Q2 2024 Roper Technologies Inc Earnings Call

Good morning. The Rupert Technology Conference call will now begin. Today's call is being recorded. All participants will be in listen-only mode.

Should you need operator assistance, please signal the operator specialist by pressing star zero. I would now like to turn the call over to Zach Mosey, Vice President of Investor Relations. Please go ahead.

Operator: Today's call is being recorded. All participants will be in listen-only mode. Should you need operator assistance, please signal the operator specialist by pressing star zero. I would now like to turn the call over to Zach Mosey, Vice President of Investor Relations. Please go ahead.

Zack Moxcey: Good morning. Thank you all for joining us.

Zach Mosey: Good morning. Thank you all for joining us. We discussed the second quarter 2024 financial results for Roper Technologies.

Zack Moxcey: We discussed the second quarter 2024 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.

Speaker Change: 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.

Speaker Change: Earlier this morning, we issued a press release announcing our financial results. The press release also includes replay information for today's call. We have prepared slides to accompany today's call, which are available through the webcast and are also available on our website. Now if you'll please turn to page 2.

Zack Moxcey: Now, if you'll please turn to page 2. We will begin with our Safe Harbor statement. During the course of today's call, we will make forward-looking statements that 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 and consider the context of that information. And now, please turn to page 3. Today, we will discuss our results primarily on an adjusted, non-GAAP, and continuing operations basis. For the second quarter, the difference between our gap results and adjusted results consists of the following items: amortization of acquisition-related intangible assets and financial impacts associated with minority investors.

Speaker Change: 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 and the context of that information. Now please turn to page 3.

Speaker Change: Today, we will discuss our results primarily on an adjusted, non-GAAP , and continuing operations basis. For the second quarter, the difference between our GAAP results and adjusted results consists of the following items, amortization of acquisition-related intangible assets, and financial impacts associated with minority investments.

Zack Moxcey: Reconciliations can be found in our press release and in the appendix of this presentation on our website. And now, if you'll please turn to page 4, I'll hand the call over to Neil. After our prepared remarks, we will take questions from our telephone participants.

Speaker Change: 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 4, I'll hand the call over to Neal. After our prepared remarks, we will take questions from our telephone participants. Neal?

Laurence Neil Hunn: Thank you, Zach, and thanks to everyone for joining our call this morning. We're looking forward to sharing our second quarter results with you this morning. As we turn to page four, you can see the topics we'll cover today. I'll start by highlighting our second quarter performance.

Neil: Thank you, Zach, and thanks to everyone for joining our call. We're looking forward to sharing our second quarter results with you this morning.

Neil: As we turn to page four, you can see the topics we'll cover today. I'll start by highlighting our second quarter performance. Jason will then go through our finance results in greater detail, review our balance sheet, including our M&A capacity, and discuss our strong cash flow performance.

Laurence Neil Hunn: Jason will then go through our financial results in greater detail, review our balance sheet, including our M&A capacity, and discuss our strong cash flow performance. Then, I'll walk through our segment highlights and discuss our guidance for a full year. After our closing remarks, we'll open up the call to your questions, so let's go ahead and get started. Next slide, please.

Neil: Then, I'll walk through our segment highlights and discuss our guidance for a full year.

Neil: After our closing remarks, we'll open up the call for your questions, so let's go ahead and get started. Next slide, please.

Laurence Neil Hunn: As we turn to page 5, three key takeaways for today's call are first, we delivered another solid core result. Second, we're increasing the bottom end of our full-year outlook. And third, we continue to be very well positioned relative to executing on our capital deployment strategy. To double click on this, we grew total revenue by 12%, organic revenue by 4%, and EBITDA by 13%, with EBITDA margins expanding by 20 basis points to 40.5%.

Jason: As we turn to page 5, three key takeaways for today's call are, first, we delivered another solid quarter results. Second, we're increasing the bottom end of our full-year outlook. And third, we continue to be very well-positioned relative to executing on our capital deployment strategy.

Jason: To double-click a bit, we grew total revenue by 12 percent, organic revenue by 4 percent, and EBITDA by 13 percent with EBITDA margins expanding by 20 basis points to 40 and a half percent.

Laurence Neil Hunn: Importantly, we saw good bookings momentum with organic enterprise software bookings increasing in the high single digits area during the quarter. Finally, we grew free cash flow 24% in a quarter and 35% on a GTM basis. Also, TTM pre-cash flow margins came in at 32%. We're also increasing our full year 2024 guidance on the low end and maintaining our outlook for total revenue and organic revenue, reflecting our continued confidence in our outlook, notwithstanding some production efficiency challenges at Neptune, which we'll discuss in a bit. And we continue to be very active in the M&A market, an environment that continues to improve and one where we have a large pipeline of highly attractive opportunities.

Jason: Importantly, we saw good bookings momentum with organic enterprise software bookings increasing in the high single digits area during the quarter.

Jason: Finally, we grew free cash flow 24% in a quarter and 35% on a GTM basis.

Jason: Also, TTM free cash flow margins came in at 32%.

Jason: We are also increasing our full year 2024 guidance on the low end and maintaining our outlook for total revenue and organic revenue, reflecting our continued confidence in our outlook, notwithstanding some production efficiency challenges at Neptune, which we'll discuss in a bit.

Jason: And we continue to be very active in the M&A market, an environment that continues to improve, and one where we have a large pipeline of highly attractive opportunities.

Laurence Neil Hunn: NetNet, we continue to be quite bullish about our ability to be active on the M&A front this year. So with that, let me turn the call over to Jason to walk through our P&L and key balance sheet metrics.

Jason: NetNet, we continue to be quite bullish about our ability to be active on the M&A front this year. So with that, let me turn the call over to Jason to walk through our P&L and key balance sheet metrics. Jason?

Jason P. Conley: Neil, and good morning to those joining the call. As always, thank you for your interest in Roper.

Jason: Thanks, Neil, and good morning to those joining the call. As always, thank you for your interest in Roper.

Jason P. Conley: If we look at slide 6, I will provide an update on Q2, both against the prior year and against a longer historical timeframe. Revenue was $1.72 billion, which is 12% higher than the prior year. Underpinning this was organic growth of 4% and an acquisition contribution of 8%, driven mostly by Procare and Centelis. Organic recurring software revenue grew 6% as we cycled through the tougher comps at Freightmatch and Foundry, which we've outlined in prior calls. We see signs of stabilization in both the freight and media and entertainment markets, which Neil will discuss further.

Jason: If we look at slide 6, I will provide an update on Q2 both against prior year and against a longer historical time frame.

Jason: Revenue was $1.72 billion, which is 12% higher than prior year.

Jason: Underpinning this was organic growth of 4% and an acquisition contribution of 8% driven mostly by Procare and Centelis.

Jason: Organic recurring software revenue grew 6% as we cycled through the tougher comps at Freightmatch and Foundry, which we've outlined in prior calls.

Jason: We see signs of stabilization in both the freight and media and entertainment markets, which Neil will discuss further.

Jason P. Conley: Given our leadership positions and continued innovation investments at DAT, LoadLink, and Foundry, we are confident that these businesses will capture growth upon market recovery. Also of note, organic growth in our test segment was 5% with some production delays at NEP2. EBITDA was $695 million, which is 13% over the prior year, and yielded an EBITDA margin of 40.5%, representing 20 basis points of expansion. Depths of $4.48 were above our guidance range of $4.42 to $4.46.

Neil: Given our leadership positions and continued innovation investments at DAT, Lodelink, and Foundry, we are confident that these businesses will capture growth upon market recovery.

Neil: Also of note, organic growth in our test segment was 5% with some production delays at Neptune.

Neil: EBITDA was $695 million, which is 13% over prior year, and yielded EBITDA margin of 40.5%, representing 20 basis points of expansion.

Neil: Depths of $4.48 was above our guidance range of 442 to 446.

Jason P. Conley: Free cash flow was quite good at $367 million, up 24% over the prior year and bringing year-to-date growth to 19%. Broadly, over three years, our Q2 revenue has compounded 13 percent through a combination of organic growth and our consistent, repeatable, and disciplined M&A process. Q2 EVA.K or over the same period has outpaced revenue by 14%. On a trailing 12-month basis, free cash flow compounded at 10%. Adjusting for cash tax payments related to Section 174, which went into effect in 2022, the normalized CAGR is 12% over this three-year period.

Neil: Free cash flow was quite good at $367 million, up 24% over prior year and bringing year-to-date growth to 19%.

Neil: Broadly, over three years our Q2 revenue has compounded 13% through a combination of organic growth and our consistent, repeatable, and disciplined M&A process.

Neil: Q2, EBIT.KR over the same period has outpaced revenue at 14%.

Neil: On a trailing 12-month basis, free cash flow compounded at 10%.

Neil: Adjusting for cash tax payments related to Section 174, which went into effect in 2022, the normalized CAGR is 12% over this three-year period.

Jason P. Conley: Just looking at our current trailing 12-month performance against the prior TTM period, free cash flow of $2.1 billion grew 35% with free cash flow margins of 32%. We expect this to normalize in the second half, and for 2024, we continue to expect free cash flow margins of 30% or more. With that, we can turn to slide seven to go through our financial position. With our strong Q2 cash flow, we paid down the revolver by 300 million, which brings our drawn balance down to $1.45 billion on a $3.5 billion capacity facility.

Neil: Just looking at our current trailing 12-month performance against the prior TTM period, pre-cash flow of $2.1 billion grew 35%, with pre-cash flow margins of 32%.

Neil: We expect this to normalize in the second half, and for 2024, we continue to expect free cash flow margins of 30% or more.

Neil: With that, we can turn to slide 7 to go through our financial position.

Neil: With our strong Q2 cash flow, we paid down the revolver by $300 million, which brings our drawn balance down to $1.45 billion on a $3.5 billion capacity facility.

Jason P. Conley: Our net debt to EBITDA ratio now sits at 2.7 times, which, when coupled with future cash generation, provides us with capacity to deploy $4 billion or more towards market-leading VMS businesses. On the capital deployment front, we have been quite busy in the second quarter and expect that to continue into the second half. Now I'll turn back over to Neil to talk through our segment detail and updated guidance.

Neil: Our net debt to EBITDA ratio now sits at 2.7 times, which when coupled with future cash generation, provides us with capacity to deploy $4 billion or more towards market-leading VMS businesses.

Neil: On the capital deployment front, we have been quite busy over the second quarter and expect that to continue into the second half.

Neil: Now I'll turn it back over to Neil to talk through our segment detail and updated guidance.

Laurence Neil Hunn: Thanks, Jason. As we turn to page 9, let's review our application software segment results. Revenue here grew by 21% in total, and organic revenue grew by 5%. EBITDA margins were 43.6%.

Neil: Thanks, Jason. As we turn to page 9, let's review our application software segment results.

Neil: Revenue here grew by 21% in total and organic revenue grew by 5%.

Laurence Neil Hunn: We experience strong performance across this portfolio of businesses with organic recurring and reoccurring revenue growing in the high single digits. So let's start with Dell Tech, our software business serving the government contracting, architecture, engineering, and construction contractor markets. Dell Tech was solid in the quarter. We saw continued momentum across our private sector solutions and improved bookings activity and revenue within their GovConf. Importantly, and as we started to highlight last quarter, Dell Tech's new Gen AI-powered digital assistant, DELLA, is in the process of being integrated across Dell Tech's core suite of software applications. We're keen to see the customer workflow efficiency benefits take root as DELLA is deployed throughout the Dell Tech stack. Exciting for sure!

Speaker Change: Even our margins were 43.6 percent.

Neil: We experience strong performance across this portfolio of businesses with organic recurring and reoccurring revenue growing in the high single digits area.

Neil: So let's start with Dell Tech, our software business serving the government contracting, architecture, engineering, and construction contractor markets. Dell Tech was solid in the quarter.

Neil: We saw continued momentum across our private sector solutions and improved bookings activity and revenue within their dot-com business

Neil: Importantly, and as we started to see at the beginning of this webinar, what we know for sure is that Dell Tech's AI-powered digital assistant, Dellok, is in the process of being integrated across Dell Tech's core suite of software applications.

Speaker Change: We're keen to see the customer workflow of efficiency benefits take root as Dell is deployed throughout the Dell Tech Tech Stack. Exciting for sure.

Laurence Neil Hunn: Turning to Adderant, our software business focused on the needs of large law firms, continues to perform incredibly well in the market and had another great quarter with continued SaaS momentum and Gen AI-focused innovation. The Adder team is consistently delivering new GenAI-powered capabilities across their platform, enabling meaningful efficiencies and creating significant value for their customers in areas like billing, receivables management, and time and interest. Also, 304 and Frontline performed well in the quarter with strong net dollar retention and booking growth.

Speaker Change: According to Aderinth, our software business focused on the needs of large law firms continues to perform incredibly well in the market and had another great quarter with continued SaaS momentum and Gen-AI focused innovation.

Speaker Change: The AdArt team is consistently delivering new GenAI-powered capabilities across their platform, enabling meaningful efficiencies and creating significant value for their customers in areas like billing, receivables management, and time entry.

Speaker Change: Also, 304 and Frontline performed well in the quarter with strong net dollar retention and bookings growth. Also, during the quarter, we completed our periodic strategic reviews with each of these businesses and left the reviews encouraged by the long term opportunities in front of each.

Laurence Neil Hunn: Also, during the quarter, we completed our periodic strategic reviews with each of these businesses and left the reviews encouraged by the long-term opportunities in front of each. PowerPlan, our financial planning and tax software business serving heavy fixed-asset industries, was impressive yet again in the quarter and grew its ARR with strong net dollar retention and adoption of its new SaaS solution.

Speaker Change: PowerPlan, our financial planning and tax software business, serving heavy fixed-ass industries, was impressive yet again in the quarter and grew its ARR with strong net dollar retention and adoption of its new SaaS solution. Excited to see the progress the PowerPlan team is making.

Laurence Neil Hunn: I am excited to see the progress the power plan team is making. Our healthcare IT businesses, led by Strata and Data Innovations, were also strong in the quarter. As it relates to Strata, the combination with Centelis continues to go very well, with the vast majority of the cost synergies now in the rearview mirror. Great job by the team implementing this portion of the value creation.

Speaker Change: Our healthcare IT businesses, led by Strata and Data Innovations, were also strong in the quarter.

Speaker Change: As relates to Strata, the combination with Centelis continues to go very well with the vast majority of the cost synergies now in the rearview mirror.

Speaker Change: Great job by the team implementing this portion of the value creation plan.

Laurence Neil Hunn: The sales pipeline has continued to fill with substantial growth opportunities, with several of these opportunities converting to bookings during the quarter. Further to this end, with the cost energy behind the team, their full attention is now focused on long-term growth-related initiatives, about which we are quite bullish and look forward to discussing in the quarters to come. As for data innovations, we saw accelerated growth in the quarter with customer decision-making returning to normal, encouraging for sure. Finally, ProCare, the most recent addition to the Roper family of companies, is off to a strong start.

Speaker Change: So if the completion of the transaction was in TELUS, the sales pipeline has continued to fill with substantial growth opportunities, with several of these opportunities converting to booking during the quarter.

Speaker Change: Further to this end, with the cost synergies behind the team, their full attention is now focused on long-term growth-related initiatives, about which we are quite bullish and look forward to discussing in the quarters to come.

Speaker Change: As for data innovations, we saw accelerated growth in the quarter with customer decision-making returning to normal, encouraging for sure.

Speaker Change: Finally, ProCare, the most recent addition to the Roper family of companies, is off to a strong start.

Laurence Neil Hunn: For the second half of the year, we expect to see mid-single-digit organic revenue growth trending to the upper end of this range. Please turn with us to page 10. Organic revenue in our network software segment grew 2% in the quarter and was impacted by the fact we continue to experience pressure with our freight matching businesses and work through the impact on foundry from the recent Actors and Riders strike.

Speaker Change: For the second half of the year, we expect to see mid-single-digit organic revenue growth trending to the upper end of this range for this segment.

Speaker Change: Please turn with us to page 10.

Speaker Change: Organic revenue in our network software segment grew 2% in the quarter and was impacted by the fact we continue to experience pressure with our freight matching businesses and work through the impact on Foundry from the recent actors and writer strikes.

Laurence Neil Hunn: Excluding our freight matching businesses and foundry, the segment grew in the mid-singles area, which demonstrates the underlying quality of this group of market-leading businesses. EBITDA margins continue to be strong at 54.8%. Let's dig into the details and start with our freight matching businesses, DAT and LoadLink, which declined slightly, as expected, due to the continuing challenging freight marketing conditions that adversely impact both businesses. That said, the market appears stable, both on the carrier and broker side, bouncing along the bottom, if you will.

Speaker Change: Excluding our freight matching businesses and foundry, the segment grew in the mid-singles area, which demonstrates the underlying quality of this group of market-leading businesses.

Speaker Change: Even though margins continue to be strong at 54.8 percent.

Speaker Change: Let's dig into the details and start with our freight matching businesses, DAT and LoadLink, which declined slightly as expected due to the continuing challenging freight market conditions that adversely impact both businesses.

Speaker Change: That said, the market appears stable both on the carrier and broker side, bouncing along the bottom, if you will.

Laurence Neil Hunn: Now withstanding this, and as typical for Roper, we invest in long-term, sustainable, and improving levels of organic growth. In D&T's case, we're absolutely doing this, leading the industry with Gen-AI-enabled fraud detection and prevention tools. Also, and importantly, in the quarter, we welcome a new DAT CEO to the team, Jeff Clement. Jeff has a long and successful career in network and software businesses, and we look forward to working with him to deliver the next chapter of DAT's growth.

Speaker Change: Now, withstanding this, and as typical for Roper, we invest for long-term, sustainable, and improving levels organic growth.

Speaker Change: In D&T's case, we're absolutely doing this, leading the industry with Gen-AI-enabled fraud detection and prevention tools.

Speaker Change: Also, and importantly, in the quarter, we welcome a new DAT CEO to the team, Jeff Clements. Jeff has a long and successful career in network and software businesses, and we look forward to working with him to deliver the next chapter of DAT's growth.

Laurence Neil Hunn: Now let's turn to Foundry, our post-production media and entertainment software business. Foundry continued to roll out innovative product updates and ML-powered functionality this quarter, enhancing the creative process for high-quality visual effects. However, there was a continued impact related to the recent industry strikes found to have declined in the quarter as expected.

Speaker Change: Now let's turn to Foundry, our post-production media and entertainment software business. Foundry continued to roll out innovative product updates and ML-powered functionality this quarter, enhancing the creative process for high-quality visual effects.

Speaker Change: There was a continued impact related to the recent industry strikes found to be declined in the quarter as expected.

Laurence Neil Hunn: That said, the current content production pipeline is filling, and Foundry's customers are beginning to re-ramp their capacity, which gives us confidence Foundry will return to more normalized growth next year. As mentioned, the balance of this segment grew mid-singles organically in the quarter, with solid execution across this portfolio business. By pipeline, our life insurance and annuities network software business had strong renewals, customer expansions, and market activity, especially in the annuities market. Construct Connect continued its solid march of improved finance results and bookings momentum. In addition, ConstructConnect continues to lead the market with their Gen-AI powered takeoff and estimating solution. Great job by Matt, Buck, and the entire Kids Drug Connect team.

Speaker Change: That said, the current content production pipeline is filling, and Foundry's customers are beginning to re-ramp their capacity, which gives us confidence Foundry returns to more normalized growth next year.

Speaker Change: As mentioned, the balance of this segment grew mid-singles organically in the quarter with solid execution across its portfolio businesses.

Speaker Change: By pipeline, our life insurance and annuities network software business has strong renewals, customer expansions, and market activity, especially in the annuities market.

Speaker Change: Construct Connect continued its solid march of improved finance results and bookings momentum. In addition, Construct Connect continues to lead the market with their Gen AI powered takeoff and estimating solutions.

Speaker Change: Great job by Matt, Buck, and the entire Kids Drug Connect team.

Laurence Neil Hunn: Finally, our alternate site healthcare businesses performed well, with MHA benefiting from increased operational focus and rigor and improvement in senior care occupancy rates. Softwriters, our LTC pharmacy software business, continued its cadence of solid execution. Well done.

Speaker Change: Finally, our alternate site healthcare businesses performed well, with MHA benefiting from increased operational focus and rigor, and improvement in senior care occupancy rates.

Speaker Change: Softwriters, our LTC pharmacy software business, continue their cadence of solid execution.

Laurence Neil Hunn: For the second half of the year, we expect the difficult freight market conditions to persist, which results in our continued low single-digit organic revenue growth outlook for the second half of the year. Now please turn to page 11 and let's review our TEP segment's results. Revenue here grew 5% on an organic basis, and EBITDA margins remain strong at 36.2%. We'll start with Veriton.

Speaker Change: Well done.

Speaker Change: For the second half of the year, we expect the difficult freight market conditions to persist, which results in our continued low single-digit organic revenue growth outlook for this segment.

Speaker Change: Now, please turn to page 11 and let's review our TEP segment's results.

Speaker Change: Revenue here grew 5% on an organic basis and EBITDA margins remain strong at 36.2%.

Laurence Neil Hunn: Veriton had very strong growth across all three of its product families and once again executed at an exceptional level in the quarter. The long-term success of Verathon is directly attributable to its leadership team building the business and all the underlying processes to enable sustainable, long-term, and improved organic growth. This long-term discipline focus is truly a competitive advantage for Baratheon. Neptune continues to be solid and delivers another record quarter of financial results.

Speaker Change: We'll start with Veriton. Veriton had very strong growth across all three of its product families and once again executed at an exceptional level in the quarter.

Speaker Change: The long-term success of Verithon is directly attributable to its leadership team building the business and all the underlying processes to enable sustainable, long-term, and improved organic growth.

Speaker Change: This long-term discipline focus is truly a competitive advantage for Marathon.

Speaker Change: Neptune continues to be solid and delivered another record quarter financial results. Demand remains strong and consistent with our expectations.

Laurence Neil Hunn: The demand remains strong and consistent with our expectations. Also, the Neptune team did a great job commissioning substantial ultrasonic meter capacity during the first half of this year, both of which are great relative to Neptune's long-term success. However, NetTune struggled in the quarter to achieve the manufacturing efficiency needed to deliver on their mechanical meter demand.

Speaker Change: Also, the Neptune team did a great job commissioning substantial ultrasonic meter capacity during the first half of this year, both of which are great relative to Neptune's long-term success.

Speaker Change: However, Neptune struggled in the quarter to achieve the manufacturing efficiency needed to deliver on their mechanical meter demand.

Laurence Neil Hunn: We anticipate this to progressively be resolved through the balance of this year. Northern Digital, or NDI, declined as expected in the quarter. As a reminder, NDIs are market-leading precision measurement systems. NDI partners with the world's leading medical device manufacturers to deliver innovative healthcare applications that require super precise navigation, such as robotic surgery and cardiac procedures, to name a couple. Their long-term historical growth rate has been in the double-digit area. However, NDI is declining this quarter and this year based on customer program timing.

Speaker Change: We anticipate this to progressively be resolved through the balance of this year.

Speaker Change: Northern Digital, or NDI, declined as expected in the quarter. As a reminder, NDI is our market-leading precision measurement business.

Speaker Change: NDI partners with the world's leading medical device manufacturers to deliver innovative healthcare applications that require super precise navigation such as robotic surgery and cardiac procedures to name a couple.

Speaker Change: Their long-term historical growth rate has been in the double-digit area.

Speaker Change: However, NDI is declining this quarter and this year based on customer program timing.

Laurence Neil Hunn: Notwithstanding the first half performance, NDI continues to see strong OEM order activity, and we fully expect NDI to return to its normalized organic growth rate next year. Finally, IPA, Antibiotics, and RFIDs declined against a difficult prior year comp.

Speaker Change: Notwithstanding the first half performance, NDI continues to see strong OEM order activity, and we fully expect NDI to return to their normalized organic growth rate next year.

Speaker Change: Finally, IPA, InnovOnix, and RFID have declined against a difficult prior year comp. As a reminder, these businesses started recovering from supply chain challenges this quarter a year ago.

Laurence Neil Hunn: As a reminder, these businesses started recovering from supply chain challenges a year ago. For the balance of the year, we expect the TEP segment to grow in the mid-singles to high-singles range, which is slightly below our prior expectation of high-singles growth due to the mechanical meter production efficiency timing at Neptune. We do expect to return to high-singles growth in the fourth quarter as Neptune's efficiency improvements take hold. Please turn with us to page 13.

Speaker Change: For the balance of the year, we expect the TEP segment to grow in the mid-singles to high-singles range, which is slightly below our prior expectation of high-singles growth due to the mechanical meter production efficiency timing at Neptune.

Speaker Change: We do expect to return to high signals growth in the fourth quarter as Neptune's efficiency improvements take hold.

Laurence Neil Hunn: Now, let's review our full year 2024 guidance and discuss the third quarter outlook. Based on our first half performance, enterprise momentum, and our confidence in our outlook, we're maintaining our 12% total revenue growth and 6% organic revenue growth outlook for the full year. In addition, we're raising, at the bottom end, our Foyer Guidance of Touch to be in the range of 1810 and 1825. Our guidance continues to assume a four-year effective tax rate in the 21 to 22 percent range. For the third quarter, we only expected the depths to be between 450 and 454.

Speaker Change: Please turn with us to page 13.

Speaker Change: Now, let's review our full year 2024 guidance and discuss the 3rd quarter outlook.

Speaker Change: Based on our first half performance, enterprise momentum, and our confidence in our outlook, we're maintaining our 12% total revenue growth and 6% organic revenue growth outlook for the full year.

Speaker Change: In addition, we're raising, at the bottom end, our four-year guidance of touch to be in the range of 1810 and 1825.

Speaker Change: Our guidance continues to assume a four-year effective tax rate in the 21 to 22 percent range.

Speaker Change: For the third quarter, we expect adjusted depths to be between 450 and 454.

Laurence Neil Hunn: Now please turn us to page 14, and then we'll open it up for your questions. And we'll conclude with the same key takeaways with which we started. First, we delivered a solid quarter of financial results. Second, we're increasing the low end of our outlook for the full year. And third, we are very well positioned relative to our capital deployment strategy. For the quarter, we delivered 12% total revenue and 4% organic revenue growth while increasing our EBITDA 13%. Importantly, free cash flow is strong, growing 24% in a quarter and 35% on a drilling 12-month basis. Free cash flow margins were 32% on a QTM basis as well.

Speaker Change: Now, please turn with us to page 14, and then we'll open it up for your questions.

Speaker Change: We'll conclude with the same key takeaways with which we started. First, we delivered a solid quarter of financial results. Second, we're increasing the low end of our outlook for the full year. And third, we are very well positioned relative to our capital deployment strategy.

Speaker Change: For the quarter, we delivered 12% total revenue and 4% organic revenue growth while increasing our EBITDA 13%.

Speaker Change: Importantly, free cash flow is strong, growing 24% in a quarter and 35% on a trillion to a month basis.

Speaker Change: Pre-cash flow margins were 32% on a QTM basis as well.

Laurence Neil Hunn: Next, we're maintaining our four-year outlook for 12% total revenue and 6% organic revenue growth and increasing the bottom end of our four-year guidance. We're confident in our outlook given the mission-criticality of our solutions, the ongoing expansion of our recurring revenue base, and HSD growth in our enterprise software bookings. Finally, we continue to maintain a strong financial position with over four billion dollars capacity for capital employment. The e-mini markets are very active.

Speaker Change: Next, we're maintaining our four-year outlet for 12% total revenue and 6% organic revenue growth and increasing the bottom end of our four-year guidance.

Speaker Change: We're confident in our outlook given the mission-criticality of our solutions, the ongoing expansion of our recurring revenue base, and seeing HSD growth in our enterprise software bookings.

Speaker Change: Finally, we continue to maintain a strong financial position with over 4 billion capacity for capital deployment.

Laurence Neil Hunn: We have a robust pipeline of attractive acquisition opportunities that we're excited to pursue with our unbiased and disciplined approach. We remain quite bullish about our ability to execute this part of our strategy over the balance of this year and into the future. Now, as we turn to your questions, and if you could flip to the final slide, our strategic flywheel, we like to remind everyone that what we do at Roper is simple.

Speaker Change: The e-mini markets are very active. We have a robust pipeline of attractive acquisition opportunities that we're excited to pursue with our unbiased and disciplined approach.

Speaker Change: We remain quite bullish about our ability to execute this part of our strategy over the balance of this year and into the future.

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

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 long-term and sustained organic growth rates and underlying business quality. Finally, we run a centralized, process-driven capital deployment strategy that focuses in a deliberate and disciplined manner on finding the next great business to add to our cashflow compounding flywheel.

Speaker Change: Once a 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 long-term and sustained organic growth rates and underlying business quality.

Speaker Change: Finally, we run a centralized, process-driven capital deployment strategy that focuses in a deliberate and disciplined manner on finding the next great business to add to our cash flow compounding flywheel.

Laurence Neil Hunn: Taken together, we compound our cash flow over a long arc of time in the mid-teens area. So with that, we'd like to thank you for your continued interest and support and open the floor to your questions. Operator, please go ahead.

Speaker Change: Taken together, we compound our cash flow over a long arc of time in the mid-teens area.

Speaker Change: So with that, we'd like to thank you for your continued interest and support and open the floor for your questions.

Speaker Change: Operator, please go ahead.

Operator: Thank you. We will now go to our Q&A portion of the call. We request that our caller limit their question to one and one follow-up. If you would like to ask a question, you may do so by pressing star followed by the digit one on your touchtone telephone. If you're using a speaker, please scope the handset before pressing the keys.

Speaker Change: Thank you. We will now go to our Q&A portion of the call.

Speaker Change: We request that our caller limit their question to one question and one follow-up.

Speaker Change: If you would like to ask a question.

Speaker Change: You may do so by pressing star followed by the digit 1 on your touchtone telephone.

Speaker Change: if you're using a speaker.

Speaker Change: Pick up the handset before pressing the keys.

Speaker Change: To withdraw your question, please press star, then the digit 2. Again, we request that callers limit their questions to one main question and one follow-up.

Operator: To withdraw your question, please press star, then the digit 2. Again, we request that callers limit their questions to one main question and one follow-up. And we will now take the first question, and this comes from the line of DeAndre from RBC Capital Markets. Please go ahead.

Speaker Change: And we will now take the first question. And this comes from the line of Diane Drey from RBC Capital Markets. Please go ahead.

DeAndre: Hey, maybe we can start with the production efficiency issues at Neptune and, if I understand this correctly, so mechanical meters. It's an established platform, so I would not expect that to be like a startup issue on this, but maybe just share with us what the problem is, what the remedy is, and so forth.

Diane Dre: Thank you. Good morning, everyone.

Diane Dre: [inaudible]

Diane Dre: Hey, maybe we can start with the production efficiency issues at Neptune.

Speaker Change: And if I understand this correctly, so mechanical meters, it's an established platform, so I would not expect it to be like a startup issue on this.

Speaker Change: Maybe just share with us what the problem is, what the remedy is, and so forth.

Laurence Neil Hunn: Sure. Delighted to do that.

Speaker Change: Sure. Delighted to do that. Appreciate the question. So just to highlight what you talked about on the call, so

Laurence Neil Hunn: Appreciate the question. So just to highlight what you talked about on the call. First, demand at Neptune is consistent with our expectations. There's no demand issue here on either the static or the mechanical side. Second, the team did a remarkable job standing up the static ultrasonic capacity in the first half. That business is growing north of 20 percent quarter on year, so this capacity had to happen there.

Speaker Change: First, the demand at Neptune is consistent with our expectations, so there's no demand issue here on either the static or the mechanical side. Second, the team did just a remarkable job standing up the static ultrasonic capacity in the first half.

Speaker Change: You know, that business is growing, you know, north of 20% quarter on year on year. So there's capacity as it had to happen there.

Laurence Neil Hunn: We get to the mechanical, and I think the root cause here is just the simple fact that the team's attention was on standing up the static and the ultrasonic capacity, and we lost a little bit of production efficiency on the mechanical side. The countermeasures are in place. We just have to get back to prior levels of efficiency. We don't have to have a breakthrough level of efficiency here. Like I said, the countermeasures are in process. It's got the full attention of the team, and this should be resolved this year.

Speaker Change: And we get to the mechanical, and I think the root cause here is just as simple the fact that the team's attention was standing up the static and the ultrasonic capacity, and we lost a little bit of production efficiency on the mechanical side.

Speaker Change: The countermeasures are in place. We just have to get back to prior levels of efficiency. We don't have to have a breakthrough level of efficiency here. And so, like I said, the countermeasures are in process. It's got the full attention of the team, and this should be resolved this year.

DeAndre: All right, that's good to hear, and then a second question. How about any issues with the CrowdStrike fiasco earlier this week, any impact, any new vulnerabilities across your businesses, and anything you could share there would be helpful.

Speaker Change: All right, that's good to hear. And then a second question.

Speaker Change: How about any issues with the CrowdStrike fiasco earlier this week? Any impact? Any new vulnerabilities across your businesses? And anything you could share there would be helpful.

Laurence Neil Hunn: Yeah, generally a non-event for us, and based on the information we have at this stage, at this time, we don't anticipate the event will have any material impact on us.

Speaker Change: Yeah, generally a non-event for us, and based on the information we have at this stage, at this time, we don't anticipate the event will have any general impact on us.

DeAndre: Wow, okay, that's great to hear. Thank you.

Speaker Change: Wow, okay, that's great to hear. Thank you.

Operator: Thank you, and the next question comes from the line of Joe Provink. Their line is now open.

Speaker Change: Thank you. And the next question comes from the line of...

Speaker Change: Joe Provink, your line is now open.

Joseph D. Vruwink: Great, thanks for taking my questions. There was a fair amount of discussion over the past quarter from others in enterprise software just around maybe deal delays as their customers contemplate AI and investments related to AI. It certainly doesn't seem like that's happening at Roper Application Software. I was hoping you could comment on what the portfolio companies at Roper are hearing from customers about AI. And are there either postponements, or, to put it inversely, is Roper actually being brought in in new ways by customers to assist with their AI strategies? Yeah.

Joe Provink: Great. Thanks for taking my questions.

Joe Provink: There was a fair amount of discussion over the past quarter from others in enterprise software just around maybe deal delays as their customers contemplate AI and investments related to AI.

Speaker Change: It certainly doesn't seem like that's happening at Roper Application Software. I was hoping you could comment just on what the portfolio companies at Roper are hearing from customers on AI.

Speaker Change: and are there either postponements or, I might ask inversely, is Roper actually being brought in new ways by customers to assist with their AI strategies?

Laurence Neil Hunn: Yeah, I'll take a first pass at this, and then if Jason has anything to add. So, first, it's been this year, certainly we're aware of the situation from the other companies, and so we're listening intently for this when we do our call-downs with the businesses, and not once, In any of our call-downs or none of the first quarter, second quarter written summaries of business unit performance, has this been noted as an issue in terms of our customers' IT spending diverting away from what we do is the first point.

Speaker Change: Yeah, I'll take a first pass at this, and then if Jason has anything to add. So, first, it's been this year, certainly we're aware of the situation from the other companies, and so we're listening intently for this, and we do our call down to the businesses, and not once,

Speaker Change: In any of our call downs or in none of the first quarter, second quarter written summaries of business unit performance has this been noted as an issue in terms of our customers IT spinning, diverting away from what we do is the first point.

Laurence Neil Hunn: We've started to think about why that is. I think part of the reason is that we're a teeny-tiny portion of the IT spend of our customers, and we're mission critical in what we do. So, I think it's a combination of the two.

Speaker Change: We've started to think about why that is. I think part of the reason is we're a teeny tiny portion of the IT spend of our customers, and we're mission critical in what we do. So I think it's a combination of the two.

Laurence Neil Hunn: And our customers are very much looking to us to gen AI enable our product offerings. And we're very much doing that. We've talked about it in the prepared remarks for the last several quarters. I think there are four, three, or four references to it in today's call. And so we're super bullish about the opportunity. We noted enterprise software bookings of high single digits in the quarter. So, some momentum there.

Speaker Change: And our customers are very much looking to us to GenAI enable our product offerings. And we're very much doing that. We've talked about it in the prepared remarks for the last several quarters. I think there's three or four references in it in today's.

Speaker Change: Call and so we're super bullish about the opportunity. We noted enterprise software bookings up high single digits in the quarter so some momentum there.

Jason P. Conley: Yeah, that's right. And Joe, we talked about this a month or two ago.

Speaker Change: Yeah, that's right. And Joe, we talked about this a month or two ago.

Jason P. Conley: Yes, it's pretty consistent there, and I think, like Neil said, our enterprise bookings were strong across a number of businesses; even Dell Tech was still down a little bit. So it's pretty widespread. So no, as Neil said, nothing on our calls indicated that this was an issue whatsoever.

Joe Provink: Yes, it's pretty consistent there, and I think like Neal said, our enterprise bookings were strong across a number of businesses. Even Dell Tech was still down a little bit, so it was pretty widespread. So, like Neal said, nothing on our calls indicated that this is an issue whatsoever, at least at this point.

Joseph D. Vruwink: Okay, that's great to hear. Yeah, and I wanted to follow up on the high single-digit growth in enterprise bookings because that does seem like a positive change in trend. So, Dell Tech contributed, it sounds like, any other big needle movers to call out just in terms of the bookings developments?

Speaker Change: Okay, that's great to hear. Yeah, and I wanted to follow up on the high single-digit growth in enterprise bookings because that does seem like a positive change in trend. So, Dell Tech contributed, it sounds like, any other big needle movers to call out just in terms of the bookings developments?

Jason P. Conley: And actually, Joe, DelTec was still down a little bit, so that's with DelTec being down. But, you know, Neil highlighted some strength in Strata. So we saw, like I said, Pipeline has been building and saw some good bookings in the latter part of Q2. Adderin has continued to be strong. Vertifor, and Frontline also had really good quarters as well.

Speaker Change: And actually, Joe, DelTec was still down a little bit. So that's with DelTec being down. But.

Speaker Change: You know, Neil highlighted some strength at Strata, so we saw, like I said, Pipeline has been building and saw some good bookings in the latter part of Q2. Adirondack has continued to be strong, Vertical or Frontline also caught really good quarters as well.

Joseph D. Vruwink: Okay, great. I'll leave it there. Thank you.

Speaker Change: Okay, great. I'll leave it there. Thank you.

Operator: Thank you. And the next question comes from the line of Julian Mitchell from Barclays. Please go ahead.

Speaker Change: Thank you and the next question comes from the line of Julian Mitchell from Barclays. Please go ahead.

Julian C.H. Mitchell: Oh yes, hi, good morning. I just wondered if you could give us some color around the Q3 EPS guide. Normally you have a stronger sequential uplift, maybe 20 cents plus in the last couple of years into the third quarter. Is there anything kind of happening there this year that's kind of weighing on that? Any kind of one-timers maybe on that point on Neptune that's weighing on the

Julian Mitchell: Hi, good morning. I just wondered if you could give us some colour around the Q3 EPS guide. Normally you have a stronger sequential uplift, maybe 20 cents plus in the last couple of years, into the third quarter.

Speaker Change: happening there this year that's kind of weighing on that, any kind of one-timers maybe on that point on Neptune that's weighing on the sequential growth.

Jason P. Conley: Yeah, thanks Julian. I think a little bit of it is Neptune.

Speaker Change: Yeah, thanks Julian. Yeah, I think a little bit is Neptune. So just getting that those operational efficiencies will push some of that revenue that we normally have in the third quarter into the fourth.

Jason P. Conley: So just getting that operational efficiencies will push some of that revenue that we normally have in the third quarter into the fourth. And then, if you just look at the prior year, I think we think margins are going to be down year over year in Q3. If you recall last year was kind of a high watermark for Q3 2023. So we actually expect it to be stronger as margins in Q4. So we'll have a strong, strong Q4 there. So it's just a little bit of a shift on margin. I think in this segment, which is obviously more than half of our revenue.

Speaker Change: And then if you just look...

Speaker Change: prior year. I think we think AS margins are going to be down year over year in Q3. If you recall, last year was kind of the high watermark Q3 was of 2023. So we actually expect it to be stronger AS margins in Q4. So we'll have a strong Q4 there. So it's just a little bit of a shift on margin, I think.

Speaker Change: in the A.S. segment, which is obviously more than half of our revenue.

Julian C.H. Mitchell: And then just my follow-up question would really be around the network software piece and going back to the freight market. Sounds like it's trending kind of as you thought. Maybe update us on where we sit in terms of the timing of that cycle trough and what sort of slope of recovery you think we should expect there in the next kind of 12, 18 months. Thank you.

Speaker Change: That's helpful. Thank you. And then, just my follow-up question.

Speaker Change: It would really be around the network software piece and going back to the freight market.

Speaker Change: Sounds like it's trending kind of as you thought. Maybe update us where we sit in terms of the timing of that cycle trough and what sort of slope of recovery you think we should expect there in the next kind of 12-18 months please.

Laurence Neil Hunn: I'll give you our best crack at what's going on there. As we all know, in recent past periods, the EC just really experienced abnormal growth that was consistent with the freight cycle, and then the freight recession is what's affected business for the last several quarters. This quarter was flattish in terms of the volumes that we're seeing. Then maybe there's a little bit of green shoes happening.

Speaker Change: Thank you.

Speaker Change: and I'll give you our best crack at what's going on there.

Speaker Change: As we all know, in recent past periods, DAT just really experienced abnormal growth that was consistent with the freight cycle, and then the freight recession is what's been impacted business for the last several quarters.

Speaker Change: This quarter was flattish in terms of the volumes that we're seeing. Then maybe there's a little bit of green shoes happening. The spot market volumes are stable to slightly improving.

Laurence Neil Hunn: The spot market volumes are stable to slightly improving. Carrier attrition in the network has slowed a little bit more than originally expected or anticipated. Finally, and maybe most importantly, freight rejection rates in the market are improving. And so we're sort of balancing, as I mentioned, we're balancing along the bottom. That's our call for the balance of the year, and we're not going to bake in an improvement in our outlook until we actually see it. But maybe there are some green shoots.

Speaker Change: Carrier attrition in the network has slowed a little bit more than originally expected or anticipated. And finally, maybe most importantly, freight ejection rates in the market are improving.

Speaker Change: And so, we're sort of balancing, as I mentioned, we're balancing along the bottom, that's our call for the balance of the year, and we're not going to bake in an improvement in our outlook until we actually see it, but maybe there's some green shoots happening here.

Julian C.H. Mitchell: That's great. Thank you. I'll be back.

Speaker Change: That's great. Thank you.

Operator: Thank you. And the next question comes from the line of Terry Tillman from True Securities. Please go ahead.

Speaker Change: Bye.

Speaker Change: Thank you. And the next question comes from the line of Terry Tillman from True Securities. Please go ahead.

Terrell Frederick Tillman: Thanks for taking my questions as well. The first question is kind of a multi-parter.

Terrell Frederick Tillman: It's related to the Dell Tech business, and then I did have a follow-up. It's going to be on Adderitt, but in terms of Dell Tech on that large GovCon side, I assume that's where some of that volatility and some of the booking weakness is still going on. Is there some seasonality dynamics and just kind of strengthening of the pipeline and visibility into the second half, where you think that can turn positive in terms of bookings? And the second part of this first question is on FedRAMP. If I wasn't mistaken, FedRAMP could potentially unlock some large deals, and then I had a follow-up. Yes.

Terry Tillman: Thanks for taking my questions as well. The first question, it's kind of a multi-parter. It's related to the Dell Tech business, and then I did have a follow-up that's going to be on Adderitt. But in terms of Dell Tech on that large GovCon side, I assume that's where some of that volatility and some of the bookings weakness is still going on.

Laurence Neil Hunn: Yep. So, we'll try to take both of those.

Terry Tillman: Is there some seasonality dynamics and just kind of strengthening of the pipeline and visibility into the second half where you think that can turn positive in terms of bookings? And the second part of this first question is on FedRAMP. If I wasn't mistaken, FedRAMP could potentially unlock some large deals. And then I had a follow-up.

Laurence Neil Hunn: So, Dell Tech is not really a seasonal business. Just so we're clear, Dell Tech's got two parts of the business, about 60% is GovCon, about 40% is... the Professional Services and Markets Architects, Engineers, Construction Contractors. The professional services side has been solid, robust, consistent.

Speaker Change: Yep, so we'll try to take both of those. So, Dell Tech is not really a seasonal business. Just so we're clear, Dell Tech's got two parts of the business, about 60% is GovCon, about 40% is...

Speaker Change: The professional services and markets, architects, engineers, construction contractors, the professional services side has been solid, robust, consistent.

Laurence Neil Hunn: The slowness has been on the GovCon side, particularly the enterprise, the very largest customers, for just the last 12 months or maybe a little bit longer of government spending. Uncertainty is what's driven sort of the slowdown or sluggishness in the market. In the second quarter, Delta, on the GovCon side, there was a little bit of enterprise activity, bookings activity, which was super encouraging to see. It's been a few quarters since we've seen that.

Speaker Change: The slowness has been on the GovCon side, particularly the enterprise, the very largest customers as just the last 12 months or maybe a little bit longer of government spending. Uncertainty is what's driven sort of the slowdown or sluggishness in the market.

Speaker Change: In the second quarter, Delta, on the Gupcon side, there was a little bit of enterprise activity, bookings activity, which was super encouraging to see. It's been a few quarters since we've seen that.

Laurence Neil Hunn: And there also isn't really an election impact that's tied to this part of the business, at least historically there hasn't been. So it's just having some stability in the government spending outlook. It also doesn't really matter what the government spending is on; it just is the government operation of spending has been uncertain. I mean, you're right on FedRAMP; the company is, I think, FedRAMP moderate compliant today, and it's a definitive unlock for the SAS migration on the Galveston side of the business, which is just in the very, very beginning, like the bottom of the first inning.

Speaker Change: And so, and there also isn't really an election impact that's tied to this part of the business, at least historically, there's not been. So it's just having some stability and the government spending outlook. It also doesn't really matter what the government spending is on. It just is the government operation of spending has been uncertain.

Speaker Change: I mean, you're right on FedRAMP. The company is, I think, FedRAMP moderate compliant today, and it's a definitive unlock for the SAS migration on the Galvecon side of the business, which is just in the very, very beginning, like the bottom of the first inning.

Laurence Neil Hunn: Right, that's thanks for the update there. And I guess just a follow-up question. You know, I've been struck by just, just from our own primary research, just the adequate customer base and an optimism about moving to the cloud. Where are we in that upgrade cycle and moving to the cloud? And is it unlocking any kind of expansion sales opportunities?

Speaker Change: Right, thanks for the update there. And I guess just a follow-up question. I've been struck by, just from our own primary research, just the adherent customer base and optimism about moving to cloud. Where are we in that upgrade cycle and moving to cloud? And is it unlocking kind of expansion sales opportunities? Thanks.

Terrell Frederick Tillman: Thanks.

Speaker Change: Yeah, Adder, it's just so good at the moment for multiple factors. The one you list around the SAS migration is just one. I mean, the company's just done a lot of market momentum. They're leading the market on the use of generative AI tools and software applications.

Laurence Neil Hunn: Yeah, Adder, it's just so good at the moment for multiple factors. The one you list around the SAS migration is just one. I mean, the company's just gained a lot of market momentum. They're leading the market in the use of generative AI tools and software applications. They're net market share winners. They continue to gain net market share. And just to give everybody listening context, the last five to seven years have been a market share game, right?

Speaker Change: They're net market share winners that continue to gain net market share. And just to give everybody listening context, the last 5 to 7 years has been a market share game, right? So we've gone from

Laurence Neil Hunn: So we've gone from 30 to north of 50% market share over that period of time for large law firms, and most of that share gain was on-premise. And with the advent of COVID, these large law firms decided they wanted to start the migration to the cloud. So we've got a multi-year journey of the lift and shift from our on-premise customers to the cloud. The product is ready, and we're just beginning that migration now.

Speaker Change: 30 to north of 50% market share over that period of time for large law firms, and most of that share gain was on premise.

Speaker Change: and with the advent of COVID, the large law firms

Speaker Change: decided they wanted to start the migration to the cloud, so we've got a multi-year journey of the lift and shift from our on-premise customers to the cloud. The product is enabled and we're just beginning that migration now. Maybe this is in the second or third inning. It's very early. Yeah, there's a few dozen conversions that's happened over the last three or four years, so we're still really early. It's obviously picked up in the last

Laurence Neil Hunn: Maybe this is in the second or third inning. It's very early. Yeah, there are a few dozen.

Jason P. Conley: Yeah, there's been a few dozen conversions over the last three or four years, so we're still really early. It's obviously picked up in the last, let's call it six quarters, but yes, still plenty of room for there.

Speaker Change: Let's call it six quarters. But yes, still plenty of room for there.

Operator: Thank you. And the next question comes from Scott Davis from Elias Research. Please go ahead.

Speaker Change: That's great. Thank you.

Speaker Change: Thank you. And the next question comes from Scott Davis from Elias Research. Please go ahead.

Scott Reed Davis: Hey, good morning, guys. We're excited, Wayne.

Scott Davis: Hey, good morning guys.

Scott Reed Davis: Is it fair to say it's getting a little harder to get price year over year? I'm kind of thinking specifically about network software, but I guess application software as well. But I know you have had some pretty big price increases the last couple of years. Has it gotten a little harder to get price in those markets?

Speaker Change: We're trying

Scott Davis: Is it fair to say it's getting a little harder to get price year over year? I'm kind of thinking specifically network software, but I guess application software as well.

Speaker Change: I know you had some pretty big price increases the last couple of years. Has it gotten a little harder to get price in those markets?

Laurence Neil Hunn: Scott, we would actually say we've not gotten an outsized price in our software businesses over the last couple of years. Price is part of the growth algorithm. And we talked about, as a general matter, price is going to offset the trend on the ARR base, and then we're going to cross sell and upsell and add new to sort of get to the total growth of the business. There's been just maybe a teeny tiny amount of price that's above normal on both the network and application software sides. So, it wasn't a big benefit historically. We don't have to worry about that going forward to the extent pricing is to normalize, because in our case, we've been normal through the period.

Speaker Change: Scott, we would actually say we've not gotten an outsized price in our software businesses over the last couple of years, you know, it's part of price is part of the growth algorithm.

Speaker Change: that we talked about as a general matter, price is going to offset the attrit.

Speaker Change: on the ARR base, and then we're going to cross-sell and up-sell and add new to sort of get to the total growth of the business.

Speaker Change: There's been just maybe a teeny tiny amount of price that's above normal on both the network and application software side. So it wasn't a big benefit historically. We don't have to lap that going forward to the extent pricing were to normalize, because in our case we've been normal through the period.

Scott Reed Davis: Okay, all right, that's a good color and then you know, last quarter [inaudible].

Speaker Change: Okay, all right, that's good color and then you know last quarter

Speaker Change: You know, my takeaway was your enthusiasm on kind of M&A markets unlocking was pretty high. Is that Is it fair to say it's you're still on the same level of enthusiasm about being able to to get high quality deals done this year?

Laurence Neil Hunn: Very much so. The commentary we talked about a quarter ago is the exact same commentary today.

Speaker Change: Very much so. The commentary we talked about a quarter ago is the exact same commentary today. There's just an amazing amount of pent-up demand for opportunities.

Laurence Neil Hunn: There's just an amazing amount of pent-up demand for opportunities. I think I said last time it's going to be three to three and a half years deals compressed in a couple years. We still haven't played out the case.

Speaker Change: I think I said last time, it's going to be three or three and a half years deals compressed in a couple of years. We still play it back to case.

Laurence Neil Hunn: An interesting thing happened in the first half is that the first half deals in the market were super binary based on asset quality, a plus assets traded anything in the year below did not, which is leading sponsors to really face the reality about value and valuations. And so the combination of that, the pent-up demand, and interest rates being higher should yield more reasonable valuations. We'll see. But we're super encouraged by both that dynamic around valuation and then just the volume of opportunities that we see. The final thing I'd say is that Janet and her team are much more proactive and proprietary in our pursuits. And that's being well, well, received by the sponsors.

Speaker Change: Interesting thing happened in the first half is that the first half deals in the market were super binary based on asset quality.

Speaker Change: A-plus assets traded, anything in the P or below did not, which is leading sponsors to really face the reality about value and valuations.

Speaker Change: And so, the combination of that, the pent-up demand, interest rates.

Speaker Change: Being higher should yield more reasonable valuations. We'll see.

Janet: But we're super encouraged by both that dynamic around valuation, and then just the volume of opportunities that we see. The final thing I'd say is that Jan and her team are much more proactive and proprietary in our pursuits.

Janet: and that's being well-received by the sponsors we're engaging with.

Scott Reed Davis: Encouraging. I'll pass it on. Thank you guys.

Speaker Change: Okay, encouraging. I'll pass it on. Thank you guys

Operator: Thank you. And the next question comes from the line about Giordano, I mean, Joe Giordano from Kitty Cohen. Please go ahead.

Speaker Change: Thank you. And the next question comes from the line of Giordano, I mean Joe Giordano from TD Cohen. Please go ahead.

Joseph Craig Giordano: morning. Can you remind me of Neptune, the mix between ultrasonic and mechanical and where that is today, where you see that going, and like, is there any material margin difference between the two products today? Yeah, so on.

Joe Giordano: Hey guys, good morning. Can you remind me of, at Neptune, the mix between ultrasonic and mechanical and what, like, where that is today, where you see that going, and, like, is there any material margin difference between the two products today?

Laurence Neil Hunn: Yeah, so on the mix, we've been advised by Neptune for competitive reasons to sort of stay away from the specifics of the mix today because the market is declaratively going to static. There's a lot of benefit to static, and we believe we have a devotional product advantage with our static meter around being able to read accurately both high and low flow rates. Relative to the margin profile today, they're similar-ish in terms of margin profile.

Speaker Change: Yeah, so on the mix, we've been advised by Neptune for competitive reasons to sort of stay away from the specifics of the mix.

Speaker Change: today. The market is declaratively going to static. There's a lot of benefit to static, and we believe we have a devotional product advantage with our static meter around being able to read accurately both high and low flow rates.

Speaker Change: Relative to the margin profile today, they're similar-ish in terms of margin profile.

Joseph Craig Giordano: And then if I just think about Delta, maybe more construction, but maybe a little bit on Delta too, but it seems like construction starts and activity are still at a good level, but the starts are getting worse, and we're kind of, it seems like even on the institutional side, things are getting a little bit weaker, but from good levels. What are the implications there? Are you seeing any of that? Yeah, so on the Deltek side, the construction vertical Deltek remains strong.

Speaker Change: Okay, and then

Speaker Change: Yeah, if I just think about like Delta, maybe more Construction X, but maybe a little bit on Delta too. But it seems like construction starts and like activity is still at a good level, but like the starts are getting worse and like we're kind of, it seems like even on the institutional side things getting a little bit weaker, but from good levels, like what are the implications there and are you seeing any of that at either of those businesses?

Laurence Neil Hunn: Yeah, so on the Dell Tech side, the construction vertical remains strong, the pipeline activity strong, the bookings activity strong. Now, mind you, our customer base is very much on the S and M side. They're not the enterprise.

Speaker Change: Yeah, so on the on the Deltech side, the construction vertical Deltech remains strong, the pipeline activity strong, the bookings activity strong. Now, mind you, our customer base is very much on the S&M side. They're not the enterprise, they're not the largest customers, the Deltech services.

Laurence Neil Hunn: They're not the largest customers that Dell Tech services. So maybe, I mean, there's a gigantic untapped market. So even in the headwinds of maybe a little bit of a slowdown, when these smaller contracts are looking for efficiency, they would look to using our software to do that, which might help with some of the pressure. At Construct Connect, this business has just been, it's just good old-fashioned execution that has led to better outcomes there.

Speaker Change: So maybe I mean that there's a gigantic unbended market So even in the in the headwinds of maybe a little bit of slowdown When these smaller contracts are looking for efficiency They would look to using our software to do that which might help with some of the pressure

Speaker Change: At Construct Connect, this business has just been, it's just good old-fashioned execution that has led to better outcomes there. They've got a really good choice on their strategy and making choices to focus on the trade contractors and building product manufacturers.

Laurence Neil Hunn: They've got a really good choice in their strategy and have made choices to focus on the trade contractors and building product manufacturers. They've done a great job at enabling that strategy around the product and R&D and go-to-market sort of changes, the lead generation changes, the way they do their demos. I think we've had four quarters of double-digit bookings at Construct Connect, and so it's just been good old-fashioned execution there that's led to...

Speaker Change: They've done a great job of enabling that strategy around the product and R&D and go-to-market sort of changes, the lead generation changes, the way they do their demos.

Speaker Change: I think we've been four quarters of double-digit bookings at Construct Connect, and so it's just been good old-fashioned execution there that's led to a quite improved outcome here.

Speaker Change: Hi, guys.

Joseph Craig Giordano: Thank you. And the next question comes from Steve Dusa from J.P. Morgan. Please go ahead.

Speaker Change: Thank you. And the next question comes from Steve Toussaint from J.P. Morgan. Please go ahead.

Operator: We wanted to see you speak,

Steve Dusa: On the Neptune side, what's the kind of backlog status there, and what's your book to build on that front? Just some color on the orders because, you know, accelerating into 4Q when your growth was, you know, 15% seems to imply, you know, quite a catch-up even beyond maybe just fulfilling, you know, some of these other orders. And secondarily, you mentioned high single-digit growth in software bookings. Is that organic or reported? And if that's total software, shouldn't that translate to revenues, you know, more near-term in the second half? It doesn't look like you're accelerating there in the second half. Thanks.

Speaker Change: Hi, good morning. Good morning, Steve.

Steve Toussaint: On the Neptune side, what's the kind of backlog status there and what's your book to build on that front? Just some color on the orders.

Speaker Change: You know, accelerating into 4Q when your growth was, you know, 15%.

Speaker Change: seems to imply, you know, quite a catch-up even beyond maybe just fulfilling, you know, some of these other orders. And then secondarily, you mentioned high single digit growth in software, I believe it was, bookings. Is that organic or reported? And if that's...

Speaker Change: Total Software. Shouldn't that translate to revenues more near-term in the second half? It doesn't look like you're accelerating there in the second half. Thanks.

Steve Dusa: So on Neptune bookings, I mean, we talked about the backlog coming into the year being still extremely strong, right? And so we had three or four quarters, almost four quarters of backlog going into the year. And so, that's what we've been working through this year.

Speaker Change: So on Neptune bookings, I mean, we talked about the backlog coming in the year was still extremely strong, right? And so we had

Speaker Change: three or four quarters, almost four quarters of backlog going into the year. And so that's what we've been working through this year. And then orders have been, continue to be strong, continue to be enough to, I guess, to answer your question around the fourth quarter for sure in our guide, and then setting up for next year.

Jason P. Conley: And then orders have been, and continue to be strong, and should be enough to answer your question around the fourth quarter, for sure, in our guide, and then setting up for next year. And then on enterprise bookings, the way we define that is it's all of the software business outside of DT, Loadlink, and ConstructConnect because those are more S&B type businesses, and those are annual contract value revenue. So it's the time of booking, and then you've got to, depending on the company, the delay between when the booking happens and when it converts to revenue, that can vary depending on the nature of the award. And so it doesn't always translate into revenue in the current year, but it certainly does help support where we think AS is going to be in the second half and then into 25.

Speaker Change: And then on enterprise bookings, the way we define that is, it's all of the software business outside of...

Speaker Change: DT Loadlink and Construct Connect, because those are more SMB type businesses.

Speaker Change: and those are annual contract value revenue, so it's the time of booking and then you've got to, depending on the company, the delay between when the booking happens and when it converts to revenue, that can vary.

Speaker Change: Depending on the nature of the of the of the award and so it doesn't always translate into revenue in the current year But it certainly does help support

Jason P. Conley: Just the only thing I'd add to Jason's thought on software booking is the majority, if not the vast majority of bookings, are subscription or SaaS related. So you've got the number of months left in a year; it's just hard to impact bookings in the second half or even second quarter. You've got six months left to go, so it really is about the launch-up point at AR for 2020.

Speaker Change: where we think AS is going to be in the second half and then into 25. That's right. And just the only thing I'd add to Jason's thought on the software booking is the majority, if not the vast majority of bookings are

Speaker Change: are subscription or SAS related. So you've got the number of months left in the year. It's just hard to impact bookings in the second half or even second quarter. You got six months left to go. So it really is about the launch on point at AR for 25. And oh yeah, just to clarify, it is organic.

Steve Dusa: And, oh yeah, just to clarify, it is organic. Okay. Okay, great. Thanks a lot. I appreciate the color.

Speaker Change: Okay. Okay, great. Thanks a lot. Appreciate the color.

Operator: Thank you. And the next question comes from Alexander Blanton, an individual investor. Please go ahead.

Speaker Change: Thank you. And the next question comes from Alexander Blanton, Individual Investor. Please go ahead.

Alexander M. Blanton: It's really Clear Harbor Asset Management, not an individual investor. I'm going to go back to the Neptune production issue. I really wasn't clear on the answer that you gave before. So perhaps you can make some clarifying comments. What's the nature of the production holdup or problem? And I think you said that you expected it to be resolved by the end of the third quarter so that you would do some catch-up in the fourth quarter. Could you elaborate on that?

Alexander Blanton: Oh, it's really Clear Harbor Asset Management, not an individual investor.

Speaker Change #101: I'm going to go back to the Neptune.

Speaker Change #102: production issue. I really wasn't clear

Alexander Blanton: on the answer that you gave before. So perhaps you can make some clarifying comments. What's the nature of the production holdup or problem?

Alexander Blanton: I think you said that

Alexander Blanton: You expected it to be resolved by the end of the...

Speaker Change #103: third quarter so that you would do some catch-up.

Laurence Neil Hunn: I'll do my best so. As you know, Neptune makes, at the highest level, two forms of meters, a static meter and a mechanical meter. For the static meter, we've had to add production capacity, which was successfully commissioned in the first half. So that's great news.

Speaker Change #104: in the fourth quarter. Could you elaborate on that?

Speaker Change #105: I'll do my best so

Speaker Change #106: So, as you know, Neptune makes, at the highest level, makes two forms of meters, a static meter and a mechanical meter.

Speaker Change #106: We've had to add production capacity, which was successfully commissioned in the first half. So that's great news. To the existing factory. To the existing factory that we have in Alabama.

Laurence Neil Hunn: To the existing factory. To the existing factory that we have in Alabama. On the mechanical meter side, we have the capacity that's needed, but there is essentially a daily efficiency production rate that is below where it needs to be to meet the demand and deliver on the customer commitments. That's what's in the process of being countermeasured. Again, as I mentioned before, this is just returning to levels of previous efficiency, not a breakthrough level of efficiency that has not yet been achieved.

Speaker Change #106: The mechanical meter side, we have the capacity that's needed, but there is essentially a daily efficiency production rate.

Speaker Change #106: that was below where it needed to be to meet the demand and deliver on the customer commitments.

Speaker Change #106: That's what's in the process of being countermeasured. Again, I mentioned before, this is just returning to levels of previous efficiency, not a breakthrough level efficiency that was not yet ever achieved.

Laurence Neil Hunn: And so the teams are fully countermeasured against this at the moment, and we expect it's beginning to resolve itself in the 3rd quarter, and we hope and expect it to resolve itself in the balance of the year.

Speaker Change #106: And so the teams are fully countermeasuring this at the moment, and we expect it's beginning to resolve itself in the third quarter, and we hope and expect it to resolve itself in the balance of the year.

Laurence Neil Hunn: Well, my question really was, what caused it to deviate from prior levels.

Speaker Change #107: Well, my question really was what caused it to deviate from prior levels?

Laurence Neil Hunn: We think the root cause of that is you've got a factory management team that was super focused on adding static capacity in the first half and just got distracted or lost focus on daily efficiency or production efficiency on the mechanical side.

Speaker Change #107: We think the root cause of that is you got a factory management team that was super focused on adding the static capacity in the first half.

Speaker Change #107: and just got distracted or lost focus on the daily efficiency or production efficiency of the mechanical side.

Laurence Neil Hunn: Well, right, but what is the nature of the production-assistive problem? That's what I'm getting. Alex, we'd be delighted to take this offline if you want to talk about it more deeply.

Speaker Change #108: Well, right, but what is the nature of the production efficiency problem? That's what I'm getting at.

Laurence Neil Hunn: Alex, we'd be delighted to take this offline if you want to talk about it more today.

Speaker Change #108: Alex, we're delighted to take this offline if you want to talk about it in more detail.

Alex: Okay, thank you.

Operator: Thank you. This concludes our Q&A session. I will now hand the call over to Zach Moxley. Please go ahead, sir.

Alex: Thank you. This concludes our Q&A session. I will now hand the call over back to Zach Moxie. Please go ahead, sir.

Zack Moxcey: Thank you everyone for joining us today. We look forward to speaking with you during our next earnings call.

Zach Moxie: Thank you, everyone, for joining us today. We look forward to speaking with you during our next earnings call.

Operator: Thank you. This concludes our conference call for today. Thank you for attending today's presentation. You may now disconnect.

Zach Moxie: Thank you. This concludes our conference call for today. Thank you for attending today's presentation. You may now disconnect.