very active in the M&A market and environment that we expect to be notably improved in 2024.

Speaker Change: We do this with a strong balance sheet, a large pipeline of attractive opportunities and unwavering levels of patience and discipline.

Jason Conley: As we have discussed before, our freight matching businesses are navigating a drawdown of carriers following exceptional marketplace growth in 2021 and 2022, which is slowing down the growth rate for the segment. However, our business leaders at DDT and LoadLink have aligned the cost base with reduced carrier subscribers to still drive solid EBITDA growth in the. Our TEP segment grew by 17% in the quarter to $399 million, with EBITDA up 13% to $135 million. Growth was led by exceptional performance at Neptune, with continued increasing demand for ultrasonic technologies and overall favorable market conditions. Also, Verathon continued its remarkable growth with strength and single-use products across laryngoscopy and bronchoscopy.

Speaker Change: Now as we turn to your questions and if you could flip to the final slide our strategic flywheel.

Speaker Change: Like to remind everyone that what we do at Roper is simple.

Speaker Change: We compound cash flow over the long arc of time by operating a portfolio of market, leading application specific and vertically oriented businesses.

Speaker Change: Once the company is part of Roper, we operate a decentralized environment. So our businesses can compete and win based on customer intimacy.

Speaker Change: We coach our businesses on how to structurally improve their organic growth rates and underlying business quality.

Finally, we run a centralized process driven capital deployment strategy that focuses on finding the next great business to add to our cash flow compounding flywheel.

Jason Conley: Even though a margin of 33.6% was down from prior year given some one-time investments and its incentive compensation in the past. Turning to slide 9, I'll walk through our full year 2023 program. As Niels mentioned, revenue was just under $6.2 billion of 15% of our prior year with organic growth of 8% and acquisitions contributing 7 points, mainly Frontline and Centella. Looking at a three-year revenue CAGR on the slide, similar to 2023, it's also a 15. Further, the organic, average organic growth rate over this three year period has been about. So, as Neil will mention.

Speaker Change: Together, we compound our cash flow in the mid teens area over the long arc of time, so with that thank.

Thank you for your continued interest in Roper and let's open it up to your questions.

Speaker Change: Thank you well now go to our question and answer portion of the call. We request that our callers limit their questions to one main question and one follow up.

Speaker Change: If you would like to ask a question you may do so by pressing the star key followed by the digit one under Touchtone telephone.

Speaker Change: If youre using a speakerphone please pick up your handset before pressing the keys.

Speaker Change: To ensure your question. Please press Star then the digit too.

Speaker Change: Once again, we request that callers limit their questions to one main question and one follow up.

Jason Conley: We benefited from some market conditions over that time. EBITDA of just over $2.5 billion was up 16% over the prior year, yielding an EBITDA margin of $40.6 billion. Our three-year EMBA.ca over this period was also a story of, The story remains the same at Roper; we own and continually grow a portfolio of high gross margin businesses and generally convert growth to EBITDA in the 45% range, which allows for ample investment back into the business. Bordo

Speaker Change: Today's first question comes from Deane Dray with RBC capital markets. Please go ahead.

Deane Dray: Good morning, everyone.

Deane Dray: Okay.

Deane Dray: Hey, can we just start with pro care and it's interesting. This is the first time I recall, where you made a deal announcement and I had not one but two people at RBC research contact me and say Hey.

Deane Dray: They are active customers and so and they showed me the apps on their phone and it was really interesting to see that dynamic and my question here is I'm really glad that you highlighted how they're a maturing leader.

Jason Conley: Free cash flow for the year was just shy of $2 billion, which represents a 32% margin and is coincidentally a 32% fully your contribution from our front line. Excellent performance across the enterprise. Stroke.

Deane Dray: And within that category and what surprises me is how much growth there, yes, I mean low single digit maybe low double digit to mid teens.

Jason Conley: Underpinned by strong renewals, favorable DSO, and improving inventory. Of note, our networking capital as a percent of annualized revenue was negative 19% in Q4. Steele.

Deane Dray: As you start to see that type of growth.

Deane Dray: Might the private equity sellers have a bias where maybe that's a public company exit that's always been the kind of adage. If you go for these more orphan businesses. There is no public company access they're more apt to sell to you at a reasonable price. If you start looking at some of these growth of your businesses like pro care.

Jason Conley: And most importantly, over a three-year period, we have compounded cash flow at 16%. Our consistent focus on growing cash flow and the strength of our new portfolio following our divestiture demonstrates a solid base from which to continue our long-term growth. To that end, we expect our free cash flow margin to be 30% or more.

Deane Dray: Even at a maturing leader category might that stretch the multiples because the private equity players might have a public company accident in mind. So maybe we can start there.

Jason Conley: With that, we can flip to slide 10 to discuss our strong financials. From a liquidity standpoint, we finished the year with $3.14 billion available on our revolver with over 200 million. Regarding leverage, we brought down Net Debt even further from 2.7x at the beginning of 2023 to a year-end figure of 2.4x despite deploying $2.1 billion towards equity. We expect to close on ProCare later in Q1, and we'll utilize our revolver to fund the transaction.

Speaker Change: Yeah. So I think first I appreciate the comments on broker I think there was like 80005 star ratings in the App store. So your colleagues or a couple of many about the liking the application and the engagement with their kids and their early childhood education centers.

Speaker Change: Relative to the question about.

Speaker Change: The IPO was a competitor I mean, maybe on some transactions, but most of what we're gonna look at are gonna be subscale for the IPO market. The Tam here is sub $1 billion, that's not a very IPO wobble type.

Laurence Neil Hunn: So this will be our pro forma leverage to about three times. Our solid balance sheet coupled with strong cash generation gives us the capacity to deploy $4 billion or more of capital while remaining committed to our solid investment strategy. Since our October call, deal activity has demonstrably increased with a corresponding lift in asset quality. That said, our market optimism remains balanced by our disciplined process. With that, I'll turn the call back over to Neil to talk about our full year segment performance and indications for 2020. Neal

Speaker Change: Market. So this is again small market leader the market is growing low double digits that we talked about which underpins the mid teens growth rate, we're underwriting to here.

Speaker Change: In terms of valuation multiples I think we're just in a world where sellers, especially private equity sellers understand the cost of capital or the world is they have constraints from their Lps, they need to get liquidity back to them they can't raise new funds without it.

Laurence Neil Hunn: Thanks, Jason. As we turn to page 12, let's look back on the year for the application software segment. Total revenues grew 21% and organic revenues grew 6% to $3.19 billion, while EBITDA margins remained strong at 43.7%. Within the segment, results were consistent with strength at delta, aderent, vertifor, strata, and front lobe.

Speaker Change: So I mean, it's hard to guess what this asset would have traded for 12 to 18 months ago, but substantially substantially higher on a multiple basis. So we think for the moment valuations are coming to us because of the market forces. We just talked about I think in this current environment liquidity is really key.

Speaker Change: So if you do an IPO you don't get your liquidity right away. So I think that's pretty important.

Speaker Change: And this might be more of a nuance, but at your analyst day, you talked about a willingness to look at businesses that might be at an earlier stage of development.

Laurence Neil Hunn: Dell Tech continues to see strong gains in our SaaS solutions, especially in their private sector markets. However, as discussed throughout the year, the go-kart market was tempered given all the uncertainty regarding government spending. Notwithstanding, Deltec delivered mid-single-digit organic growth for the year. In addition, they continue to innovate and add capabilities during times of uncertainty, which is a hallmark of Roper's strategy, highlighted in the bulletins of Replicon and ProPriority. ProPricer, a smaller transaction, about $80 million in purchase price, that closed late last year and delivers the leading contract pricing solutions and software for government contractors and federal agencies, an ideal strategic fit for Dell Tech's cost point product, Adderant, was amazingly successful. They had record bookings and significant adoption of their Anchor SAS solutions and add-on products. Also, Adert is one of the leaders within Roper and the legal software market as it relates to productizing generative AI solutions within their products. Great job by Chris, Rafi, and the entire team at Adderall.

Speaker Change: And is there on that spectrum does pro care as a maturing leader is is that something you could have acted sooner on and when Jason talked about the level of activity how within the funnel are there businesses that are at that earlier stage that might look attractive.

Speaker Change: I think pro carriers like a perfect example, where you can buy earlier stage right. So these are not early stage company there earlier than what we've typically acquired in the past. So they meet all of our criteria have to emphasize that every time, we talk about.

Speaker Change: Maturing leader so it's a leader in the small market the base. The competition is understood and observable in the marketplace. The relative market share advantage. This company has is particularly interesting. So that those are common traits of everything we've always acquired.

Speaker Change: This case, the market's growing little bit faster than the underlying business model margins are going to scale as the business grows that's the earlier part of what we're talking about historically, we would've maybe weighted supply by broke here until the next rate. The one after the one that just occurred and so when we look at the model of this over a long long arc, it's just much more.

Laurence Neil Hunn: Continuing on, Vertifor was solid with strong ARR gains throughout the year. Additionally, Vertifor made great strides with their product strategy deployment, and the MGA Systems bolt-on is trending well ahead of our investment. Grata also was quite good last year, both in terms of organic ARR gains and their acquisition and integration work associated with Intel.

Speaker Change: For our shareholders to do this type of transaction.

Speaker Change: In terms of the pipeline you know it's it is as Jason said in his comments as I said in my comments, just a noticeable change in activity since our last call in the marketplace or some of the reasons that we talked about the and it's a variety of opportunities. I mean, you know we're leaning into doing more bolt ons. So theres a fair amount of bolt on activity in there that is.

Laurence Neil Hunn: Finally, Frontline executed well, delivering strong retention and cash flow during the year. As I mentioned earlier, we will report ProCare solutions in this segment and expect the deal to close this quarter. As it relates to our 2024 outlook for this segment, we expect to see mid-single-digit organic revenue. Please turn with us to page 13.

Speaker Change: A lot of with Janet and her team are working to build.

Speaker Change: And then there's a fair number of these hum emerging maturing leader excuse me maturing leader type profiles, and we'll just have to be patient and disciplined to figure out the right ones for us.

That's all great to hear thanks congratulations.

Laurence Neil Hunn: Whole year organic revenue for a network segment grew 5% to $1.44 billion, and margins were strong at 55.2%. We'll start with our freight matching businesses, DAT and load, which both grew in the year despite the year-long muted freight market conditions. Similar to that of Dell Tech, both businesses continue to innovate during the sluggish market, with particularly interesting Gen AI innovations at DAT to help combat industry fraud. I-Pipeline delivered record bookings and had very strong customer retention and expansion activity leading to strong ARR growth. Boundary, our post-production media and entertainment software business, muscled through the year, given the writers and actor strikes, and made meaningful progress in the transition to a full subscription revenue model.

Speaker Change: Thank you. Our next question today comes from Julian Mitchell with Barclays. Please go ahead.

Hi, Good morning, maybe I'm just following up on pro can.

Julian Mitchell: To clarify a little bit just the financial impact I think you said, maybe 10 to 15 cents hit for the year in that guide them. So maybe just sort of clarify around that.

Julian Mitchell: You know as it kind of a smaller hitting in Q1 because of the timing of the deal close and then we just spread the rest out of.

Julian Mitchell: Our balance.

Julian Mitchell: Any thoughts on kind of the seasonality.

All of the pro care business in and then how quickly you'll get that sort of relate to that down.

Speaker Change: Yeah sure Julien So we expect to close in March that's sort of our assumption.

Laurence Neil Hunn: Finally, our alternate-site health care businesses, MHA, Soft Riders, and SHP, were strong throughout the year as census levels in senior care facilities improved. As it relates to our full year 2024 guide for the segment, we expect to see low single-digit organic revenue growth based on the expectation of continued muted trade market conditions. But with continued strong EBITDA margin performance. Now, please turn to page 14, and let's review our TEPS segment's results. Organic revenues for the year grew 15% to $1.55 billion, and EBITDA margins remained consistent at 35.3%.

Assumption right now so the way that plays out as of the 15th sense, maybe two cents in the first quarter. So we expect for the calendar year around $75 million of EBITDA and then we'll obviously from an interest perspective will reload on the revolver, which is going to be at around 6%.

Speaker Change: And so obviously.

Speaker Change: Cashed out through the rest of the year. So that's how you get to your 10 to 15 cents for the year in terms of seasonality not a ton of seasonality for the business.

Speaker Change: And then of course, it's growing nicely so that sort of works through any any aberrations you'd have between quarters.

Speaker Change: That's helpful. Thank you and then.

Speaker Change: Just homing in on.

Laurence Neil Hunn: As we look back over the year, we entered the year with a high degree of supply chain uncertainty. During the year, the vast majority of these uncertainties were resolved, and our businesses did a tremendous job of capturing the opportunity. As we exit 23 and look to 24, we do not see meaningful supply chain constraints.

Speaker Change: Our network software for a second so you have that sort of softness in the freight markets, that's been sort of well understood for some time.

Speaker Change: Foundry was also weak.

So some of last year, so are we thinking that.

You know in the context of that low single digit organic growth guide for the year and network software just trying to understand are you assuming kind of a slower start and then a pickup in the back half or its a steady sort of 3% growth rate dialed in.

Laurence Neil Hunn: As usual, we'll start with Neptune, our water meter and technology business. Neptune was just great and continues to see strong demand and momentum for their residential and commercial ultrasonic or static meters and increasing adoption of their meter data management software. We remain bullish about Neptune and the market in which they compete. Barathon was awesome as well.

Speaker Change: Just like how you exited 2023.

Speaker Change: I'll take the first cut that and then ask Jason if he wants to add any color. So you're right to call I mean, the principal driver of the growth rate in the range for acute for 'twenty four is D E T and link the freight matching businesses.

Laurence Neil Hunn: Verathon was strong across all three of their products: Ultrasonic Bladder Volume Measurement, Video Assisted Innovation, and Single-Use Broadcasting. As a reminder, Verithon's recurring single-use offerings now make up about 55% of the business's annual revenues. Just an amazing product and business execution journey to both scale and improve the underlying quality of the business. Finally, our RF product businesses, Enavonics and RF Ideas, did a terrific job managing through their supply chain challenges and delivered very strong 2023 financial performance. Looking to our 2024 guidance for this segment, we expect to see high single-digit organic revenue growth for the full year and the expectation that Q1 will grow in the mid-teens area. Now, please turn with us to page 16.

Jason Connolly: Foundry had as you as we've talked about had a tough twenty-three with the actors and writers strike on top of that they started their migration to a full subscription model and so 24 will be a bit muted for foundry as well, but that's a small relative to the impact of the a T. In the Canadian freight match businesses, we've assumed sort of muted.

Throughout the whole year there.

Jason Connolly: There certainly are market.

Jason Connolly: Ignostic theaters that are suggesting a second half pick up.

Jason Connolly: We've not assumed that in our model, we want to see it before it loaded in.

Jason Connolly: And that's that's our core assumption relative to the freight match businesses.

Speaker Change: That's right.

Speaker Change: Great. Thank you.

Speaker Change: And our next question today comes from Brent Thill with Jefferies. Please go ahead.

Speaker Change: Thanks.

Laurence Neil Hunn: This morning, we're establishing our 2024 full year and first quarter guidance. For the full year, which includes the impact of ProCare solutions, we expect to see total revenue growth between 11 and 12 percent. On an organic basis, we expect to see full-year 2024 revenue grow between 5% and 6%. And finally, we expect full-year adjusted depths to be in the range of 1785 and 1815, which includes about 10 to 15 cents of depth dilution associated with the procured yield.

Brent John Thill: I'm curious just to get the thoughts on organic growth in 'twenty, four obviously, you've taken a pretty meaningful step down from what you did last year, maybe if you can explain ah.

Brent John Thill: That and in the initial guide and what you're baking in.

Brent John Thill: For the overall guide for 'twenty four.

Speaker Change: Sure Hey, I mean, it's Oh, I'll just comment and.

Speaker Change: Sure if your thoughts we said in the in the prepared remarks right. So the long term.

Speaker Change: Aspirations are to grow organically in the 8% to 9% range and we believe we have the possibility to do that it's going to take a few more years to get into that run rate. That's the aspiration of what we're all working towards boats in the group executives and all the operating teams across the company.

Laurence Neil Hunn: Assumed in this guidance, the tax rate in the 21% to 22% We want to take a moment to set our guidance in context of our long-term strategy and execution model. To remind everyone, historically, we operated a 5 to 6% organic growth portfolio. Our strategy and ambition are to structurally improve our organic growth rate to be in the 8-9% area. Over the last three years, we grew 8%, 9%, and 8% on an organic basis, though these years were benefited to some extent from certain market conditions. As such, our view is that our current course and speed organic growth rate is in the 7 to 7.5% area.

Speaker Change: The last three years, he was an 8% 9% 8% throughout that whole period of time. We said we were those were benefited by some market tailwind. Some some come back from the from the pandemic you know a raging freight market things like that supply chain sort of.

Speaker Change: Bottlenecks in our releases so that was sort of in the last three years. So as we look at this year compared to history. And then also are the possible in New York, We think our current course of speed isn't a seven to seven 5% range organic growth through all that noise. So we as we compare what we're doing in 'twenty four.

Laurence Neil Hunn: We're very pleased with our progress to date and continue to work to achieve our organic growth aspirations. As it relates to our Organic Revenue Outlook for 24, we enter the year mindful of two factors. Continued subdued large customer activity in our application software segment and our freight matching businesses within our network segment being below trend based on our expectations for continued muted freight market conditions. As it relates to the first quarter, we expect to see adjusted depths in the range of 430 and 434.

Speaker Change: Against all that it really has two simple reconciling factors. One is we just talked about the last question the freight markets.

Speaker Change: Being slow this our expectation for them to be slow throughout the whole year and then as we talked about for a few quarters last year and our application software segment.

Speaker Change: There was notably less large customer activity like enterprise class customer activity.

Laurence Neil Hunn: Finishes, turn with us to page 17, and then we'll look forward to your questions. As per our custom, we'll conclude with the same key takeaways with which we started. One, we delivered another great year of performance. And two, we have continued positive momentum heading into 2024. Relative to 2023's performance, we delivered 15% revenue growth, 16% EBITDA growth, and 32% free cash flow growth, with free cash flow margins also at 32%. Our total revenue growth of 15% was underpinned by 8% organic revenue. Importantly, free cash flow has grown 16% on a three-year compounded basis.

Speaker Change: Dell Tech a little bit we talked about at frontline a little bit of a smaller business called data innovations, which all makes sense, but large companies anticipating a slowdown they just got cautious in their buying behavior. The good news is deltak ended Q4 with a fair amount of momentum I think they're up low double digits, either high single or low double.

Speaker Change: For the quarter.

Speaker Change: Exited with a fair amount of momentum. It's one data point, we want to see a few of those strung together.

Speaker Change: So we're those are the two reconciling items a freight slowdown in expectation of slowdown in large activity an application that's embedded in our model and those that are reconciling factors between last year and where we are this year and also pretty much a reconciling factor between where we are this year and where we think we are from a run rate.

Laurence Neil Hunn: And we delivered our first ever quarter of a billion dollars of software recurring and reoccurring revenues, quite an important milestone for Enterprise. In addition, we deployed $2.1 billion towards high quality vertical software acquisition, highlighted by our bolt-ons of Centellas and Replicon. In a year where deploying capital was structurally challenging, and we did so at a very compelling rate. Walsh.

Speaker Change: Great. Thank you.

Speaker Change: Yep.

Speaker Change: And our next question comes from Joe <unk> with Baird. Please go ahead.

Joe: Oh, great. Thanks for taking my questions I guess I wanted to.

Joe: Pick off on on the last answer and maybe contextualize that a bit more of the outlook specifically for application software.

Laurence Neil Hunn: Thank you. As we enter 2024, we do so with strong momentum. We continue to see robust demand for emission-critical solutions and a strong outlook for organic growth. Also, you can counter-grouper to improve the underlying business quality as we scale our enterprise. Adding to the momentum for the year are the contributions from our 2023 acquisition cohort and last week's announcement of ProCare. Finally, we're well positioned to continue our capital deployment execution.

Joe: You know I appreciate the comments on subdued activity with large accounts do you do you happen to maybe have the trend in enterprise bookings and then any other forecasting considerations to call out because I guess I'm trying to reconcile that the good step up at year end.

Joe: Against the mid single outlook, but that might just be related to the planning kind of assumptions you just mentioned Neil.

Laurence Neil Hunn: Yeah, I think the step up at the end I mean deltak was strong in Q4.

Laurence Neil Hunn: We remain very active in the M&A market, an environment they would expect to be notably improved in 2024. We do this with a strong balance sheet, a large pipeline of attractive opportunities, and unwavering levels of patience and discipline. Now as we turn to your questions and, if you could flip to the final slide, our strategic flywheel, we'd like to remind everyone that what we do at Roper is simple.

Laurence Neil Hunn: And it's one data point the pipeline looks attractive pipeline for frontline looks attractive at the both the enterprise and SMB portion of their business, but we've been through the better part of three or four quarters, where the enterprise.

Laurence Neil Hunn: Activity was slow and we're just not going to underwrite to that in our guidance at the moment.

Laurence Neil Hunn: In terms of enterprise bookings that were up low single digits, which is consistent for the full year this year and sort of consistent with what we said all year long around.

Laurence Neil Hunn: We compound cash flow over a long arc of time by operating a portfolio of market-leading, application-specific, and vertically-oriented businesses. Once a company is part of Roper, we operate a decentralized environment so our businesses can compete and win based on customer intimacy. We coach our businesses on how to structurally improve their organic growth rates and underlying business quality. Finally, we run a centralized, process-driven capital deployment strategy that focuses on finding the next great business to add to our cash flow compounding flywheel. Taken together, we compound our cash flow in the mid-teens area over the long arc. So with that,

Laurence Neil Hunn: Around just lower activity at the enterprise level.

Speaker Change: Okay great.

Speaker Change: And then I wanted to ask you.

Send that exaggerates events like you mentioned foundry I think they communicated that they are now exclusively subscriptions here in 'twenty 'twenty. Four you also have a lot of other businesses that have big it on prem maintenance streams that can get a multiplier overtime. So there's things that are hurting and helping out.

Speaker Change: Suppose do you have a sense on a blended in net basis, what this might be contributing to the model in 'twenty 'twenty four and you know when you think about growth improving from the seven to seven and a half range. What these types of items might ultimately mean over the next couple of years.

Operator: Thank you for your continued interest in Naropa, and let's open it up to your questions. We will now go to our question and answer portion of the call. I request that our callers limit their questions to one main question and one follow-up. If you would like to ask a question, you may do so by pressing 1-800-637-8483 or calling 1-800-637-8483. Starkey, followed by the digit one on your touch-tone television.

Speaker Change: So I can take the first part of that Joe and then maybe Neil can take the second so in terms of application software, we still expect it to be strong in the mid singles I think not.

Laurence Neil Hunn: Non recurring revenue will still kind of be flattish.

Laurence Neil Hunn: We still expect that.

Operator: Reese, and the Speaker. Let's pick up your handset before proceeding. To withdraw your question, please press star then the digit.

Laurence Neil Hunn: That sort of shift to SaaS to continue and that's kind of been a small headwind for us throughout the last couple of years, but it's been overcome by the things we talked about which was enterprise bookings, which we didn't get in 'twenty. Three. So so again recurring is going to be strong no nonrecurring would be flattish with deltec picks up in 24, especially in the large Gulf kind of enterprise.

Operator: Once again, we request the callers limit their questions to one main question and one follow-up. Today's first question comes from Deane Dray with RBC News. Thank you. Good morning, everyone.

Deane Dray: Hey, can we start with ProCare? It's interesting, this is the first time I recall where you made a deal announcement, and I had not one but two people at RBC Research contact me and say that they were active customers, and so, and they showed me the apps on their phones, and it was really interesting, that dynamic. And my question here is I'm really glad that you highlighted how they're a maturing leader within that category, and what surprises me is how much growth there is. I mean a low single-digit, maybe a low double-digit to mid-teen.

Laurence Neil Hunn: There could be upside in the year, because a lot of those customers are still buying on premise licenses, so that could be an opportunity, but we didn't bake any of that into our guidance.

Laurence Neil Hunn: And then when we look at our network.

Laurence Neil Hunn: Correct.

Laurence Neil Hunn: You know clearly be down low single digits, just based on D J and loves Lincoln at least based on our current assumptions and to your point I think nonrecurring will be fairly muted as well because we will still be will be at the last point of that conversion of foundry off license to subscription so they didn't they didn't mandate that.

Laurence Neil Hunn: In 23, they will mandate in 'twenty first will be digesting that last piece there.

Laurence Neil Hunn: As you start to see that type of growth... might the private equity sellers have a bias where maybe that's a public company exit? That's always been the kind of adage if you go for these more orphaned businesses, there is no public company exit, and they're more apt to sell to you at a reasonable price. If you start looking at some of these growthier businesses like Procare, even in a maturing leader category, might that stretch the multiples because the private equity players might have a public company exit in mind? So maybe we can start. Yeah, so I think, first, I appreciate the comments on ProCare. I think there are like 80,000 five-star ratings on the App Store.

Laurence Neil Hunn: And then on to the 7%.

Laurence Neil Hunn: Just more longer term on the SaaS migration.

We are a little bit over $900 million and on premise maintenance.

Laurence Neil Hunn: That is that converts it converts or his or her recent history. The last two or three or four years, it's north of two times on an IRR basis of the converts from on premise maintenance to SaaS and cloud.

Laurence Neil Hunn: So when we do that it's actually gone up we believe it's shortly it's been a bit of a net growth driver.

Laurence Neil Hunn: While we might we will convert perpetual licenses, which are in period, one time revenue to SaaS and that's our that's the classic J curve.

Laurence Neil Hunn: So your colleagues are a couple of many about the liking the application and the engagement with their kids in their early childhood education centers. Relative to the question about... The IPO is a competitor. I mean, maybe on some transactions, but most of what we're going to look at is going to be subscale for the IPO market. You know, the TAM here is sub a billion dollars. That's not a very IPO-able type market.

Laurence Neil Hunn: The companies that are undergoing this transition we're going to convert this 900 plus million of maintenance at a clip that will overwhelm that J curve effect. So we believe it's a net growth driver foundry is a bit unique in that they're making are just almost like a day one pivot in their business model shift and the other companies are doing more of a migratory approach.

Speaker Change: Okay. That's all helpful. Thank you.

Speaker Change: And our next question today comes from Allison Plenty Act with Wells Fargo. Please go ahead.

Laurence Neil Hunn: So this is, again, a small market leader. The market's growing at the low double digits that we talked about, which underpins the mid-teens growth rate we're underwriting to here. In terms of valuation and multiples, I think we're just in a world where sellers, especially private equity sellers, understand the cost of capital and where the world is. They have, Webster. And this might be more of a nuance, but at your analyst day, you talked about a willingness to look at businesses that might be at an earlier stage of development. And, you know, on that spectrum, does ProCare, as a maturing leader, is, is that something you could have acted on sooner on? And when Jason talked about the level of activity, how, within the funnel, are there businesses that are at that earlier stage that might look attractive? I think ProCare is like a perfect example at the earlier stage, right?

Speaker Change: Hey, good morning, just want to turn to the neighborhood contacts and obviously a strong here and as we think about that guide I know Neptune and Verathon apparently.

Speaker Change: They contaminate the background does that kind of diverge to some extent as long as that happens the other it seems like there's a lot of development out. There then that could drive some of that just any thoughts there.

Speaker Change: I mean, both as we talked about both the Neptune and Verathon were just great in the <unk>.

Speaker Change: Last year, both you know.

Speaker Change: Grew faster than the segment obviously they are big they are a predominant element of the <unk>.

Speaker Change: Segment, we believe that the long term growth rate at Neptune is probably in the high single digits area and we believe that the long term organic grocery to marathon is probably a bit higher than that.

Speaker Change: We want us we want to believe that it's going to be a low double digits. We want to see a couple more years of that some more R&D productivity. We're super encouraged by the pipeline of R&D and the momentum they have in the market across the three product categories.

Speaker Change: So that's where we'd expect a long term growth rates to be there.

Speaker Change: Got it and then just following up on the M&A side of things you can leverage at three times I think is the strong cash flow generator. That's yeah. It sounds like the pipeline is incredibly active with already transaction, what's the comfort level in terms of going about that range does that only I think three that took me back.

Laurence Neil Hunn: So these are not early stage companies. They're earlier than what we've typically acquired in the past. So they meet all of our criteria.

Speaker Change: I mean, we're always you know our long term policy is between three and three three to three five times. If you look back to 2015 and 16, you can never be right at that level somebody would go above it come below it is there's always this this process and where do you draw a line through the those swings.

Laurence Neil Hunn: I have to emphasize that every time we talk about maturing leaders, so it's a leader in a small market; the base, the competition is understood and observable in the marketplace. The relative market share advantage this company has is particularly interesting. So those are common traits of everything we've always acquired.

Speaker Change: We're gonna just what's where business model pickers as you know we're going to continue to look for the very best businesses that the most attractive valuations that meet all of our criteria and then we will look for the best way to finance those from that point, we certainly understand I think acutely risk both risk and the business is rest of the capital structure and that's.

Laurence Neil Hunn: In this case, the market's growing a little bit faster, and the underlying business model margins are going to scale as the business grows. So that's the earlier part of what we're talking about. Historically, we would have maybe waited to buy ProCare until the next trade, the one after the one that just occurred.

Laurence Neil Hunn: And so when we look at the model of this over a long, long arc, it's just much more value for shareholders to do this type of transition. In terms of the pipeline, as Jason said in his comments, and as I said in my comments, there has been just a noticeable change in activity since our last call on the marketplace for some of the reasons that we talked about. And it's a variety of opportunities. I mean, we know we're leaning into doing more bolt-ons, so there's a fair amount of bolt-on activity in there. That's a lot of what Janet and her team are working to build. And then there's a fair number of these emerging, maturing leaders, excuse me, maturing leader type profiles, and we'll just have to be patient and disciplined to figure out the right ones for it. That's all great to hear.

Speaker Change: A big part of how we think about deploying capital and how we value assets.

Speaker Change: Got it thank you.

Speaker Change: And our next question today comes from Christopher Glynn with Oppenheimer. Please go ahead.

Christopher Glynn: Hi, Thanks, Good morning, guys.

Christopher Glynn: And then I had a question about the <unk> segment. So you commented on.

Christopher Glynn: The supply chain issues from the last couple of years all resolved.

Christopher Glynn: So curious if you're seeing some nice.

Christopher Glynn: You know benefits emerge from production planning and.

Christopher Glynn: You know if that drive some natural margin and productivity tailwind that we should see in the margins in 2024.

Deane Dray: Thanks. Congratulations. And our next question today comes from Julian Mitchell with Parkland. Thank you so much. Goes out to, Hi, good morning.

Well I think scaling certainly helps where we've added a fair amount of capacity at Neptune.

Christopher Glynn: We've added supplier capacity at Verathon, we've added a supplier capacity at the RFID the RF products businesses.

Julian Mitchell: Maybe just following up on ProCare, if you could clarify a little bit just the financial impact. I think you said maybe 10 to 15 cents a hit for the year in that guide. So maybe just sort of clarify around that, you know, is it kind of a smaller hit in Q1 because of the timing of the deal close, and then we just spread the rest out over the balance? Any thoughts on kind of the seasonality of the ProCare business and then how quickly you'll get that sort of related debt down? Yeah, sure, Julian.

Christopher Glynn: And and certainly we're not dissimilar from most companies the supply chain operations teams are going from a for a model that was focused in the last three or four years on resiliency to maybe a more balanced between resiliency and sort of just in time, which certainly will help with inventory turns and asset velocity. So we do think there's a.

Christopher Glynn: A little bit of money trapped in inventory for us would be more of a working capital advantage. If we can execute on that plan in terms of margins I've looked at Jason I think it's probably more just scaling infrastructure I mean, what we where our cost of goods is so low relative to industrial type companies that you know the the input cost or yeah.

Jason Conley: So, we expect to close in March. That's sort of our assumption right now. So, the way that plays out is about $0.15, maybe $0.02 in the first quarter. So, we expect for the calendar year around $75 million of EBITDA.

Christopher Glynn: Fraction of the cost structure of of our enterprise, but your thoughts about that yeah.

Jason Connolly: Yeah, No I think we will we'll have leverage that that'll.

Jason Conley: And then, you know, we'll obviously, from an interest perspective, reload on the revolver, which is going to be at around 6%. And so, and obviously, and so that'll play out through the rest of the year. So, that's how you get to your $0.10, $0.15 for the year.

Jason Connolly: That'll be a little bit above what the EBITDA margin is for the business I mean, you do have some.

You know some of the growth that we're seeing is in single use products, which are great. Because they have a lot of recurring revenue a reoccurring revenue, but they come at a little bit of a lower margin and then when Neptune grows it has a little bit of impact segment too. So I would expect leverage to be consistent with what we've seen in the last couple of years just based.

Jason Conley: In terms of seasonality, not a ton of seasonality for the business, and, of course, it's growing nicely. So that sort of works through any any aberrations you'd have between. That's helpful, thank you.

Jason Connolly: Those factors.

Speaker Change: Great Thanks and.

Julian Mitchell: And then just homing in on network software for a second. So you have that sort of softness in the freight markets that's been sort of well understood for some time. Foundry was also weak for some of last year. So are we thinking that, you know, in the context of that low single-digit organic growth guide for the year in network software? Just trying to understand, are you assuming kind of a slower start and then a pickup in the back half, or it's a steady sort of 3% growth rate dialed in, just like how you exited 2023? I'll take a first cut at it and then ask Jason if he wants to add any color.

Speaker Change: Can you talk about the aspiration to 8% to 9%.

Speaker Change: Organic growth in driving things higher certainly understand you have a lot of coordination of experts and best practices across the enterprise.

Speaker Change: What would you characterize this top of the list businesses with.

Speaker Change: Particularly action plan opportunities in that respect.

Speaker Change: So we appreciate the question right. So we started this portfolio of 5% to 6% growth for the waypoint of we think seven to seven and a half on the way to eight to nine so we've made a fair amount of progress over the last four or five years.

Speaker Change: It's less about which company, it's more about the process and discipline across the all 27 now go into 28 companies you've heard US talk about this odd repeat in the past, but it's just where if anything were consistent so it's about how do we each of our businesses design a strategy.

Laurence Neil Hunn: So you're right. The principal driver of the growth rate in this range for 24 is DAT and link and freight matching businesses. Foundry had, as we talked about, had a tough 23 with their actors in Rider Strike.

Laurence Neil Hunn: On top of that, they started the migration to a full subscription model. And so 24 will be a bit muted for Foundry as well, but that's small relative to the impact of DAT and the Canadian freight match businesses. We've assumed sort of muted conditions throughout the whole year.

In terms of where to play and how to win and where they have the right to win for Europe durable long term growth. The second thing is how do you process enable the execution of that strategy. So that you're on repeat we can use our long term forever ownership period as a long term competitive advantage. So as we stack capabilities that become enduring than we.

Laurence Neil Hunn: There certainly are market prognosticators that are suggesting a second half pickup. We've not assumed that in our model. We want to see it before we load it in. And that's our core assumption relative to the freight match. Ritchie.

Speaker Change: Can outpace our competitors and then third is how do we run a talent offense, where we used talent as a long term competitive advantage, we've talked a lot about the upgrade at the field leadership level over the last three or four years.

Speaker Change: Expectation for performance is much higher much much higher the alignment of our compensation is tighter to that expectation.

Julian Mitchell: Thank you. Great, thank you. And our next question today comes from Brent Thill with... Thanks. Curious just to get the thoughts on organic growth in 24, obviously taking a pretty meaningful step down from what you did last year. Maybe if you could explain that in the initial guide and what you're baking in for the overall guide for 24.

Speaker Change: So it's all three acting in unison, but you get the Verathon is that a decade ago or low single digit growers and now hopefully you know low double digit growers you'd take businesses like delta at the mid or they come solidly mid plus or maybe they can inch in the high singles overtime. So its about every business doing a little bit better on a sustainable basis.

Speaker Change: Thanks, Dan.

Brent John Thill: Sure. Hey, I mean, it's, uh, I'll, I'll just comment and share a few of the thoughts we said in the prepared remarks. So our long-term aspirations are to grow organically in the eight to 9% range. And we believe we have the possibility to do that. It's gonna take a few more years to get into that run rate.

Dan: Yeah, you bet.

Dan: Our next question comes from Joe Giordano with Cowen. Please go ahead.

Joe Giordano: Hey, guys good morning.

Joe Giordano: Good morning.

Joe Giordano: Hey, D J T.

Joe Giordano: Obviously, the freight market is.

Joe Giordano: Can you just I know, we've talked about that relationship kind of being somewhat inverse in in weak markets, where they actually tend to do better is that like just to put a finer point on that is that more of like an negative inflections in the market, where it kind of spikes and then if it's like prolonged weakness you know that at all.

Laurence Neil Hunn: That's the aspiration of what we're all working towards, both in the group executives and all the operating teams across the company. As you know, in the last three years, it was 8%, 9%, 8%. Throughout that whole period of time, we said those were benefited by some market tailwinds, some comeback from the pandemic, a raging freight market, things like that, supply chain sort of bottlenecks and releases, and that was sort of in the last three years. So as we look at this year compared to history, and then also the possible, we think our current course of speed is in the 7% to 7.5% range organic growth through So as we compare what we're doing in 24 against all that, there really are two simple reconciling factors.

Joe Giordano: Intimately is forced to electrical into D. C is that how would you really think about that.

Speaker Change: So D T D.

Dynamics are a little bit different than what you described D. T is when the freight markets are.

Speaker Change: Very strong D. A T grows.

Speaker Change: In line or maybe ahead of that strength when the freight markets are weaker they tend to slow down.

Speaker Change: And then they sort of they're there. So therefore, if you looked at their growth it's more like a stair step type growth in this particular case, because we're coming off such a search for a couple of three years, it's a little bit more exaggerated the dynamic that you're describing perfectly describes our construct connect business, which is the construction.

Laurence Neil Hunn: One is, we just talked about the last question, the freight markets being slow, and our expectation for them to be slow throughout the whole year. And then, as we talked about for a few quarters last year in our application software segment, there was notably less large customer activity, like enterprise class customer activity, Dell tech, a little bit of what we talked about on the front line, a little bit of smaller business called data innovations, which all makes sense. The large companies, anticipating a slowdown, just got more cautious in their buying behavior. The good news is DelTech ended Q4 with a fair amount of momentum. I think they're up low double digits, either high single or low double digits for the quarter.

Speaker Change: Analytics business, where when the when you think about building product manufacturers and contractors and subcontractors subscribed or content about what commercial real estate buildings are in the process of being planned and built they want to look for where their next jobs are going to come from so when the construction markets and real estate markets are white hot.

<unk> are fully subscribed years out, but you know the valuable information is less when the market slows and there their backlog is stunning and the value of what we offer is much higher so we tend to have a little bit of a counter cyclical.

Speaker Change: Demand driver inside of construct connect we don't by the way, Matt and his team their construction after working to balance out and have done a good job. So hopefully the go forward it'll be up in up markets and up and down markets, but that's the that's what their product strategies trying to execute.

Laurence Neil Hunn: So, they exited with a fair amount of momentum. It's one data point. We want to see a few more thrown together.

Speaker Change: That's good color.

Brent John Thill: And so, those are the two reconciling items, the freight slowdown and the large activity and application. That's embedded in our model, and those are the reconciling factors between last year and where we are this year, and also pretty much a reconciling factor between where we are this year and where we think we are from a run rate. Great. Thanks, Tim Smith.

Speaker Change: Just like in like a broader question you know, obviously, where we're getting like more and more layoff announcement that like I guess that companies across the spectrum from tectum UBS you know so how how are you guys like in your discussions with your customers and what's the most recent kind of read they're having on where head count stands and what the implications are for you know for your businesses.

Speaker Change: There that somewhat depend on that.

Speaker Change: Yeah, I think unfortunately or read across the breadth of what macro market isn't a great win rate because we operate at these relatively.

Joseph D. Vruwink: And our next question comes from Joe Vruwink with... Great. Thanks for taking my questions. I guess I wanted to pick off on the last answer and maybe contextualize the outlook specifically for application software. You know, I appreciate the comments on subdued activity with large accounts. Do you happen to maybe have the trend in enterprise bookings and then any other forecasting considerations to call out? Because I guess I'm trying to reconcile the good step up at year end against the mid-single outlook, but that might just be related to the planning kind of assumptions you just mentioned, Neil? Yeah, I think the step up at the end. I mean, Dell Tech was strong in Q4. And that's one data point.

Speaker Change: Insulated end markets, you know government contractors property and casualty insurance and.

Speaker Change: Brokerage were brokerages employments higher life insurance, where employment is higher.

Speaker Change: Health care, where employment is higher education, where appointments stable if not higher right. We're in the sort of relatively isolated protected in markets, where the macro swings are.

Speaker Change: Aren't don't don't impact that much it doesn't have that much impact on the way we.

Speaker Change: Drive compliance bookings in our across our portfolio I will say it for the labor market generally loosening up it's been advantageous for us for all of their being able to not just fully staffed but our business level, but use this opportunity to last probably 12 months plus to significantly upgrade talent across the organization.

Laurence Neil Hunn: The pipeline looks attractive. The pipeline for Frontline looks attractive in both the enterprise and the SMB portion of their business. But we've been through the better part of three, four quarters where enterprise activity has been slow, and we're just not going to underwrite that in our guidance.

Speaker Change: Fair enough thanks, guys.

Speaker Change: Thank you. Thank you and our next question comes from Terry Tillman with Truest. Please go ahead.

Terry Tillman: Yeah can you all hear me okay.

Laurence Neil Hunn: In terms of enterprise bookings, they were up low single digits, which is consistent for the full year this year and sort of consistent with what we've said all year long, around just lower activity in the enterprise. Okay, great. And then I wanted to ask, you know, there's some exogenous events, like you mentioned Foundry. I think they communicated that they're now exclusively subscriptions here in 2024. You also have a lot of other businesses that have big on-prem maintenance streams that can get a multiplier over time. So there are things that are hurting and helping, I suppose.

Terry Tillman: Hey, great good morning.

Terry Tillman: Hey, good morning, everyone and thanks for fitting me in as well.

Maybe just one question for you I guess, it's for you. Neil is you know what we've seen with our vertical SaaS companies don't even horizontal SaaS companies in the past when they get those customers on the new modern architecture. It really can start to reduce the friction to buy those other add on modules and so what I'm curious about is you you just called out some of your businesses in the past like don't talk that I've seen them.

Terry Tillman: Moving growth.

Terry Tillman: Anything you can share around cutting our net revenue retention from those customers to move to cloud and I know, it's still early days, but is there a propensity to buy those add on module does it speed up to the quick in and that's just one of these things that could be a accumulative benefit over time and also help on that organic growth and then I had a follow up.

Joseph D. Vruwink: Do you have a sense, on a blended and net basis, what this might be contributing to the model in 2024? And, you know, when you think about growth improving from the 7 to 7.5 range, what these types of items might ultimately mean over the next couple of years? So I can take the first part of that, Joe, and then maybe Neil can take the second.

Speaker Change: Super appreciate that question the short answer is categorically yes.

Speaker Change: And we see that you know first when you when you do the lift and shift from.

Speaker Change: From a legacy product to the current cloud delivered product.

Speaker Change: There is a there's a migratory benefits as we've talked about Stratus is a good example, same store sales two to two five times uplift, but then while they're doing that the checkbooks opened and they buy more modules at that moment, where total <unk> goes up over three times, when they lift and shift their.

Jason Conley: So in terms of application software, you know, we still expect it to be strong in the mid-singles. I think non-recurring revenue will still kind of be flattish.

Jason Conley: That sort of shift to SAS will continue, and that's kind of been a small headwind for us throughout the last couple of years, but it's been overcome by the things we talked about, which were enterprise bookings, which we didn't get. So again, recurring is gonna be strong. Non-recurring will be flattish.

Speaker Change: Their customer base same can be said slightly different metrics at red water for et cetera.

Speaker Change: So what you're talking about is one of the principal benefits both to the customer and to us our companies for delivering.

Jason Conley: You know, if Dell Tech picks up in 24, especially in the large GovCon enterprise, there could be upside in the year because a lot of those customers are still buying on-premise licenses. So that could be an opportunity, but we didn't bake any of that into our guidance. And then when we look at the network, recurring will clearly be down, low single digits just based on DAT and load link, at least based on our current assumption. And to your point, I think non-recurring will be fairly muted as well because we'll still be at the last point of that conversion of Foundry off-license to subscription. So they didn't mandate that in 23, they will mandate it in 24, so we'll be digesting that last piece there.

Cloud delivered SaaS delivered software, which is being able to be on the most recent release so be able to take advantage of all the R&D innovation and more easily be able to take additional products because of the delivery mechanism is faster and the implementations are more smooth so you're exactly right. We're seeing it across the portfolio and expect to see a lot.

Speaker Change: More of that in the years to come.

Speaker Change: That's great I appreciate that and I guess, just a follow up question and I know you want to be careful in not revealing too much but you know what's the M&A environment does start opening up more and there's more shots on goal and just more things that are interesting, albeit taking into account your discipline I'm curious just bigger picture usually at the vertical SaaS, but what about interesting niche.

Speaker Change: As Arnold SaaS solutions, whether it's back office or kind of Middle office and front office indoor second secondarily. The idea of maybe software companies with a meaningful payments business. Thank you.

Jason Conley: And then onto the 7%. Yeah, I think just more longer term on the SAS migration. We have a little bit over $900 million in on-premise maintenance, but that's as it converts.

Speaker Change: So.

Speaker Change: So as we always said it will always be we're gonna be business model pickers. The reason historically, we've been attracted to vertical small market vertical is.

Laurence Neil Hunn: It converts our recent history, the last two or three or four years is north of two times on an ARR basis as it converts from on-premise maintenance to SAS and cloud. So when we do that, it's actually going to, we believe historically, it's been a bit of a net growth driver. While we might, we will convert perpetual licenses, which are in-period, one-time revenue to SAS, and that's a classic J-curve. The companies that are undergoing this transition, we're going to convert these 900 plus million of maintenance at a clip that will overwhelm that J-curve effect. So we believe it's a net growth driver. Foundry is a bit unique in that they're making almost a day one pivot in their business model shift, and the other companies are doing more of a migratory approach. Okay, that's all helpful, thank you. And our next question today comes from Allison Poloniak with Welch Fargo. Hey, good morning.

Software businesses is because the basis of competition needs to be able to be understood and observed we want to be able to compete based on both the value proposition of the of the product, but also the intimacy with the customer and the customer relationship.

Speaker Change: The vast majority of our companies their customers want us to win right that we are so integral to what they do they want us to win there are always giving us input and feedback about how to be better how to deliver more value to them and so those dynamics that we look forward. There are certainly some niche chi horizontal type thing.

Speaker Change: Things that meet those criteria, but not a lot right a lot of the horizontal have gigantic Tam as you compete on the base of an algorithm theres very little loyalty to the company. So those types of things will never invest in.

Speaker Change: Relative to your comment about payments.

Allison Poloniak: Just want to turn to tech-enabled products. Obviously, a strong year. You know, as we think about that guide, I know Neptune and Verithon were certainly big components of that growth. Does that kind of diverge to some extent? Does one start to outpace the other?

Speaker Change: This is models are we have a variety of business models. There's software there's on Prem to SaaS. You know, we just bought a business that is the integration of SaaS software and payments.

Laurence Neil Hunn: Seems like there's a lot of development at Verithon that could drive some of that. Just any thoughts there? I mean, as we talked about, both Neptune and Verathon were just great in the last year.

Speaker Change: Where you have a deep embedded integration with what the company does and our products do with the payment stream and so it's a business model, where we're open minded to the business model construct as long as there's immense amount of durability embedded in the business model.

Laurence Neil Hunn: Both, you know, grew faster than the segment; obviously, they are a predominant element of the segment. We believe that the long-term growth rate at Neptune is probably in the high single digits area. And we believe that the long-term organic growth rate of Verathon is probably a bit higher than that. We want to believe that it's going to be in the low double digits. We want to see a couple more years of that, some more R&D productivity. We're super encouraged by the pipeline of R&D and the momentum they have in the market across the three product categories. So that's where we expect a long-term growth rate. Got it. And then just following up on the M&A side of things, you know, leverage at three times, obviously a strong cash flow generator, but yet it sounds like the pipeline is incredibly active with quality transactions. What's the comfort level in terms of going above that range?

Thank you.

Speaker Change: But.

Speaker Change: And our next question comes from Alexander Blanton with clear Harbor asset management. Please go ahead.

Alexander M. Blanton: Morning, Chris.

Alexander M. Blanton: Yes, I have some questions on the.

Alexander M. Blanton: Wellcare.

Alexander M. Blanton: And okay.

Alexander M. Blanton: The first one is.

Alexander M. Blanton: You've indicated that it's not accretive to.

Alexander M. Blanton: Adjusted EPS.

Alexander M. Blanton: Well this year.

Alexander M. Blanton: And if not then there's some dilution how much is that you might have mentioned that earlier I might not have caught it.

Alexander M. Blanton: Yeah, Hi, Alex This is Jason so yeah, we assume around 75 million of EBITDA and then the interest is going to be you know.

Allison Poloniak: Is there a way to think through that? Just any thoughts. Yeah, I mean, our long-term policy is between three and three and three and a half times. If you look back to 2015, 16, you can never be right at that level.

Jason Connolly: 186 billion at call it, 6%, which is our revolver our current revolver rate.

Speaker Change: And so that's how you get to your calendar dilution number.

Speaker Change: But what is that number in E. P S.

Laurence Neil Hunn: Some of you go above it, some of you go below it. It's just always this process and where you draw a line through those swings. We're going to just, we're business model pickers, as you know, we're going to continue to look for the very best businesses at the most attractive valuations that meet all of our criteria, and then we'll look for the best way to finance those from that point. We certainly understand, I think, very well risk, both risk in the businesses, risk in the capital structure, and that's a big part of how we think about deploying Got it. Thank you.

Speaker Change: 10 to 15.

Speaker Change: Okay, so that accounts for.

Speaker Change: For the shortfall.

Speaker Change: And.

Speaker Change: In the.

Speaker Change: Guidance versus the consensus tender did you say.

Speaker Change: Say 10 or 15 cents.

Speaker Change: Correct dilution, Okay now going forward, if you will.

Speaker Change: Growing at double digits.

Speaker Change: Mid teens.

Speaker Change: Uh huh.

Speaker Change: Yeah.

Speaker Change: That implies you're going to get some pretty.

Speaker Change: Good.

Speaker Change: Accretion.

Speaker Change: In 2025 correct.

Christopher Glynn: And our next question today comes from Christopher Glynn with. Thanks. Good morning, guys.

Speaker Change: Absolutely, yes, we're looking forward to the the accretion after after 24 and it'll come like I said, it's growing mid teens very good cash conversion dynamics.

Laurence Neil Hunn: I had a question about the TEP segment. You commented that the supply chain issues from the last couple of years were all resolved. So, curious if you're seeing some nice benefits emerge from production planning and, you know, if that drives some natural margin and productivity tailwinds that we should see in the margins in 2024. Well, I think scaling certainly helps.

Speaker Change: We'll have a little bit of a tax benefit this year. The next year and a couple of years out after that so I'm feeling good about.

Speaker Change:

Brokers contribution to our to our growth going forward.

Speaker Change: No.

Speaker Change: Can you give us an idea of what.

Speaker Change: The total available market is in their business and I assume it's all domestic at this point.

Speaker Change: Uh huh.

Speaker Change: And how do they look compared with that in other words, what's your market share or approximate.

Laurence Neil Hunn: We've added a fair amount of capacity at Neptune. And we've added supplier capacity at Verithon. We've added supplier capacity at the RF idea, the RF products businesses. And certainly, we're not dissimilar from most companies, the supply chain operations teams are going from a model that was focused for the last three or four years on resiliency to maybe a more balance between resiliency and sort of just in time, which certainly will help with inventory returns and asset velocity. So we do think there's a little bit of money trapped in inventory for us. It'll be more of a working capital advantage if we can execute on that plan. In terms of margins, I'll look to Jason.

Speaker Change: Yes.

Speaker Change: Yeah.

Speaker Change: I understand that the leading provider, but it looks like it might be a fragmented market.

Speaker Change: So the Tam today is about $750 million, it's growing about 10% a year.

Speaker Change: The so you can do the math on on where we.

Speaker Change: Said that in the next 12 months March 25, and $2 60, so you've got to grow the market at 10% do the math.

Speaker Change: On their current market share and their relative market share position. So their size relative to their next largest competitor has about one five times.

Speaker Change: The market, we would characterize as having a number of legacy technology players and pro care and the principal competitor are generally re platforming the market from a technology perspective.

Jason Conley: I think it's probably more just scaling infrastructure. I mean, our cost of goods is so low relative to industrial type companies that the input cost or, a fraction of the cost structure of our enterprise. But your thoughts about that. Yeah, no, I think we'll have leverage that'll be a little bit above what the EBITDA margin is for the business. I mean, we do have some. Some of the growth that we're seeing is in single-use products, which are great because they have a lot of recurring revenue, or they're recurring revenue, but they come at a little bit of a lower margin. And then when Neptune grows, it has a little bit of an impact in the segment, too.

Speaker Change: Okay. Finally.

Speaker Change: In that market there are different sizes to the.

Speaker Change: The <unk>.

Speaker Change: Groups that you might be.

Speaker Change: Survey there are.

Speaker Change: The nursery schools for example that have several hundred.

Speaker Change: Students and there are small ones that are much smaller where do you fit in in that do you.

Speaker Change: Are you aiming at the.

Or surveys in the us.

Speaker Change: Smaller schools are the larger ones or both.

Christopher Glynn: So I would expect, you know, leverage to be consistent with what we've seen in the last couple of years, just based on those factors. Great, thanks. And then, you know, about the aspiration for 8 to 9% organic growth and driving things higher, you know, certainly understand that you have a lot of coordination of experts and best practices across the enterprise. What would you characterize as top of the list businesses with particular action plan opportunities in that respect? So we appreciate the question, right? So we started this portfolio with five to six percent growth. We're at a waypoint of, we think, seven to seven and a half on the way to eight to nine.

Speaker Change: Really appreciate the opportunity to address this question because it's one of the aspects of the business that we like quite a bit so.

Speaker Change: The way that we segment the market are.

Speaker Change: Basically enterprise mid single operators, So 10, plus centers one to 10 centers and are single operators Center.

Speaker Change: Pro care is the demonstrable leader relative market share advantage substantially higher than the one five times in both the enterprise and the mid.

Speaker Change: And the growth rate in the enterprise and the mid is actually growing faster than the overall market. So the markets that the segments. We're in that broker also with highly can compete very well in the single operator, I don't want to.

Laurence Neil Hunn: So we've made a fair amount of progress over the last four or five years. It's less about which company; it's more about the process and discipline across all 27 now going to 28 companies. And you've heard us talk about this on repeat in the past, but it's just we're, if anything, consistent. So it's about how each of our businesses designs a strategy in terms of where to play and how to win and where they have the right to win for durable long-term growth. The second thing is, then how do you process and enable the execution of that strategy so that you're on repeat?

Speaker Change: So I'll comment on that they compete very effectively there as well, but there is the strongest that have the largest largest market share in the enterprise and mid which means that as the market consolidates ever so slowly over time that accrete to our advantage.

Speaker Change: Okay, and finally is there any foreign business, they're available or.

Speaker Change: Looking to get into that or not.

Speaker Change: Yes International is not a meaningful part of the business today.

It is certainly something that we will consider in the long term strategic outlook for the business, but not something and probably the near term because there's so much opportunity domestically.

Laurence Neil Hunn: We can use our long-term, forever ownership period as a long-term competitive advantage. So as we stack capabilities that become enduring, then we can outpace our competitors. And then third, how do we run a talent offense where we use talent as a long-term competitive advantage?

Speaker Change: We have got to get after.

Speaker Change: Okay, all right. Thank you very much.

Speaker Change: I appreciate the questions and have a great one.

Laurence Neil Hunn: We've talked a lot about the upgrade at the field leadership level over the last three or four years. The expectation for performance is much higher, much, much higher. The alignment of our compensation is tighter to that expectation. And so it's all three acting in unison, but you get the Veritons that, a decade ago, were low single-digit growers and now, hopefully, low double-digit growers. You take businesses like Dell Tech, they're in the mid-range, and they come solidly in the mid-plus, or maybe they can inch in the high singles over time. So it's about every business doing a little bit better on a sustainable basis. Thanks, Tim. You bet. And our next question comes from Joe Giordano with TD Cowen. See you guys tomorrow.

Speaker Change: This concludes our question and answer session. We will now return back to Zack Mark Smith for any closing remarks.

Speaker Change: Thank you everyone for joining us this morning, and look forward to speaking with you during our next earnings call.

Speaker Change: Thank you. The conference has now concluded and we thank you all for attending today's presentation.

Speaker Change: Now disconnect your lines and have a wonderful day.

Speaker Change: [music].

Joe Giordano: Hey, like on DAT, obviously, the freight market is weak. Can you just, I know we've talked about that relationship kind of being somewhat inverse in weak markets where they actually tend to do better. Is that, like, just to put a finer point on that, is that more like negative inflections in the market where it kind of spikes and then if it's like prolonged weakness, you know, that ultimately is forced to like trickle into DAT? Is that how we should really think about that? So DAT dynamics is a little bit different than what you described.

Laurence Neil Hunn: DAT is when the freight markets are very strong; DAT grows in line or maybe ahead of that strength. However, when the freight markets are weaker, they tend to slow down. So, therefore, if you looked at their growth, it's more like a stair-step type growth. In this particular case, because we're coming off such a surge for a couple, three years, it's a little bit more exaggerated. The dynamic that you're describing perfectly describes our Connect business, which is the construction... Analytics business, where when you think about building product manufacturers and contractors and subcontractors who subscribe to our content about what commercial real estate buildings are in the process of being planned and built, they want to look for where their next jobs are going to come from.

Laurence Neil Hunn: So when the construction markets and real estate markets are hot, and contractors are fully subscribed years out, the value of our information is less. But when the market slows, and their backlog is thinning, then the value of what we offer is much higher. So we tend to have a little bit of a counter-cyclical sort of demand driver inside of Construct Connect which, oh, by the way, Matt and his team at Construct Connect are working to balance out and have done a good job. So hopefully, to go forward, it'll be up and up markets and up and down markets. But that's what their product strategy is trying to do. That's a good color.

Joe Giordano: Just like in like a broader question, you know, obviously, we're getting more and more layoff announcements from companies across the spectrum from tech to UPS, you know, so how are you guys in your discussions with your customers? And what's the most recent kind of read they're having on where headcount stands and what the implications are for you know, for your businesses there? That's somewhat the Yeah, I think, you know, unfortunately, our read across the macro market isn't a great one, right? Because we operate in these relatively insulated end markets, you know, government contractors, property and casualty insurance, where brokerages, employment's higher, life insurance, where employment is higher, healthcare, where employment is higher, education, where employment is stable is not higher, right?

Joe Giordano: So we're in these sort of relatively isolated, protected end markets where the macro swings don't impact that much; it doesn't have that much impact on the way we drive compliance bookings across our portfolio. I will say for the labor market, generally, loosening up has been advantageous for us all to have been able to not just fully staff at our business level but use this opportunity to last probably 12 months plus to significantly upgrade talent across the board. Fair enough. Thanks, guys.

Laurence Neil Hunn: Thank you. Thank you. And our next question comes from Terry Tillman with Truist. Yeah, can you all hear me okay?

Terry Tillman: You're doing great, Terry. Good morning. Hey, good morning, everyone, and thanks for fitting me in as well.

Laurence Neil Hunn: Maybe the one question for you, I guess it's for you, Neil, is, you know, what we've seen with our vertical SaaS companies or even horizontal SaaS companies in the past, when they get those customers on the new modern architecture, it really can start to reduce the friction to buy those other add-on modules. And so what I'm curious about is you called out some of your businesses in the past, like Deltac, that have seen improving growth. Anything you can share around net revenue retention from those customers that move to the cloud? And I know it's still early days, but is there a propensity to buy those add-on modules? Does it speed up? Does it quicken?

Laurence Neil Hunn: And that's just one of these things that could be a cumulative benefit over time and also help with that organic growth. I really appreciate that question, and the short answer is categorically yes. And we see that, you know, first when you do the lift and shift from a legacy product to the current cloud delivery product. There are migratory benefits, as we talked about. Strata is a good example.

Terry Tillman: Same-source sales, two to two and a half times the uplift, but then while they're doing that, the checkbook's open, and they buy more modules at that moment where total ARR goes up over three times, and they lift and shift their customer base. The same can be said for slightly different metrics, AdRent, VertiFOR, et cetera. And so what you're talking about is one of the principal benefits, both to the customer and to us, our companies, for delivering cloud-delivered, SaaS-delivered software, which is being able to be on the most recent release, so being able to take advantage of all the R&D innovation and more easily be able to take additional products because of the delivery mechanism is faster and the implementations are more smooth. So you're We're seeing it across the portfolio and expect to see a lot more of it in the years to come. That's great.

Laurence Neil Hunn: I appreciate that. And I guess just a follow-up question, and I know you want to be careful and not reveal too much, but, you know, if the M&A environment does start opening up more and there's more shots on go and just more things that are interesting, albeit taking into account your discipline, I'm curious, just bigger picture, usually it's vertical SaaS, but what about interesting niche horizontal SaaS solutions, whether it's back Thank you. Simmitt.

Laurence Neil Hunn: So, as we always said, we're going to be business model pickers. The reason historically we've been attracted to vertical, small market verticalization. I think the reason we have software businesses is because the basis of competition needs to be able to be understood and observed. We want to be able to compete based on both the value proposition of the product but also the intimacy with the customer and the customer relationship. The vast majority of our company. Their customers want us to win, right? Because we are so integral to what they do, they want us to win.

Laurence Neil Hunn: They're always giving us input and feedback about how to be better, how to deliver more value to them. And so it's those dynamics that we look at. There are certainly some niche-y, horizontal-type things that meet those criteria, but not a lot. A lot of the horizontal ones have gigantic TAMs, you compete on the basis of an algorithm, there's very little loyalty to the company. So those types of things will never work.

Laurence Neil Hunn: Relative to your comment about payment, business models are, we have a variety of business models. There's software, there's on-premise, there's SaaS. You know, we just bought a business that is the integration of SaaS software and payment, where you have deep embedded integration with what the company does and the products do with payments.

Laurence Neil Hunn: And so it's a business model, you know; we're open-minded to the business model construct as long as there's an immense amount of durability embedded in the business. Thank you. Brett

Alexander M. Blanton: And our next question comes from Alexander Blanton with Clear Harbor Asset Management. Please go ahead. Good morning. Thanks for sitting me in. I have some questions on Foucault.

Jason Conley: And, okay. The first one is. You've indicated that it's not accretive to adjusted EPS for this year. And if not, then there's some dilution. How much is that? You might have mentioned that earlier. I might not have caught it. Yeah, hi, Alex. It's Jason.

Jason Conley: So yeah, we assume around 75 million of EBITDA, and then the interest is going to be, you know, you know, 1.86 billion at call it 6%, which is our current revolver rate. And so that's how you get to your calendar dilution. But what is that number in EPS? 10 to 15 sides.

Jason Conley: Okay, so that accounts for the short talk and the... did you say 10 or 15 cents, DeLuzio? Okay. Now, going forward, if you're going at double digits, Matthew, I, That implies that you're gonna get some pretty decent Ecclesiastes in 2025, correct?

Jason Conley: Absolutely. Yeah, we're looking forward to the accretion after after 24. And, you know, it'll come, like I said, it's grown in the mid teens, very good cash conversion dynamics. You'll have a little bit of a tax benefit this year, the next year, and a couple years out after that.

Jason Conley: So yeah, feeling good about Pro Care's contribution to our growth going forward. Now, can you give us an idea of what the total available market is for their business, and I assume it's all domestic at this point. Either of those would be helpful as well. And how do they look compared with that?

Laurence Neil Hunn: In other words, what's their market share or, approximately? Schultz. Thank you. I understand they're the leading provider, but it looks like it might be a fragmented market. So the TAMS today is about 750 million; it's growing about 10% a year. So you can do the math on, you know, we said next in the next 12 months, March 25, it's $2.60, so you've got to grow the market that 10%. Do the math on their current market share and their relative market share position. So their size relative to their next largest competitor is about one and a half times. The market we would characterize as having a number of legacy technology players, and ProCare and its principal competitor are generally re-platforming the market from a technology standpoint. Okay, finally...

Laurence Neil Hunn: In that market, there are different sizes of the groups that you might be serving. There are nursery schools, for example, that have several hundred.

Laurence Neil Hunn: Students, and there are small ones that are much smaller. Where do you fit in that? Do you aim at or serve the smallest schools or the larger ones or both?

Laurence Neil Hunn: I really appreciate the opportunity to address this question because it's one of the aspects of the business that we like quite a bit. So the way that we segmented the market is basically, enterprise, mid, and single operators. So 10 plus centers, one to 10 centers, and a single operator center.

Laurence Neil Hunn: ProCare is the demonstrable leader relative market share advantage substantially higher than the one-and-a-half times in both the enterprise and the mid market. And the growth rate in the enterprise and the mid market is actually growing faster in the overall market. So the markets, the segments where, and then ProCare also is highly competitive in the single operator. I don't want... to comment on that. They compete very effectively there as well, but they're the strongest and have the largest, largest market share in the enterprise and midsize, which means that if the market consolidates ever so slowly over time, that agrees with our. Okay, and finally, is there any foreign business there available or looking to get into that or not? Yeah, international business is not a meaningful part of today's business.

Laurence Neil Hunn: It is certainly something that we will consider in the long-term strategic outlook for the business, but not something in the near term because there's so much opportunity domestically to get out. All right. Thank you very much. I appreciate your questions, and have a great one. This concludes our question and answer session. We will now return to Zack Moxcey for any closing remarks. Thank you, everyone, for joining us this morning. We look forward to speaking with you during our next earnings call. Thank you. The conference is now concluded, and we thank you all for attending today's presentation. You may now disconnect your lines and have a nice day, Graziano, Alicia Humphrys.