Q3 2024 Roper Technologies Inc Earnings Call
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Unknown Executive: Good morning.
Good morning, the Roper Technologies' conference call will now begin today's call is being recorded all participants will be in listen only mode.
Unknown Executive: The Roper Technologies conference call will now begin. Today's call is being recorded. All participants will be in listen only. Would you need assistance, please signal a conference specialist by pressing star zero.
Speaker Change: Should you need assistance. Please signal a conference specialist by pressing Star Zero I would now like to turn the call over to stock Moxie, Vice President Investor Relations. Please go ahead.
Zack Moxcey: I would now like to turn the call over to Zack Moxcey, Vice President and Director. Good morning, and thank you all for joining us as we discuss the third quarter 2024 financial results for Roper Technologies. Joining me on the call this morning are Neil Hunt, 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, Senior 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.
stock Moxie: Alright. Thank you all for joining us we discuss the third quarter of 2020 for financial results for Roper technologies, putting me on the call. This morning are Johann <unk>, President and Chief Executive Officer, Jason <unk> Executive Vice President and Chief Financial Officer, Brendan Cross, Vice President and principal accounting Officer, and Shannon O'callaghan at senior Vice President of Finance earlier.
stock Moxie: We issued a press release announcing our financial results. The press release also includes replay information for today's call.
stock Moxie: We have prepared slides to accompany today's call, which are available through the webcast and are also available on our website and now if you. Please turn to page two.
Unknown Executive: And now if you please turn to page 2.
Unknown Executive: 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.
stock Moxie: Ill 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 press release and in our SEC filings you should listen to today's call in the context of that information.
Unknown Executive: And now please turn to page 3. Today, we will discuss our results primarily on adjusted, non-GAAP, and continuing operations basis. For the third 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 minority investments, and lastly, transaction and restructuring related expenses associated with the completed acquisition of Transact Campus. Reconciliations can be found in our press release and the appendix of this presentation on our website.
stock Moxie: And now please turn to page three.
stock Moxie: Today, we will discuss our results primarily on an adjusted non-GAAP continuing operations basis for the third quarter. The difference between our GAAP results and adjusted results consists of the following items.
stock Moxie: Amortization of acquisition related intangible assets, the financial impacts associated with minority investments and lastly transaction and restructuring related expenses associated with.
Speaker Change: We did acquisition of Transat campus reconciliations can be found in our press release and the appendix of this presentation on our web site and that's when you start to page four I'll hand, the call over to Neal after our prepared remarks, we will take questions from our telephone participants Neil.
Zack Moxcey: And now to please turn to page four, I'll hand the call over to Neal. After our prepared remarks, we will take questions from our telephone participants.
Neil Hunt: Neal? Thank you, Zack, and thanks to everyone for joining our call. We're looking forward to sharing our third quarter results with you this morning. As we turn to page four, we'll see the topics we'll cover today. I'll start by highlighting our third quarter financial performance. Jason will then go through our financial results in greater detail, review our balance sheet, including our M&A capacity, and discuss our very strong cash flow performance. Then I'll walk everyone through a summary of our most recent acquisition, TransAx Campus, then discuss our segment highlights and review our increased guidance for the full year.
Neil: Thank you Zack and thanks to everyone for joining our call.
Neal: Looking forward to sharing our third quarter results with you this morning.
Neil: As I turn to page four you'll see the topics we'll cover today.
Neil: I'll start by highlighting our third quarter financial performance.
Neil: We will then go through our financial results in greater detail review of our balance sheet, including our M&A capacity and discuss our very strong cash flow performance.
Neil: And then I'll walk everyone through a summary of our most recent acquisition transact.
Then discuss our segment highlights and review our increased guidance for the full year.
Neil Hunt: After our closing remarks, we'll open the call for your questions. So let's go ahead and get started. Next slide, please. As we turn to page five, the four key takeaways for today's call are, first, we again delivered another solid quarter results and expect an expansion in sequential organic revenue growth heading into Q4. Second, we completed the Transact Campus acquisition, a very attractive business at a very attractive net purchase price. Third, we're raising our FOIA guidance to the high end of our range. And fourth, we continue to be very well positioned relative to executing on our capital deployment strategy.
Neil: After closing remarks, we'll open the call for your questions. So let's go ahead and get started next slide please.
Neil: As we turn to page five the four key takeaways for today's call are first we again delivered another solid quarter results and expect an expansion and sequential organic revenue growth heading into Q4.
We completed the transact campus acquisition, a very attractive business at a very attractive net purchase price.
Neil: Third we are raising our full year guidance to the high end of our range.
Neil: And fourth we continue to be very well positioned relative to executing on our capital deployment strategy.
Neil Hunt: Now digging a bit deeper into these four key takers. We drew total revenue by 13%, organic revenue by 4%, and EBITDA by 10%. Importantly, we grew free cash flow by 15% in the quarter and by 20% on a 2TM basis. Operationally in the quarter, Neptune performed slightly better than our expectations as a result of last quarter's mechanical meter production challenge. And also, importantly, we're encouraged to see strong organic enterprise software bookings momentum continue this quarter, growing in the double digits area up from last quarter's high single digits bookings growth. Also in the quarter, we completed the acquisition of Transact Campus.
Neil: Now digging a bit deeper into these four key takeaways.
Total revenue by 13% organic revenue by 4% and EBITDA by 10%.
Neil: Importantly, we grew free cash flow by 15% in the quarter and by 20% on a TTM basis.
Neil: Operationally in the quarter that June performed slightly better than our expectations. As a result of last quarter's mechanical meter production challenges.
Neil: And also importantly, we're encouraged to see strong organic enterprise software bookings momentum continue this quarter growing in the double digit area up from last quarter's high single digits bookings growth.
Neil: Also in the quarter, we completed the acquisition of Transat campus, our seaport businesses being combined with transact and integration activities are well underway.
Neil Hunt: Our C4 business is being combined with Transact, and integration activities are well underway. This is yet another very compelling value creation opportunity for our shareholders, which we'll discuss in a bit. Based on strong enterprise margin performance, we're increasing our full year 2024 depth guidance to the high end of our range. In addition, we're increasing our outlook for total revenue growth to be 13% plus given the addition of our most recent acquisition, Transact Canada. Finally, we're maintaining our approximate 6% organic barium unit outlet for the year.
Neil: This is yet another very compelling value creation opportunity for our shareholders, which we'll discuss in a bit.
Based on strong enterprise margin performance, we are increasing our full year 2024 deaths guidance to the high end of our range.
Neil: In addition, we are increasing our outlook for total revenue growth to be 13% plus given the addition of our most recent acquisition transact Kansas.
Finally, we're maintaining our approximate 6% organic revenue outlook for the year.
Neil Hunt: If we step back a bit, we recognize we just posted back-to-back 4% organic growth quarters, although not unexpected, without question unsatisfying. That said, we do see quarterly organic growth momentum improving and expect our Q4 organic growth to sequentially improve, given back-to-back quarters of strong enterprise bookings growth, stabilizing freight market conditions, albeit at the bottom. a resolved Neptune operational issue, and NDI returning to growth in Q4. So with this mostly behind us, we're confident we're seeing a re-acceleration of our growth. And finally, we continue to be very active on the M&A markets, an environment that continues to improve, and one where we have a very large pipeline of highly attractive opportunities.
Neil: If we step back a bit we recognize we just posted back to back 4% organic growth quarters.
Neil: Although not unexpected without question unsatisfied.
Neil: That said.
Neil: We see quarterly organic growth momentum improving in.
Neil: We expect our Q4 organic growth to sequentially improve given back to back quarters of strong enterprise bookings growth stabilizing freight market conditions, albeit at the bottom.
Neil: A result, net to an operational issue in India returning to growth in Q4.
Neil: So with this mostly behind US we're confident we're seeing a reacceleration of our growth.
Neil: And finally, we continue to be very active on the M&A markets and environment that continues to improve and one where we have a very large pipeline of highly attractive opportunities.
Neil Hunt: We continue to be quite bullish about our ability to be active on the M&A front.
Neil: We continue to be quite bullish favorability to be active on the M&A front.
Jason Conley: So with that, Jason, let me turn the call over to you so you can walk through our quarterly employer finance results as well as our very strong financial position, Jason. Thanks, Neal, and good morning, everyone. Let's take a look at slide 6. Revenue was $1.76 billion and up 13% over prior years. Acquisitions contributed 9% led by ProCare and Transact Capus, and organic growth was 4%. Just unpacking organic growth a bit. In application software, revenue grew over 5% with recurring and reoccurring growth in the high single-digit area. Non-recurring revenue with down low signal digits led by declines in new license sales.
Speaker Change: Jason Let me turn the call over to you. So you can walk through our quarterly and full year financial results as well as our very strong financial position Jason.
Jason: Neil and good morning, everyone, let's take a look at slide six.
Jason: Revenue was $1 76 billion and up 13% over prior year.
Jason: Acquisitions contributed 9% led by <unk> and transact campus and organic growth was 4%.
Speaker Change: Just on packaging organic growth a bit.
Speaker Change: Vacation software revenue grew over 5% with recurring and reoccurring growth and high single digit area.
Speaker Change: Nonrecurring revenue was down low single digits led by declines in new license sales.
Jason Conley: New business activity for enterprise software continues to lean towards SaaS, which ultimately creates higher customer lifetime value while yielding a slight drag on near-term non-recurring revenue. In network software, recurring revenue growth of 1% includes temporary headwinds at DAT, LINK, and Foundry. The balance of the segments are growth in the mid-single-digit area. As Neil will discuss later, we see stabilization in freight markets and expect some improvement in Q4. TEP organic growth of 4% was underpinned by strength at Verathon and prior year comp challenges at NDI, Innovonix, and RFIDS. As we discussed last quarter, NDI had a very significant customer program in 2023 that created year-to-date comparison challenges.
New business activity for enterprise software continues to lean towards SaaS, which ultimately creates higher customer lifetime value.
Speaker Change: Yielding a slight drag on near term non recurring revenue.
Speaker Change: The network software recurring revenue growth of 1% includes temporary headwinds at DHT Lake and foundry.
Speaker Change: The balance of the segment saw growth in the mid single digit area.
Speaker Change: As Neal will discuss later.
Speaker Change: Stabilization of freight markets and expect some improvement in Q4.
<unk> organic growth of 4% was underpinned by strength at Verathon and prior year comp challenges at MDI antibiotics in RF ideas.
Speaker Change: As we discussed last quarter, Andy I had a very significant customer program in 2023 that created year to date comparison challenges.
Jason Conley: However, we expect a return to growth in Q4. Separately and importantly, NEPTUNE rapidly resolved its mechanical meter production challenges in the quarter. EBITDA $717 million was 10% over prior year and EBITDA margin came in at 40.7%. On depths, we posted $4.62, which was above our guidance range of $4.50 to $4.54. Note the transact acquisition contributed three cents in the stub period as the third quarter is seasonally the highest driven by fees from annual tuition payments and annual renewals of term licenses. Excluding Transact, our guidance beat came from strong over-margin performance in our application software segment.
Speaker Change: However, we expect a return to growth in Q4.
Speaker Change: Separately, and importantly, Neptune rapidly resolved mechanical meter production challenges in the quarter.
EBITDA of $717 million was 10% over prior year and EBITDA margin came in at 47%.
Speaker Change: On depths, we posted $4 62, which was above our guidance range of $4 50 to 454.
Speaker Change: Note the transact acquisition contributed <unk> <unk> in the stub period as the third quarter is seasonally the highest driven by fees from annual tuition payments and annual renewal of term licenses.
Speaker Change: Excluding transact our guidance beat came from strong core margin performance and our application software segment.
Speaker Change: Yeah.
Jason Conley: Turning to free cash flow, we had our highest ever quarter with free cash flow of $719 million of 15% over prior year. Transact was cash recreative in the step period of ownership and off to a fast start with Q3 being once again seasonally strong for this business. We also had a simply great execution across our software and tech product business. Of note, networking capital as a percent of revenue excluding acquisitions was negative 19%, a new Q3 record. And a special thanks to our world-class finance teams across the Roper family who are laser-focused on cash returns and cash flow growth.
Speaker Change: Turning to free cash flow, we had our highest ever quarter with free cash flow of $719 million up 15% over prior year.
Speaker Change: Transact with cash accretive in the stub period of ownership and off to a fast start with Q3 being once again seasonally strong for this business.
Speaker Change: We also simply great execution across our software and tech product businesses.
Speaker Change: Networking capital as a percent of revenue excluding acquisitions was negative 19%.
Speaker Change: A new Q3 record.
Speaker Change: A special thanks to our World class finance teams across the Roper family, who are laser focused on cash returns and cash flow growth tremendous job.
Jason Conley: Tremendous job. The Biowire chart provides a trailing 12 month view of free cash flow over a four year period. The CAGR for the corresponding 2021 period is 12%. We adjust for the Section 174 that went into effect in 2022. We've compounded cash flow in the mid-teens area. The strong Q3 results places our year-to-date cash flow at 31% as a percentage of revenue. And with renewal season at many of our software businesses in Q4, we expect free cash flow margin to be north of 30% for the year.
The bottom right chart provides the trailing 12 months, our free cash flow over a four year period.
Speaker Change: The CAGR for the corresponding 2021 period is 12%.
Speaker Change: We adjust for the section 174 that went into effect in 2022 with compounded cash flow in the mid teens area.
Speaker Change: The strong Q3 results places our year to date cash flow at 31% as a percentage of revenue and with renewal season that many of our software businesses. In Q4, we expect free cash flow margin to be north of 30% for the year.
Okay.
Jason Conley: Turning to slide seven, I'll now discuss our balance sheet. So net debt of $8.1 billion on trailing EBITDA of $2.75 billion yields leverage of three times at the end of the quarter, and a bit lower if we proform it for the recent acquisition. In the quarter, we entered the bond market and issued $2 billion across 5-, 7- and 10-year tenors for a blended rate of 4.8%. This was used to fund the Trans Act deal and partially pay down the revolver, which has a quarter end balance of $925 million. As we move forward, our strong cash flow and use of investor-grade leverage provides us with $4 billion or more of capacity to deploy towards high-quality acquisition.
Speaker Change: Turning to slide seven I'll now discuss our balance sheet.
Speaker Change: So net debt of $8 $1 billion on trailing EBITDA of $2 $75 billion deal leverage of three times at the end of the quarter.
Speaker Change: And a bit lower if we pro forma for the recent acquisitions.
Speaker Change: In the quarter, we ended the bond market and issued $2 billion across five seven and 10 year tenors for a blended rate of four 8%.
Speaker Change: This was used to fund the transact deal and partially pay down the revolver, which has a quarter end balance of 925 night.
Speaker Change: As we move forward, our strong cash flow and use of investment grade leverage provides us with $4 billion or more of capacity to deploy towards high quality acquisitions.
Neil Hunt: To that end, I'll turn it over to Neal to talk about the Transact deal and its compelling combination with our Seaboard business.
Speaker Change: With that I'll turn it over to Neil to talk about the transact deal and its compelling combination for our seaborne business Bill Thanks, Jason Let's turn to our most recent acquisition <unk>.
Neil Hunt: Neal? Thanks, Jason. Let's turn to our most recent acquisition overview.
Neil Hunt: During that campus is another fantastic addition to the Roper portfolio. Let's start with the investment highlight. We paid $1.5 billion net of a $100 million tax benefit for the business. We expect Transact to deliver about $325 million of revenue and $105 million of EBITDA next year, which means we paid about 14 times the EBITDA we expect this business to contribute next year. Transact is adjusted debts break even this year, be accretive to our adjusted debts next year, and immediately cash flow accretive. And we will report Transact as combined with Seaboard at our application software segment.
Speaker Change: Great that campus is another fantastic additions to the ROFO portfolio.
Neil: Start with the investment highlights.
Neil: $1 5 billion net of a $100 million tax benefit to the business.
Neil: Transact to deliver about $325 million of revenue and $105 million of EBITDA next year, which means we paid about 14 times EBITDA. We expect this business to introduce next year.
As adjusted depths breakeven this year.
Neil: And accretive to our adjusted depth next year is immediately cash flow accretive.
Neil: And we will report transact as combined with seaboard at our application software segment.
Neil Hunt: On a standalone basis, Transact meets all our longstanding acquisition criteria.
Neil: On a standalone basis transact meets all our longstanding acquisition criteria leader in a niche market.
Neil Hunt: Leader in a niche 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 leadership team. Let's talk about what the company does. Transact is a leading provider of mission-critical and purpose-built software and integrated payments to higher education institutions in two focused areas, first, in campus identity management, and second, related to tuition management. The market itself is quite attractive and in the midst of the long-term secular tailwind of universities working to improve the on-campus experience required to attract and retain the next generation of students.
Neil: As mission critical vertical is software solutions compete based on customer intimacy.
Neil: It's an asset light business model as led by our skill passionate leadership team.
Neil: So let's talk about what the company does.
Neil: Transact is a leading provider of mission critical and purpose built software and integrated payments to higher education institutions, and two focused areas first and canvas identity management and second related to tuition instruments.
Neil: The market itself is quite attractive and in the midst of the long term secular tailwind of universities working to improve the on campus experience required to attract and retain the next generation of students.
Neil Hunt: We estimate the combined market size to be in the $1.5 billion range and growing 6-8% per annum. As previously mentioned, we're integrating our C-Board business with Transact. The board will combine its university campus ID business with that of Transact, creating a leading provider of these solutions. We expect a long-term organic growth rate of combined business to be in the high single-digit area. The Go Forward leadership team has been announced, the 2025 $20 million cost synergy plan is well underway, and the initial set of customer feedback has been quite positive. As you can see, TransApp is a highly compelling value creation opportunity for Roper and our shareholders.
Neil: Estimate the combined market size to be in the one 5 billion range and growing 6% to 8% per annum.
Neil: As previously mentioned, we're integrating our seaborne business with transact.
Neil: The board will combine its university campus IV business without a transaction to create a leading provider of these solutions.
Neil: We expect our long term organic growth rate of the combined business to be in the high single digits area.
Neil: The go forward leadership team has been announced the 2025 $20 million cost synergy plan is well underway and the initial set of customer feedback has been quite positive.
Neil: As you can see transact is a highly compelling value creation opportunity for <unk> and.
Neil: And our shareholders.
Neil Hunt: As we turn to page 10, let's review our application software segment results. Revenue here grew by 23% in total, and organic revenue grew by 5.5%. Even our margins were 43.6% and core margins improved 20 basis points in the quarter.
Neil: As we turn to page 10.
Neil: Our application software segment results.
Neil: Revenue here grew by 23% in total and organic revenue grew by five 5%.
Neil: EBITDA margins were 43, 6% and core margins improved 20 basis points in the quarter.
Neil Hunt: Before getting into the business-specific details, I would like to share a few macro trends we're seeing across this segment. First, we continue to see improving organic enterprise bookings performance, growing in the double digits area in the quarter, following HSD growth in Q2. Importantly, the enterprise-class customer sluggishness we saw during 2023 in the first quarter of this year appears to be waning. Finally, we continue to see strong growth in recurring and reoccurring revenue in this segment, growing in the high single-digit area in the quarter.
Neil: Before getting into the business specific details I would like to share a few macro trends, we're seeing across the segment.
Neil: First we continue to see improving organic enterprise bookings performance growing into double digits area in the quarter following <unk> growth in Q2.
Neil: Importantly, the enterprise class customers Sluggishness, we saw during 2023 in the first quarter of this year appears to be waning.
Neil: Finally, we continue to see strong growth in recurring and reoccurring revenue in this segment growing in the high single digit area in the quarter.
Neil Hunt: According to our business unit specific commentary, we'll start with patterns, our software business focused on the needs of large law firms. Adderick continues to perform incredibly well in the market and had another great quarter. Over the past few quarters, we've highlighted Adderitt's improved product development velocity, and in particular, with Gen-AI powered features. Now, this innovation activity is adding to their already strong bookings momentum, including very nice new customer additions and continued progress in adding new and expanded products within their existing customer base.
Neil: Turning to our business unit specific commentary, we'll start with patterns, our software business focused on the needs of large law firms.
Neil: It continues to perform incredibly well in the market and had another great quarter.
Neil: Over the past few quarters, we have highlighted address improved product development velocity and particular with Gen. AI powered features.
Neil: This innovation activity is adding to their already strong bookings momentum, including very nice new customer additions and continued progress in adding new and expanded products within their existing customer base.
Neil Hunt: Dell Tech, our software business serving government contracting, architecture, engineering, and construction markets was strong in the core as well. In particular, CELTEC's enterprise-class government contracting customer activity improved in the quarter, which is encouraging to see. Also, and as a reminder, Dell Tech continued their ongoing cloud-based software momentum and expanded their Gen AI embedded functionality.
Neil: Delta our software business, serving government contracting architecture engineering and construction markets was strong in the quarter as well.
Neil: In particular cell types enterprise class government contracting customer activity improved in the quarter, which is encouraging to see.
Neil: Also and as a reminder, delta continue their ongoing cloud based software momentum and expanded their gen AI embedded functionality.
Neil Hunt: PowerPlan, our financial planning and tax software business serving heavy fixed assets industries, continues to impress with their operating and financial results. Our plan has done a tremendous job over the last three or four years on improving their customer experience, accelerating their software innovation velocity, and improving upsell, cross-sell activity. Great job by Joe and his team in Atlanta. Brent Ryan continues to perform nicely and has strong renewal activity and delivered excellent seasonally high cash flow.
Neil: Power plan, our financial planning and tax software business, serving heavy fixed assets industries continues to impress with our operating and financial results.
Neil: Our plan has done a tremendous job over the last three or four years on improving their customer experience.
Neil: The writing their software innovation velocity.
Neil: Improving upsell cross sell activity.
Neil: Job by Joe and his team in Atlanta.
Neil: Frontline continues to perform nicely and had strong renewal activity and delivered excellent seasonally high cash flow.
Neil Hunt: Of note, we're excited to announce Matt Strazza as Frontline's new CEO. As some of you may recall, Matt joined Roper as DelTec's go-to-market leader, then was promoted to being the CEO of Construction. that did a wonderful job at ConstructX, and we're excited about having this growth-oriented leader at the helm at Frontline.
Neil: Of note, we're excited to announce that strategy as frontline's new CEO.
Neil: As some of you may recall that joined grow for adults X doing a market leader Dan was promoted to be the CEO of construction at.
Neil: Pat did a wonderful job of constructing and we're excited.
Neil: Having this growth oriented leader at the helm at frontline.
Neil Hunt: Also of note, we promoted Bob Brody, ConstructConnect's CFO, to assume the CEO role. Buck has been in the Roper ecosystem mostly as a CFO over the past 13 years. This is one of the first, though certainly not the last time, we'll promote leaders across and within Roper. We continue to remain quite bullish about the future of our province.
Neil: Also of note, we can release about Brody constructing next CFO to assume the CEO role.
Neil: But it's been in the roofer ecosystem, mostly as a CFO over the past 13 years.
Neil: This is one of the first those certainly not the last time, we will promote leaders across and within Rover.
Neil: We continue to remain quite bullish about the future for frontline.
Neil Hunt: Our healthcare IT businesses, led by Strata and Data Innovations, were also strong in the quarter and delivered excellent growth. Finally, ProCare continues to execute well. Importantly, as part of our evolving governance processes tied to faster growth or maturing leader nature of our portfolio, ProCare is working to improve its go-to-market capabilities from lead generation to deal execution, as well as go-to-market leadership. We really like what we're seeing here, although it's early days.
Neil: Our healthcare it businesses led by strata data innovations were also strong in the quarter and delivered excellent growth.
Neil: Finally, <unk> continues to execute well.
Neil: Importantly, as part of our evolving governance processes tied to faster growth or maturing later nature of our portfolio brokers working to improve its go to market capabilities from lead generation to the execution as well as go to market leadership.
Neil: We really like what we're seeing here, although its early days.
Neil Hunt: As it relates to the guidance for the final quarter of the year, we expect to see mid-single-digit organic revenue growth. Please turn with us to page 11.
Neil: As it relates to the guidance for the final quarter of the year, we expect to see mid single digit organic revenue growth.
Neil: Please turn to page 11.
Neil Hunt: Organic Revenue and our network software said we grew 1% 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. Excluding our Freight Matching Businesses and Foundry, the seventh group in the mid-singles area, which demonstrates the underlying quality of this group of businesses. Economic margins continue to be strong at 56.2%.
Neil: Organic revenue in our network software segment grew 1% in the quarter. It 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 writers strikes.
Neil: Excluding our freight matching businesses in foundry the segment grew in the mid singles area, which demonstrates the underlying quality of this group of businesses.
Neil: Our margins continued to be strong at 56, 2%.
Neil Hunt: Let's dig into the details and start with our freight matching businesses, DAT and Loathing, which declined slightly as expected due to the continuing challenging freight market conditions that adversely impact both businesses. That said, we continue to see further signs of market stabilization for both carriers and brokers. During this softer period, DAT continues to invest to accelerate new product development philosophy.
Neil: Let's dig into the details I'll start with our freight matching businesses D. ATM Booth was declined slightly as expected due to the continuing challenging freight market conditions that adversely impact both businesses.
Neil: That said, we continue to see further signs of market stabilization for both carriers and brokers.
Neil: During the softer period GAC continues to invest to accelerate new product development velocity.
Neil Hunt: Now, let's turn to the foundry, our post-production media and entertainment software business. Foundry continued to roll out innovative product updates and ML-powered functionality this quarter, meaningfully enhancing the creative process for high-quality post-production visual effects. It was the continued impacts related to the recent industry strikes found we declined in the quarter as expected. We now expect the hangover from the strikes to carry into next year as Foundry's customers continue to navigate through tight economic conditions until their creative pipelines matriculate to the post-production phase, which we expect to be sometime during 2025.
Neil: Now, let's turn to the foundry or post production media and entertainment software business.
And we continue to rollout innovative product updates and ml powered functionality in this quarter meaningfully enhancing the creative process for high quality production visual effects.
Neil: Given the continued impacts related to the recent industry strikes foundry declined in the quarter as expected.
Neil: We now expect the hangover from the strikes the carrying into next year as foundry as customers continue to navigate through tight economic conditions until the creator pipelines matriculate to the post Russian phase, which we expect to be sometime during 2025.
Neil Hunt: As mentioned, the balance of this segment grew mid-singles organically in the quarter with solid execution across this portfolio. In particular, constructing that continued solid march of improved financial results and bookings momentum. In addition, Constructinet continues to lead the market with their Gen-AI powered takeoff and estimating solutions.
Neil: As mentioned the balance of this segment grew mid singles organically in the quarter with solid execution across this portfolio.
Neil: In particular constructing that continued its solid march of improved financial results and bookings momentum.
Neil: In addition, construction that continues to lead the market with our Gen AI powered takeoff and estimating solutions.
Neil Hunt: Finally, our alternate site health care businesses performed well, led by our software solutions at MHA, SoftWriters, and FHP, and further benefited from improved senior care. Turning to the final quarter of the year, we expect organic revenue to improve a bit, but remain in the low single digits area as we continue to experience stable but muted freight market conditions.
Neil: Finally, our alternate site healthcare business has performed well led by our software solutions at MH, a soft riders and SHP and further benefited from improved senior care occupancy.
Neil: Turning to the final quarter of the year, we expect organic revenue to improve a bit but remain in the low single digits area as we continue to experience stable, but needed freight market conditions.
Neil Hunt: Please turn to page 12 and let's review our TEP segment's results. Ramping the heater grew 4% in total and on an organic basis, and EBITDA margins came in at 35.4%. That, too, rapidly resolved our mechanical meter production issue within the quarter, performing slightly better than we anticipated. Importantly, during this short-term bespoke manufacturing challenge, Neptune was able to deliver on all their customer commitments. In addition, Neptune continues to see solid demand for both mechanical and static meters, positioning Neptune very well for the foreseeable future.
Neil: Now please turn to page 12, unless review our segment results.
Neil: Revenue here grew 4% in total and on organic basis, and EBITDA margins came in at 35, 4%.
Neil: Neptune.
Net to rapidly resolve or mechanical meter production issue within the quarter performing slightly better than we anticipated.
Neil: Importantly, during the short term bespoke manufacturing challenge Neptune was able to deliver on all their customer commitments.
Neil: In addition, <unk> continues to see solid demand for both mechanical and static meters positioning net to them very well for the foreseeable future.
Neil Hunt: Next we'll turn to Veritas. Marathon continues to perform exceptionally well, with solid growth across our GlideScope and B-Flex product offerings. A particular note, we're pleased to report that Veriton is the market share leader in the U.S. for single-use Broca scope. Five years ago, we entered this market with a strong belief that we had a higher right to win, given our incumbent Glidescope position, and now we have claimed a market share leadership position, and Verithon is not done. Great job, my team, Veritas.
Speaker Change: Next I will turn it over to Tom Farrell.
Tom Farrell: <unk> continues to perform exceptionally well with solid growth across our glide scope and be flex product offerings.
Tom Farrell: A particular note. We're pleased to report that <unk> is the market share leader in the U S for single use profit scopes.
Five years ago, we entered this market with a strong belief that we had a right to win given our incumbent lifestyle position and now we have claimed our market share leadership position and Verathon is not done.
Tom Farrell: Great job my team's marathon.
Neil Hunt: Northern Digital or NDI declined as we expected in the quarter based on customer program timing that led to a very difficult comp. That said, OEM order activity remains strong in the quarter. Finally, Antibiotics and RFIDs each declined against difficult prior year comps. As a reminder, these businesses started recovering from supply chain challenges last year. For the fourth quarter, we expect to improve to high single-digit growth, given Neptune is back on track operationally and NDI's customer program timing begins to normalize.
Tom Farrell: Northern digital our MDI declined as we expected in the quarter based on customer program timing that led to a very difficult comp.
That said OEM order activity remains strong in the quarter.
Tom Farrell: Finally antibiotics in RFID as each declined against difficult prior year comps.
Tom Farrell: As a reminder, these businesses started recovering from supply chain challenges last year.
Tom Farrell: For the fourth quarter, we expect to improve to high single digit growth given that soon is back on track operationally and in dice customer program timing began to normalize.
Neil Hunt: With that, please turn us to page 14. Now let's review our full year 2024 guidance and discuss our fourth quarter outlook. Based on strong application segment margin performance and the addition of Transact Campus, we're increasing our total year growth outlook to be north of 13%, and we expect full year organic growth to remain consistent in the 6% area. In addition, we're raising our four-year guidance to be in the range of 1821 and 1825, the high end of our previous range, and an increase of six cents at the midpoint. Please note, we expect TransAct to be debt-neutral for the full year.
Tom Farrell: Please turn to page 14.
Tom Farrell: Now, let's review, our full year 2020 for guidance and discuss our fourth quarter outlook.
Tom Farrell: Based on strong application segment margin performance and the addition of Transat campus, we're increasing our total year growth outlook to be north of 13% and.
Tom Farrell: And we expect full year organic growth remained consistent in the 6% area.
Tom Farrell: In addition, we are raising our full year guidance to be in the range of $18 21, an 18 to 25, the high end of our previous range and increase of six cents at the midpoint.
Tom Farrell: Please note, we expect transact to be depths neutral for the full year.
Neil Hunt: Our guidance continues to assume a four-year effective tax rate in the 21 to 22 percent range. The fourth quarter, we expect adjusted depths to be between 470 and 474. Please note, our newest acquisition, Transact, will be about three cents dilutive in the quarter. Also, as a reminder, the impact of our $20 million synergy plan meaningfully skews to 2025.
Tom Farrell: Our guidance continues to assume a full year effective tax rate in the 21% to 22% range.
Tom Farrell: Okay.
Tom Farrell: The fourth quarter, we expect adjusted depths to be between $4 70, and $4 74.
Tom Farrell: Please note our newest acquisition transact will be about <unk> <unk> dilutive in the quarter also as a reminder, the impact of our $20 million synergy plan meaningfully skus to 2025.
Neil Hunt: Now, please turn with us to page 15, and then we'll open it up for your questions. We'll conclude with the same key takeaways with which we started. First, we delivered a solid core of financial results and expect an acceleration in sequential organic revenue growth heading into Q4. Second, we completed the acquisition of a transect campus and commenced the integration with Seaboard. Third, we're increasing our outlook for a full year. And finally, we are very well positioned relative to our capital and employment stretch. For the quarter, we delivered 13% total revenue and 4% organic revenue growth, while increasing our EBITDA 10%.
Now please turn to page 15.
Tom Farrell: Is it up for your questions.
Tom Farrell: We'll conclude with the same key takeaways with which we started first we delivered a solid quarter financial results and expect an acceleration in sequential organic revenue growth heading into Q4.
Tom Farrell: We completed the acquisition of Transat campus and commenced the integration with seaboard.
Tom Farrell: Third we are increasing our outlook for full year and finally, we are very well positioned relative to our capital deployment strategy.
Tom Farrell: For the quarter, we delivered 13% total revenue and 4% organic revenue growth, while increasing our EBITDA, 10%.
Neil Hunt: Of note, we grew our enterprise software bookings in a double-digit area and continue to see high single-digit ARR growth. Importantly, free cash flow was impressive, growing 15% in the quarter and 20% on a TTM basis. Next, we complete the compelling acquisition of TransAct Campus. The combination with Seaboard creates a leading software and integrated payments business that helps universities solve the pressing issue of making the student campus experience more compelling. The cost-synergy execution risk here is quite low, most of which is argument action, leading to a very attractive shareholder return. Next, we're increasing our four-year outlook for total revenue to be more than 13% and maintaining our approximate 6% organic revenue growth outlook.
Tom Farrell: Of note, we grew our enterprise software bookings in the double digit area and continued to see high single digit growth.
Tom Farrell: Importantly, free cash flow was impressive growing 15% in the quarter and 20% on a TTM basis.
Tom Farrell: Next we completed the compelling acquisition of Transat campus. The combination with seaboard creates a leading software and integrated payments business that helps universities solve the pressing issue.
Tom Farrell: The student campus experience more compelling.
Tom Farrell: The cost synergy execution risk here is quite low most of which has already been actions leading to a very attractive shareholder return.
Tom Farrell: Next we are increasing our full year outlook for total revenue to be north of 13% and maintaining our approximate 6% organic revenue growth outlooks.
Neil Hunt: In addition, we're increasing our full-year depth outlook to the high end of our prior guidance. Finally, we continue to maintain a strong financial position with over $4 billion of capacity for capital employment. The M&A markets continue to be very active. 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.
Tom Farrell: In addition, we're increasing our full year debt's not look to the high end of our prior guidance.
Tom Farrell: Finally, we continue to maintain a strong financial position with over $4 billion of capacity for capital deployment.
Tom Farrell: The M&A markets continue to be very active we have a robust pipeline of attractive acquisition opportunities that we're excited to pursue with our unbiased and disciplined approach.
Tom Farrell: We remain quite bullish about our ability to execute this part of our strategy.
Neil Hunt: Now, as we turn to your questions, and if you could flip to the final slide, our strategic compounding 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 business. Once a company is part of Roper, we operate in 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.
Tom Farrell: No.
Tom Farrell: We turn to your questions and if you could flip to the final slide our strategic compounding flywheel.
Tom Farrell: 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.
Tom Farrell: Once the company is part of Roper, we operate a decentralized environment our businesses can compete and win based on customer intimacy.
Because of our businesses on a structurally improved our long term and sustained organic growth rates and underlying business coffee.
Tom Farrell: 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.
Neil Hunt: And together, we compound Bratislava over a long arc of time in the mid-teens area.
Tom Farrell: Taken together, we compound our cash flow over a long arc of time in the mid teens area.
Unknown Executive: With that, we'd like to thank you for your continued interest and support and open the floor for your questions. Please go ahead, operator. We will 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. If you would like to ask a question, you may do so by pressing star followed by the digit one on your. Telephone. If you are using a speaker phone, please pick up your handset before To withdraw your question, please press star, then the. Again, we request that callers limit their questions to one main question and one follow up.
Tom Farrell: With that we'd like to thank you for your continued interest and support and open the floor for your questions.
Tom Farrell: Please go ahead operator.
Speaker Change: We will now begin to we will 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 star followed by the digit one on your Touchtone telephone. If you are using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then the digit too.
Speaker Change: Again, we request that callers limit their questions to one main question and one follow up.
Deane Dray: Next question comes from Deane Dray with RBC. Your line is now open. Thank you. Good morning, everyone. Are you appointing?
Speaker Change: Your first question comes from Dan Dray with RBC. Your line is now open.
Dan Dray: Thank you and good morning, everyone.
Good morning.
Deane Dray: Hey, maybe we can start with the strategy around Transact Campus, and I note that it's Seaboard's being combined with the business right away. And historically, Roper really never clustered the application software businesses, preferring more standalone, siloed businesses. You never talked about scale, and I don't think I've seen a cost synergy estimate coming out of a transaction in a long time. Does this, is this more of an opportunistic acquisition? You've done it before, you've combined medical purchasing, you've done some insurance business back office clustering. We've seen this before, but this is right off the, out of the blocks.
Dan Dray: Hey, maybe we can start with the strategy around transact campus.
Dan Dray: And I note that it's seaboard being combined with the business right away and historically rope really never clustered that application software businesses.
Dan Dray: Yes, preferring more standalone siloed.
Dan Dray: Businesses, you never talked about scale and I don't think I've seen a cost synergy estimate coming.
Dan Dray: Out of a transaction in a long time.
Does this is this more of an opportunistic.
Dan Dray: Acquisition, you've done it before you've combined medical purchasing you've you've done some insurance business back office question. So we've seen this before but this is right after out of the blocks, it's being combined and the synergies look obvious but just maybe is there a subtle difference here more willingness to.
Neil Hunt: It's being combined and the synergies look obvious, but just maybe, is there a subtle difference here, more willingness to look at these attractive growth areas? Maybe start there. Yeah, appreciate the opportunity to talk about that, Deane. The short answer is yes. So even going back to our investor day, 18 months or so ago, we outlined, I think, there a modest evolution of our capital employment strategy to focus on a bit more of what we call bolt-on activity, and then also businesses that are a bit, you know, faster growing, call them mature leaders. And so since then, if you look at our acquisitions we've done since then, we've done Strata, Centalis, or Sentalis, and combined it with Strata.
Dan Dray: Look at these.
Dan Dray: Attractive growth areas, maybe start there thanks.
Speaker Change: I appreciate the opportunity to talk about that.
Speaker Change: The short answer is yes, so they're even going back to our Investor day.
Speaker Change: 18 months or so ago, we outlined I think there are modest evolution of our capital deployment strategy to focus on.
Speaker Change: A bit more what we call bolt on activity and then also businesses that are a bit faster growing column chart leaders and so since then if you look at our acquisitions. We've done since then we've done Stratus entellus and tell us and combine it with strata.
Neil Hunt: That was an archetype that's very similar to Transact. We bought Procare, which was our first maturing leader, slightly faster growing business, and then Transact. You go back to 2019, I think we've done 26-ish acquisitions, and there'd be a handful of platforms out of that. So we have leaned into a fair number of bolt-ons. I would say on the bolt-ons, the driving, the principal driving reason for that is to buy businesses who already have a high right to win and adjacencies that are close to ours that we think increases the likelihood for accelerated organic growth once the bolt-on turns organic.
Speaker Change: Oncotype is very similar to transact, we bought <unk>, which was our first maturing leader slightly faster growing business and transact. If you go back to 2019, I think we've done 26 ish acquisitions and there'll be a handful of platforms out of that so we have leaned into.
Speaker Change: A fair number of bolt ons I would say on the bolt ons the driving the principle driving reason for that is to buy businesses already have.
Speaker Change: Hi, right to win in the chimneys consider adjacencies that are close to ours that we say increase the likelihood for accelerated organic growth towards the bolt on turns organic so it's very much part of our strategy.
Neil Hunt: So yeah, it's very much part of our strategy, and we've tooled up the capital employment team that Jana has. We've got folks that are focused on partnering with our businesses and doing a lot of the development work in the marketplace. So yes, it's a strategic intent, and we've started the execution platform.
Speaker Change: And we've tooled up capital deployment team that Janet has got folks that are focused on partnering with our businesses doing a lot of the development work in the marketplace. So yes. It is.
Speaker Change: Strategic intent and we've started the execution pathway.
Unknown Executive: That's great to hear.
Speaker Change: That's great to hear and maybe for Jason and I. Appreciate you guys, putting the spotlight on the free cash flow compounding flywheel, because it seems like Thats, what you got this quarter with free cash flow of 15%.
Jason Conley: And maybe for Jason, and I appreciate you guys putting the spotlight on the free cash flow compounding flywheel, because it seems like that's what you got this quarter with free cash flow up 15% and depths up 7%. So just talk about that spread.
Speaker Change: And depth up 7%, so just talk about that spread.
Jason Conley: And was there any sort of seasonal contribution to free cash flow this quarter? Frontline typically has a higher contribution in the third quarter. Just any dynamics there.
Speaker Change: And was there any sort of seasonal contribution to free cash flow this quarter frontline typically has.
Speaker Change: A higher contribution in the third quarter, just any dynamics there. Thanks.
Jason Conley: Thank you. So, I mean, Q3 is now our strongest cashflow quarter. I mean, since we acquired Frontline a couple of years ago, and now with the addition of Transact, it's definitely our strongest quarter. You know, Transact jumped a little bit, maybe a couple of points of growth in the quarter. It's, as I mentioned, seasonally strong for them. But aside from that, we just had tremendous execution through the renewal seasons, which is Q3 and Q4 for us. So Q4 is expected to be strong as well. And I would just say, you know, DSO approved almost across the board for a number of our businesses.
Speaker Change: Yeah. So I mean Q3 is now our strongest cash flow quarter. Since we acquired frontline a couple of years ago and now with the addition of transact, it's definitely our strongest quarter.
I've talked a little bit maybe a couple of points of growth in the quarter et cetera, as I mentioned seasonally strong for them, but aside from that we just had tremendous execution through the renewal seasons.
Speaker Change: Which is Q3 and Q4 for us. So Q4 is expected to be strong as well and I would just say DSO improved almost across the board for a number of our businesses and so just good old fashion execution I think is what what drove that.
Jason Conley: And so just good old-fashioned execution, I think, is what drove that outsized growth relative to debt.
Speaker Change: Drove that outsized growth relative to depths.
Unknown Executive: Great to hear.
Speaker Change: Great to hear thank you.
Unknown Executive: Thank you.
Speaker Change: Yes.
Brent Thill: Your next question comes from Brent Thill with Jeffries. Your line is now open. Thanks, good morning. Neil, you mentioned some of these macro headwinds. seem like they're turning a bit. I'm curious if you can just dig into what you're seeing in some of the tone and some of the buyers.
Speaker Change: Your next question comes from Brent Thill with Jefferies. Your line is now open.
Speaker Change: Okay.
Brent Thill: Thanks, Good morning, Neil you mentioned some of these macro headwinds.
Brent Thill: It seemed like they're turning the data I'm curious if you can just Google.
Brent Thill: What youre seeing in some of the tone in some of the buyers.
Neil Hunt: and then just maybe for Jason just if you can just speak to Neptune and how confident that you think we're through some of the challenges that we saw What are the reasons why you're confident that that So I'll take the first one, Jason. I'll certainly take the second one.
Brent Thill: And then.
Speaker Change: Just maybe for Jason just if you can just speak to Neptune and how confident you think we're through some of the challenges that we saw and what are the reasons why you're confident in that that recovery.
Speaker Change: Sure.
Speaker Change: I'll take the first one days I'll certainly take the second one first.
Neil Hunt: So first, I just want to remind everybody, we've worked hard over the last, you know, handful of years to really be a lot of the cyclicality and macro out of what we do. If you think about in markets we serve, there's education, there's legal, there's government contracting, there's healthcare, insurance, and what we sell and what we deliver is mission critical, the software. So we're generally not turned on and off based on a macro. And then most of our pricing is subscription oriented versus transactional. So there's sort of three levels of muting in that regard. But still, we're not immune to the macro, but we muted it.
Speaker Change: Just to remind everybody we've worked hard over the last handful of years to really be a lot of the cyclicality of macro but what we do if you think about end markets. We serve there's education legal discovery contracting with health care insurance.
Speaker Change: And.
Speaker Change: What we sell and what we deliver is mission critical software. So we're generally not turned on and off based on the macro.
Speaker Change: Our pricing is subscription oriented versus transactional.
There's sort of three levels of muting in that regard.
Speaker Change: Not immune to the macro but we needed it I would highlight a couple of years.
Neil Hunt: I would highlight a couple that we've been talking about really since the beginning of last year. We're talking this time, or even, call it six or six quarters ago, it was about interest rates and economic slowdown. It was, I think, the most anticipated economic slowdown in modern history. And that psychology of that just slowed down, to some extent, the enterprise class buying activity across software. We're cautiously optimistic, based on the last couple quarters of enterprise software bookings activity. Last quarter, in the high single-digit area growth, this quarter, in the double-digit area growth, pipelines look very robust heading into the end of the year.
Speaker Change: We've been talking about really since the beginning of last year for us.
Speaker Change: So we're talking this time or even call it 6% to six quarters ago. It was about interest rates and an economic slowdown so I think the most.
Speaker Change: Anticipated economic slowdown in modern history, and psychology of that just slowdown to some extent the enterprise enterprise class logging activity across software.
Speaker Change: Where we are.
Speaker Change: Cautiously optimistic based on the last couple of quarters of enterprise software bookings activity last quarter.
Speaker Change: In the high single digit area of growth this quarter in the double digit area growth pipelines look very robust let me answer the end of the year, So we need to execute that.
Neil Hunt: So, we need to execute that, those pipelines. So, we're encouraged by that.
Speaker Change: Those pipelines. So we're encouraged by that the second macro factors certainly that takes the headline for US is the transportation macro.
Neil Hunt: The second macro factor, certainly, that takes the headline for us, is the transportation macro, you know, with our DAT and load-linked businesses. They're subscription-oriented on both sides of the network, both the carrier and the broker. But the number of carriers in the market loosely follows the amount of tonnage that flows over the roads. And so, as the tonnage has come down, so has the number of carriers that are participants in the network, which could put pressure on that. We've just seen – there's probably been 20 to 25 weeks of negative brokered loads compared to prior years.
Speaker Change: With our <unk> businesses.
Speaker Change: They're they're they're subscription oriented on both sides of the network, both the carrier and the broker, but the number of carriers into market loosely follows the amount of tonnage that flows over the roads and so as the tonnage has come down. So it's a number of carriers that are participants the network, which could put pressure on that.
Speaker Change: We've just seen despite the 20 to 25 weeks of negatives.
Speaker Change: Brokerage loads compared to prior year that actually in the last handful of weeks as more normalized last year. So a very much a seeing a stabilizing.
Neil Hunt: That, actually, in the last handful of weeks, is more normalized to last year. So, we very much are seeing a stabilizing in the freight market. So, those would be the macros that have impacted our business.
The freight market. So those would be the macros that have impacted our business Jason yes.
Jason Conley: Jason? Yeah, and just to talk about Neptune a little bit. So, if you recall, you know, we stood up the ultrasonic or static line last quarter, the second line. And so, we had some constraints in our mechanical meter production. And so, you know, I have to report the root causes were identified, corrective actions implemented. We had some yield issues on plastic molding that got corrected. Some of the machines were creating some constraints as well. That's been remedied. We really like the trends we saw through September, and those trends pretty much inform, you know, the production output for the fourth quarter and beyond.
Speaker Change: Yes, and just to talk about net 10, a little bit so if you recall.
Speaker Change: We stood up the ultrasonics are static line last quarter. The second line and so we had some constraints in our mechanical meter production and so.
Speaker Change: The root causes of our identified corrective actions implemented we had some yield issues on plastic molding back on productivity.
Speaker Change: Some of the machines were creating some constraints as well thats been remedied reflect the trends we saw through September and that was trends.
Speaker Change: Permission farm.
Speaker Change: Production.
Speaker Change: For the fourth quarter and beyond so feel good about.
Jason Conley: So, we feel good about – you know, demand is really strong there. So, it's really just getting through this mechanical meter production issue, and we feel good based on what we saw in Q3 and the confidence the teams have in Q4.
Speaker Change: Demand is really strong there. So it's really just getting through this mechanical meter production issue and we feel good based on what we saw in Q3 and the confidence the teams out in Q4.
Neil Hunt: Only thing I'd add to Jason on Neptune, as I said in the prepared remarks, Neptune was able to deliver 100 percent on a customer commitment. So, this was – there's no issue there. Kaizans continue to improve and gain – get even further improvements. And Don and the team did a great job just going to GEMPA on the shop floor and getting to root cause.
Speaker Change: The only thing I'd add to Jason on Neptune as I said in the prepared remarks.
Speaker Change: Neptune was able to deliver 100% on our customer commitments. So this was there is no issue there.
Speaker Change: The Kaiser and continue.
Speaker Change: To improve and gain even further improvements in some of the team did a great job just going to jump on the shop floor and getting through cost.
Unknown Executive: Great. Thanks.
Speaker Change: Great. Thanks.
Julian Mitchell: Your next question comes from Julian Mitchell with Barclays. Your line is now open. Hi, good morning. Maybe I just wanted to follow up on the sort of the macro context that pertains to network software specifically. You know, as we're thinking out sort of beyond this quarter, trying to gauge how you're thinking about the recovery slope at network software, you know, caution that Foundry in aggregate next year may not see much growth because of the ongoing sort of strikes, hangover. Just wonder on sort of DAT and load link that portion. You know what the expectation is.
Speaker Change: Your next question comes from Julian Mitchell with Barclays. Your line is now open.
Speaker Change: Hi, good morning.
Speaker Change: Good morning.
Speaker Change: Good morning, maybe just wanted to follow up on the sort of the.
Speaker Change: The macro context as it pertains to network software specifically.
Julian Mitchell: We're thinking out sort of beyond this quarter trying to gauge how you're thinking about the recovery slope network software.
Julian Mitchell: Caution that foundry.
Julian Mitchell: In aggregate next year may not see much growth because of the ongoing sort of strikes hangover.
Julian Mitchell: I'm, just wondering sort of D ATM load link that portion.
Julian Mitchell: The expectation is that you think it's plausible we could just keep moving sideways sort of sequentially.
Julian Mitchell: I think it's plausible we could just keep moving sideways sort of sequentially for some time. And maybe just frame as you see it now, you know, how much our foundry and the freight match businesses down.
Julian Mitchell: For some time.
Julian Mitchell: And maybe just frame as you see it now.
Julian Mitchell: Foundry and the freight match businesses.
Down in 2024.
Neil Hunt: So I'll take the first part. So on the DAT and load lane. It was intentional that we change our word choice this call to be stabilizing. So it is very much a stabilized market. We anticipate for until we see anything other than stabilized, we're going to be in this position from just a tonnage or load volumes that are going over the roads and into the network. That said, DAT does have a pathway and a plan, a high confidence plan to return to some modest levels of growth next year with no assumed improvement in carrier network participation through packaging price.
Speaker Change: So I'll take the first part.
Speaker Change: So.
Speaker Change: On the DHT in local language.
Speaker Change: Okay.
Speaker Change: It was essential that we changed our word choice. This call would be stabilizing. So it is very much a stabilized market. We anticipate for until we see anything other to stabilize are going to be in this position from a tonnage or load volumes that are going over over the roads and then to the network that said.
Speaker Change: <unk> does have a.
Speaker Change: The pathway in the plan.
Speaker Change: With its plans to return to some modest levels of growth next year with no.
Speaker Change: Assumes improvement in carrier network participation through packaging price.
Neil Hunt: And so we'll have, like I said, some modest growth at DAT next year that we have a pretty high degree of confidence heading into our AOP sessions that occur next month.
Speaker Change: And so we will have like I said, some modest growth. The THC next year that we have a pretty high degree of confidence heading into our A&P sessions that are kind of at record next month.
Jason Conley: And then on Foundry, it's just the waiting for the post-production employment to return to its historical levels. I think we're about 15% below pre-pandemic, or pre-strike, I should say, employment levels in post-production. And we just need the content is being produced, it's just got to matriculate through the pipelines and that'll be sometime in 2025. So it's definitely taken a few quarters longer than we anticipated it earlier in the year. I think we're about 15% below pre-pandemic. Yeah, so sorry, frame matches is down sort of low singles for this year. I think we definitely think for NS in general, that the Q3 is the low point for us.
And then on the foundry, it's just the waiting for the post production.
Speaker Change: Employment to return to its historical levels I think are about 15% below pre pandemic.
Pre strike I should say employment levels of post production.
Speaker Change: Just need the content is being produced is instead of matriculate through the pipelines and that'll be some time in 2025. So it's definitely taken a few quarters longer than we anticipated earlier in the year, Jason Yes.
Speaker Change: Yes.
Speaker Change: Sorry freight matches, it down sort of low singles for.
For this year I think we definitely think.
Speaker Change: For <unk> in general.
Speaker Change: Q3 is the low point for us.
Jason Conley: And that'll start to trend up, as Neil said, through the fourth quarter and then into next year. And the pacing is just dependent on sort of the market momentum there. On Foundry, it's been down double digits this year, and that's been pretty consistent throughout the year. So we expected a little bit more of a recovery in the second half of this year. But as Neil said, it's taken a little bit longer.
Speaker Change: That will start to trend up as Neil said.
Speaker Change: Fourth quarter, and then into next year and the pacings just dependent on the sort of the market momentum there on.
Speaker Change: Foundry has been down double digits, this year and thats been pretty consistent throughout the year. So we expected a little bit more of a recovery in the second half of this year, but as Neil said, it's taken a little bit longer so.
Jason Conley: So yeah, as we think about the trends for next year, I think, you know, the first quarter, just to remind you, we had, we called out an MHA sort of one time item this year. So beyond that, though, we expect steady growth, you know, into next year for the segment. Thanks very much.
As we think about the trends for next year I think.
Speaker Change: <unk>.
Speaker Change: First quarter, just to remind you we had called out.
Speaker Change: So sort of one time items this year, so beyond that though we expect steady growth.
Speaker Change: And the next year for the segment.
Speaker Change: Thanks very much.
Jason Conley: And then just my follow up, switching tack maybe to the EBITDA margins at TEP. So those have been sort of down year on year for a few quarters. You've mentioned the production. Issues, there are clearly supply chain inefficiencies sort of moving around.
Speaker Change: My follow up switching tack, maybe to the EBITDA margins at <unk>.
Speaker Change: TEP.
Speaker Change: So it had been sort of down year on year for a few quarters.
Speaker Change: Mentioned the production.
Speaker Change: Issues.
Speaker Change: Clearly supply chain efficiencies sort of moving around as we look ahead that TEP kind of whats the confidence maybe the margins can return to year on year expansion.
Jason Conley: As we look ahead at TEP, you know, kind of what's the confidence, maybe that margins can return to, you know, year on year expansion. in the coming court. Yeah, no, you're right. I mean, the second and third quarter, we had, you know, if you recall, last year, we had some big supply chain liberation for our med product businesses and our product businesses. This year, we're down a little bit, NDIs down, had a little bit of negative mix. And we're obviously investing for growth there, just because it's always been a consistent double digit grower for us.
In the coming quarters.
Speaker Change: No Youre right I mean, the second and third quarter. We had if you recall last year, we had some big supply chain liberation for med product businesses and RF product businesses.
Speaker Change: This year, we're down a little bit down.
Speaker Change: <unk> had a little bit of negative mix and we're obviously investing for growth there just because it's always been a consistent double digit grower for us so as to continue to invest in MDI, but I think for the year just thinking broadly we are going to be flat EBITDA margin and so.
Jason Conley: So we're continuing to invest in NDI. But I think for the year, just thinking broadly, we're going to be flat, even on margin. And so it should inflect back up in the fourth quarter.
Speaker Change: So it should inflect back up in the fourth quarter.
Unknown Executive: Great, thank you.
Speaker Change: Great. Thank you.
Terry Tillman: Your next question comes from Terry Tillman with Truist. Your line is now. Yeah, thanks.
Speaker Change: Your next question comes from Terry Tillman with Trust Securities. Your line is now open.
Terry Tillman: Yes, Thanks, Hi, Neil Jason and Zach.
Terry Tillman: Hi, Neil, Jason and Zack. My primary question is actually on the enterprise software bookings. I think you said double digits up from high single digits. I don't know what you could share in terms of what kind of budget flush you're looking for for 4Q. I assume there is some of that. So if you could make either a comment on that or, or just more importantly, if the bookings are picking up, do you think there's potentially an inflection in the first half next year or second half, just depending on how some of that activates the revenue and then add a follow up?
Terry Tillman: Primary question is actually on the enterprise software bookings I think you said double digits up from high single digits.
Terry Tillman: I don't know what you could share in terms of what kind of budget flush youre looking for for <unk> I assume there is some of that so if you can make either a comment on that or are just more importantly is the bookings are picking up do you think there is potentially an inflection in the first half next year or second half just depending on how some of that activates the revenue and then I had a follow up.
Terry Tillman: Yeah, provide some color there, Terry. I mean, I think you're right. The fourth quarter for us is not necessarily a budget flush. It's probably just more customer behavior. It's typically our biggest quarter. So we're obviously, you know, keen to see how that plays out. You're right, the last couple of quarters have been strong. I think just a little bit of color. I mentioned that Delta, the Algonquin Enterprise got a little bit better. So if you think about what happened from Q2 to Q3, that was a little bit of the Delta. Also, Vertifor was really strong, specifically in the carrier space.
Speaker Change: Provide some color there Terry I mean, I think you're right the fourth quarter.
Terry Tillman: It's not necessarily a budget flush is probably is more customer behavior.
Terry Tillman: Typically our biggest quarter similar or RBC.
Terry Tillman: Keen to see how that plays out at the last couple of quarters have been strong I think just a little bit of color.
Speaker Change: And that Delta the AGA Khan enterprise got a little bit better. So if you think about what happened from Q2 to Q3 that was a little bit of the Delta also vertical was really strong specifically in the carrier space.
Neil Hunt: Also had good broker expansions, but carriers has been an area that has been a focus for them. So good to see some new logo wins there. And then Atom has been really strong, as we've mentioned, but it's really good to see the balance of both expansion of existing customers and then some new logo wins with their Sierra Cloud products. So it's good to see that they're continuing to win in the market with new logos. And then when we think about the, you know, the foreign quarter is going to be important, like, as I mentioned, in terms of how that plays into next year and sort of how that will matriculate into revenue.
Speaker Change: Also had good broker expansions, but carriers is that an area that has been a focus for them. So good to see some some new logo wins there and then Adam has been really strong as we've mentioned, but it's really good to see the balance of both expansion of existing customers and then some new logo wins with their CRM cloud products. So.
Speaker Change: Good to see that Theyre continuing to win in the market with new logos.
Speaker Change: And then if we think about that.
Speaker Change: The fourth quarter is going to be important as I mentioned in terms of how that plays into next year.
Speaker Change: And sort of how that will matriculate into revenue but.
Neil Hunt: But, you know, we're encouraged what we saw the last couple of quarters. Yeah, we, we are, if we, obviously, if we continue to have enterprise tokens momentum, it will matriculate into revenue and next year, the time it wastes depends on implementation timeframes and customer go lives. But, yeah, I mean, it's definitely a trend that we're watching carefully. That's good to hear.
Speaker Change: We're encouraged what we saw last couple of quarters.
Speaker Change: We are.
Speaker Change: Obviously, if we continue to have enterprise bookings momentum.
Speaker Change: Matriculate into revenue next year, the target waste depends on implementation Timeframes and customer go lives, but yes, I mean, it's definitely.
Speaker Change: That's right and that we're watching carefully.
Speaker Change: That's good to hear and just my secondary question. Neil you commented earlier, when you get into the kind of business level commentary and kind of talent management that you make I think you talked about <unk> in frontline.
Neil Hunt: And just my secondary question, Neil, you commented earlier when you when you get into kind of business level commentary and kind of talent management moves you make, I think you talked about ProCare and Frontline. I guess kind of what drove kind of some changes there. And I think you said go to market is the idea that hey, they're doing well, but they could be doing even better or just maybe get double click a little bit into ProCare and Frontline and what to expect with some of those leadership changes. Thank you. Sure. So, there are two different things.
Speaker Change: I guess kind of what drove kind of some changes there I think you said go to market is the idea that hey, theyre doing well, but they could be doing even better or just maybe you could double click a little bit into the pro care and frontline and what to expect with some of those leadership changes. Thank you.
Speaker Change: Sure. So there are two there are two different things so I'll start with procure so broker we identified.
Neil Hunt: I'll start with ProCare. So, ProCare, we identified in our diligence process that there is an opportunity to improve, modernize, whatever word choice you want to pick, the go-to-market function. And so, within a couple months of ownership, by the way, we shared those diligence finding and value creation lever with the leadership team of ProCare. They agreed with that. We made a leadership change. Like what's happening there, obviously, with the leadership change and go-to-market for ProCare, which, by the way, is an internal promote. It was somebody from within the company. Then you can start attacking the underlying opportunities, which was through some lead generation opportunity.
Speaker Change: In our diligence process that there is an opportunity to.
Speaker Change: To improve modernize wherever we're choice you want to pick the go to market functions.
Speaker Change: And so within a couple of months of ownership.
Speaker Change: By the way, we shared those diligence finding a value creation lever with the leadership team.
Speaker Change: They agreed with that we made a leadership change.
Speaker Change: What's happening there obviously with the leadership change and go to market for pro care, which one it was an internal promoted somebody from within the company.
Speaker Change: Then you can start attacking the underlying opportunities, which was six of lead generation opportunity there as the way they actually staff.
Neil Hunt: There's a way they actually staff the calls between inbound, outbound, between business development and closures. There's a compensation angle. There's call scripts around a tax rate. So, all that is happening. And it's very early days, but just starting to gain some encouragement. So, it started to yield some fruit. So, again, a diligence finding where we thought there was a value creation lever attached to it, and the team sort of attacked it pretty quickly.
Speaker Change: Calls lets wait.
Speaker Change: But I don't between business development of closures, there's a compensation angle. There is there's call scripts around attach rates settling so all of that is happening.
Speaker Change: And we're very early days, but starting to gain some encouragement so that's starting to yield.
Speaker Change: Some fruit so again a deal is it finding where he thought there is a value creation lever attached to it and the team sort of attacked it pretty quickly.
Neil Hunt: It's completely different. So, our existing leader retired or indicated he wanted to retire. So, we had an opportunity with Matt Strazza that we have a long history with. As I mentioned, he came to the organization as a go-to-market leader. Dell Tech did a wonderful job there. Then his first CEO opportunity was the Construction Act. Just did a terrific job in terms of the way the business is run. It's very much run in a Roper style. And he's a very growth-oriented leader. And so, given that frontline is one of our more attractive growth assets, we wanted a growth leader there.
Speaker Change: Simply different so our existing leader retired or is in our indicators you want I'd retire. So we had an opportunity with mass strategy that we have a long history with.
Speaker Change: As I mentioned higher came into the organization just to go to market leader Deltak did a wonderful job. There then if FERC opportunity. It was a constructive to act.
Speaker Change: Just did a terrific job in terms of the way the business is run with very much run at a roper style.
Speaker Change: And it's very growth oriented leader and so given that frontline is one of our <unk>.
Speaker Change: More attractive growth assets, we wanted a growth leader there and it's very early days of Adt's two months into the job or something like that at frontline.
Neil Hunt: And it's very early days. I mean, he's two months into the job or something like that at frontline. And then the knock-on effect of that is the CFO of Construction Act, Bob Brody became the CEO of Construction Act, and then the head of FP&A became the CFO of Construction Act. So, from an enterprise risk perspective, we're able to sort of promote and rotate leaders inside a Roper. Essentially, the outside hire is an FP&A leader at the business versus the CEO at one of our larger businesses. So, it's a win-win for the organization and individual. That's great.
Speaker Change: And then.
Speaker Change: The fact that that is the CFO of constructing a priority became the CEO of constructing and then ended up G&A became the CFO struck in extra from an enterprise risk perspective, we're able to sort of promote irritate leaders inside a room for essentially the outside hires and SG&A leader the business versus the CEO of one of our larger businesses. So.
Speaker Change: It's a win win for the organization of individuals.
That's great that's very helpful. Thanks.
Unknown Executive: That's very helpful. Thanks. My pleasure.
Speaker Change: My pleasure.
Scott Davis: Your next question comes from Scott Davis with Milius Research. Your line is now open. Hey, good morning. and Scott.
Speaker Change: Your next question comes from Scott Davis with Melius Research. Your line is now open.
Scott Davis: Hey, good morning, guys.
Scott Davis: Alright.
Scott Davis: Yes.
Scott Davis: I wanted just to, it's a little bit of a high level question, but there was a lot of price, you know, in the last couple Have you found any any harder to get price? Mentally, are we back to kind of more normal? Walk-in to 2025, for example, would be back to kind of the more normal. just high level. I would say this, I would, I seem to recall you asked me a price question a few years ago as well. So for us on software, we've always had a pricing mechanism in the AR snowball, right? As a general matter, we have 95 or so percent gross retention, so we're going to tread five or so percent.
Scott Davis: I wanted to just a little bit of a high level question, but there was a lot of price.
Scott Davis: In the last couple of years, not just you guys pretty much everybody out there but.
Scott Davis: Have you found any any harder to get price incrementally or are we back to kind of more normal.
Scott Davis: When we walk into 2025 for example would be back to kind of the more normal price increase cadence, particularly in software obviously, but.
Scott Davis: Just high level picture, what do you see there.
Well I would say I would.
Scott Davis: Seem to be cardiovascular price question, a few years ago as well so for us on software we have.
Scott Davis: Always had a pricing mechanism and the <unk>.
Scott Davis: Our simple right as a general matter, we would treat it we have 95 or so percent gross retention. So we're going to trip five or so percent, we're going to offset the vast majority of that at each business unit level with price. That's just in the algorithms and the price expectation with the customers is in what we do from a new product feature point of view.
Neil Hunt: We're going to offset the vast majority of that at each business unit level with price. It's just in the algorithm. It's in the price expectation with the customers. It's in what we do from a new product feature point of view with the R&D and efforts we support that obviously have cross-sell and sell from there to get you net retention in the 105-ish range across the blended enterprise. Then we have net deal on top of that. That I would say is, it's a muscle that is very well understood and built. We can obviously get better. An example we've gotten better with that over the last few years is PowerPlan.
Scott Davis: With the R&D efforts with support that obviously, a cross sell up sell from there that gets you that retention of 105% ish range across the blended enterprise and we got that deal on top of that.
Scott Davis: I would say is.
Scott Davis: Yes.
Scott Davis: So that is that is very well understood and built we obviously get better.
Scott Davis: For example, we're getting better with that over last year's a power plant like they didn't have that muscle built now it is bill.
Neil Hunt: They didn't have that muscle built. Now it is built.
Neil Hunt: But I would say we didn't get outsized pricing in software in the past, and so it's just reverting to normal.
I would say, we didn't get outsized pricing and software and so in the past and so it's just reverting to normal on the businesses I would say thats a little different.
Neil Hunt: On the tech businesses, I would say that's a little different. Most of the businesses would take price when they launch a new product. Now there's just a more normalized inflationary every year for 18 months or so opportunity to pass the regular way of inflation across. Typically, it's all about new products versus price just because you're bound by some of the customer contracts with hospitals and the like. I think Neil's point on software, it's been part of the rhythm for a long time. A lot of what we've done in strategic plan reviews is understand key purchasing criteria and really unpacking that at a more detailed level for each of our businesses.
Scott Davis: Most of the businesses would take price when they launch a new product now there is just a more normalized inflationary every year for 18 months or so opportunity there too.
Scott Davis: Past the regular way inflation across yes, typically medical products you, it's all about new products versus price, just because youre sort of bound by some of the customer contracts with hospitals and the like but.
Scott Davis: But yes, I think to Neil's point on non software has been it's been part of the rhythm for a long time, a lot of what we've done our strategic plan reviews as understand key purchasing criteria and really impacting data at a more detailed level for each of our businesses and that has helped them perfect thats provided some confidence or just some insight into what the customer thinks about the value proposition.
Neil Hunt: That's helped them. It's provided some confidence or just some insight into what the customer thinks about the value proposition, and that's been helpful as well.
Scott Davis: That's been helpful as well.
Speaker Change: Okay, Yes that makes a lot of sense and it's consistent with what you said a couple of years ago, but.
Neil Hunt: Yeah, that makes. Hey guys, there's just a lot of debate as it relates to software. You know, I. I just wonder kind of your view now that you've had a chance to dig more into this and spend more time on it. It's certainly in your slides. But does generative AI essentially raise the barrier to entry because you have the relationship with the customer already? Product. Or is it the opposite and people can come in? a lower-priced product. How do you guys I think it's very much. The former, the first. I mean, it is. If you think about what we're doing, first of all, it's just the highest level.
Speaker Change: Hey, guys. So there's just a lot of debate as it relates to software around.
Speaker Change: AI degenerative AI.
Speaker Change: But.
Speaker Change: I just wanted to kind of your view now that you've had a chance to dig more into this and spend more time on it certainly.
Speaker Change: In your slide deck and in your Youre launching products, but just degenerative AI essentially raise the barrier to entry because you have the relationship with the customer already and you can you can shorten your your.
Speaker Change: Your time to market on product innovation or or is it the opposite and people can come in.
Speaker Change: With a lower priced product easier because just the dolphin cycles are somewhat shorter how do you guys think about that.
Speaker Change: I think it's.
Speaker Change: Very much.
Speaker Change: The four or the first.
Speaker Change: <unk>.
Speaker Change: If you think about what we're doing first of all is the highest level I mean, it's a real thing where it's absolutely I think the whole market is in sort of the trough of disillusionment in if you will I mean, the HIFU is the reality is starting to catch up with the hype I would say the number the number of new use cases that are being created I think just not only side Roper, but where REIT externally is slowing but.
Neil Hunt: I mean, it's a real thing. We're definitely, I think, the whole market is in sort of the trough of disillusionment, if you will. I mean, the hype is, you know, the reality is starting to catch up with the hype. I would say the number of new use cases that are being created, I think, just not only inside Roper, but we read externally, is slowing, but we're very much advancing the existing use cases, whether it's internal productivity or customer-facing product stuff. I would remind you, everybody, that from why we think this is an accelerator and it sort of raises the barriers to entry is To do generative AI, I think you have to have two things well, right?
We're very much advancing the existing use cases, whether it's central productivity or customer facing product stuffs.
Speaker Change: I would remind you and everybody that from a why we think this is an accelerator it sort of raises the.
Speaker Change: Here's to entry is.
Speaker Change: To do generally I think you have to know two things well right.
Neil Hunt: Why software businesses are naturally positioned better than others in regards to these two questions. The first is you need to have, or an element I should say of those questions, you need to have the data. that is very, very specific to what the question is you're answering, but then you also need to know what question to ask. And again, the more nuanced the question, the better the generative tools are. And I'll give you a very simple example. We have a legal assault on business that is the ERP backbone for large law firms, right? It's professional services project-based billing.
Speaker Change: Software businesses are nationally.
Speaker Change: <unk> better than others in regards to these two questions. The first is you need to have already the elements of Sabres questions you need to have that data.
Speaker Change: That is very very specific to what the question is you're answering but then you also need to know what questions to ask.
Speaker Change: And the more nuanced the question the better the generative tools are I'll give you a very simple example, we have accurate illegals us off a business that is the ERP backbone for large law firms right. It's professional services project based billing. The question is not how you create a professional based Phil is how do you create a how does.
Neil Hunt: The question is not how do you create a professional-based bill. It's how do you create a—how does law firm A create a compliant bill for Roper Technologies, right? And so the very specific bespoke questions, the nuanced questions is where the generative tools really, really shine. So unless you have the incumbency really matters in that regard. So it's not about the, you know, we can't develop software as fast or faster than any startup can build software from a generative point of view, but we have the incumbency in the data.
Speaker Change: How does law firm a create a compliant bill for Roper technologies right and so it's a very specific bespoke question. The nuanced questions is where the generative tools really really shine.
Speaker Change: Yes, you have the incumbency really matters in that regard so it's not about the.
<unk> develops software as faster faster than any startup can build software from a general point of view, but we have the incumbency and the data privacy vertical software businesses generally and the competency and the data and the specific questions of what sort of assets are asked if you will.
Neil Hunt: I'll probably say protocolized software businesses generally have the incumbency in the data and the specific questions of which to sort of ask, if you will.
Unknown Executive: That's good color and context. Thanks. Good luck guys. Appreciate it.
Speaker Change: That's good color and context. Thanks, Good luck guys I appreciate it.
Speaker Change: Thanks.
Steve Tusa: Your next question comes from Steve Tusa with J.P. Morgan. Your line is now open. Hi, good morning.
Speaker Change: Your next question comes from Steve Tusa with Jpmorgan. Your line is now open.
Speaker Change: Hi, good morning.
Speaker Change: Okay.
Steve Tusa: Just on the, following up on Julian's question on the NSS business for next year, so which businesses are, you know, accelerating and how much of a headwind is that MHA benefit in the first quarter and then will you be able to kind of get into that mid single digit range for that business next year? I think, Steve, I think we want to stop short of even implying any guidance in the next year. What I would say just broadly across the enterprise is we like the momentum we're seeing enterprise software bookings and the fact that they've been normalized.
Speaker Change: Hey, Jay.
Steve Tusa: Just on the following up on Julians question on NSS business for next year.
Steve Tusa: So which businesses are accelerating.
Steve Tusa: The accelerating and how much of a headwind is that MSA MH a.
Steve Tusa: Benefit in the first quarter, and then will you be able to kind of get into that mid single digit range.
Steve Tusa: For that business next year.
Speaker Change: Alright, Thanks, Steve I think we want to stop short of even implying any guidance into next year, what I would say just broadly across the enterprise as we like to live in and we're seeing enterprise software bookings and the fact that it was normalized.
Neil Hunt: a pretty normalized 2024 year from which to grow. You see the re-acceleration heading into Q4.
Speaker Change: A pretty normalized 2024 year from which to grow you've seen a reacceleration heading into Q4, we expect this Q4 trends to carry the 25, but I think we wanted to just sort of stopped Eric shortage issuing guidance next quarter, that's right and I think we can call that us MAA in Q1, a couple of points of drag in Q1.
Jason Conley: We expect those Q4 trends to carry into 25, but I think we want to just sort of stop there short of issuing guidance next quarter. That's right. I think MHA, we can call that out. MHA and Q1's a couple of points of drag in Q1. Got it.
Jason Conley: Okay, and then just lastly on cash, obviously a really strong result here. Seasonally, it steps up. How does it now behave seasonally in Q4? Last year, you were down, but not by much, like basically kind of flapped it down. Is that kind of the new seasonality? Was there something unusual in Q4?
Speaker Change: Okay, and then just lastly on cash.
Obviously, a really strong result here seasonally steps out, but how does it now behave seasonally in Q4 of last year, you were down but not now not by much like basically kind of flat to down is that kind of the new seasonality was there something unusual in Q4, maybe just help us with the seasonality because it's definitely.
Jason Conley: Maybe just help us with this seasonality because it's definitely different than it's been in the past, given the frontline. Yeah, Q4 used to be our strongest, and now, like I said, Q3 is our strongest. I think it'll be, we won't see quite the same increase in the fourth quarter as we did in the third. Obviously, we got Transact came in, so that was helpful, but that's obviously their strongest collections quarter as well, so it'll be up, but not as much as Q3 in the fourth quarter. Got it.
Speaker Change: <unk>.
Than it's been in the past given the frontline yeah Q4 used to be our strongest and now Q3 is our strongest I think it'll be we won't see quite the same increase in.
Fourth quarters, we did the third obviously, we got transact came in so that was helpful. But.
Speaker Change: Obviously their strongest <unk>.
Speaker Change: Collections quarter as well so.
Speaker Change: It will be up but not as much as Q3 in the fourth quarter got it sorry, one more just on <unk> I didn't I didn't see it in our slides any any updates there.
Neil Hunt: Sorry, one more. Just on VertiFOR, I didn't see it in the slides. Any updates there? I think Jason mentioned his prepared remarks. They had a couple very, very nice wins in the quarter. You can't really talk about them quite yet, but we will be able to. Also, they had a very impactful product release, and they have a product called Benefit Point, which is the leading product for sort of managing the medical health insurance book. And they have an automation feature that saves like 45 minutes per customer per benefit plan. So, this is tens of thousands of hours of productivity that were sort of given to our customers.
Speaker Change: So her forehead.
Speaker Change: Jason mentioned in his prepared remarks, they had a couple of very very nice wins in the quarter, you can't really talk about them quite yet.
Speaker Change: But we will be able to also they've had.
Speaker Change: A very impactful product release, and they have a product called benefit point, which is the leading product for sort of managing the medical health insurance book.
Speaker Change: And.
Speaker Change: There was an automation feature that saves like 45 minutes per customer per eight agencies a permanent benefit plan. So this is this is tens of thousands of hours of productivity of that sort.
Neil Hunt: It's a huge release. They worked on this for quite a bit. So, like what's happening with the new product development point of view, a couple of nice, exciting wins, and steady as she goes. Got it.
Speaker Change: Given to our customers. It's a huge relief they worked on this for quite a bit so like whats happening with new product development point of view couple nice exciting wins and steady as she goes got it congrats on the cash thanks.
Unknown Executive: Congrats on the cash. Thanks. Doobie.
Speaker Change: Thank you bye.
Joe Giordano: Your next question comes from Joe Giordano with TD Cowell. Your line is now open. Hey guys, good morning.
Speaker Change: Your next question comes from Joe Giordano with TD Cowen. Your line is now open.
Speaker Change: Hey, guys good morning.
Joe Giordano: Whitehead. Hey, so on Neptune, it's good to hear the production issues have been fixed. Just curious, like we've been hearing some like kind of mixed, I guess, about order patterns in that business. Like I know almost everyone in that sector had like huge orders for a multi-year period and backlogs are really high. Are you getting any sense of like changing like the incoming flow from like a new new booking standpoint for Neptune? I would say it's very much what we expect and what you just described. So during the pandemic, I mean, pre-pandemic, this was a four- to eight-week lead time business, very much a book and ship type business.
Speaker Change: Hi, Jeremy.
Joe Giordano: Hey, so on Neptune just good to hear the production issues have been fixed just curious like we've been hearing some kind of mixed I guess about <unk>.
Order patterns in that business like I know almost everyone in that sector had a huge order for a multiyear period and backlogs are really high are you getting any sense of like changing like didn't incoming flow.
Joe Giordano: From like a new booking standpoint for Neptune.
Speaker Change: I would say, it's very much what we expect and what you just described so during the pandemic I mean pre pandemic. This was a four to eight week lead time business.
Speaker Change: Very much very much a book and ship type business during during Covid, We got our lead times gapped out maybe 12 or 14 weeks, but we've got.
Neil Hunt: During COVID, we got our lead times gapped out to maybe 12 or 14 weeks, but we had 12, 18 months of backlog order activity, and now that order duration is compressing. But the order volume, if you will, the repeat orders are not. So it's just a, instead of booking a year out or booking whatever, the customer is booking six or nine months out. So that order duration is coming in as expected. But nothing again, for repetitive purposes, nothing from the number of meters that are being shipped to an account by account basis. That is all.
Speaker Change: 12 to 18 months of backlog orders the order activity.
Speaker Change: Duration is compressing, but the number the order volume if you will the repeat orders are not so we're not just a instead of booking at year out there booking whatever 60 customer booking six or nine months out so that order of duration is coming in as expected, but nothing again for repetitive.
Speaker Change: The purpose is nothing from a from a.
Speaker Change: The number of meters that are being shipped to an account by account basis that is all healthy.
Neil Hunt: That makes sense. Just curious of any of your businesses. Like, if you when you talk to the leaders or any of them, like, super excited or super nervous one way or another about the election outcome, like, I don't know, I'm thinking maybe it's Delta get excited about a potential like Transcripts provided by Transcription Outsourcing, LLC. As a general matter, I'd say we're apolitical, and no, I mean, we're not, we're not really impacted, you know, positively negative by, by either administration. Relative to Dell Tech, I want to remind you and others is that the government always spends, the administration determines the nature of the spend.
Speaker Change: Yes that makes sense.
Speaker Change: Just curious if any of your businesses like.
Speaker Change: When you talk to the leaders are any of them like super excited or super nervous one way or another about the election outcome.
Speaker Change: And I'm thinking maybe is delta get excited about our potential.
Speaker Change: Inflationary kind of spending spree from the government like just I guess across the portfolio with anything that you call out one way or the other.
Speaker Change: As a general matter I would say, we're a political and no I mean, we're not we're not really impacted positively negative by by either.
Speaker Change: Registration relative to Delta.
Speaker Change: What I remind you and others is that.
Speaker Change: The government always spins the administration determines the nature of the spend so if you go way back in the Bush era was defense and Obama was education health care. So the spend flow changes by the government contracts is just positioned their capabilities, where the flow of the federal spending is going and so that's.
Neil Hunt: So, if you go way back in the Bush era, it was defense, and Obama was education, healthcare, and so the spend flow changes when the government contracts are just positioned for capabilities where the flow of the federal spending is going. And so that's relatively, it's just what their business is. I would say for 25, the 25 appropriations are actually pretty well understood at this stage and aren't going to change based on the election. That's why I think we're starting to see some of the enterprise government contracting activities starting to thaw a little bit, at least for the one meter target, if you will, is relatively well understood.
Relatively just what their businesses I would say for 25 to 25 appropriations are actually pretty well understood. At this stage an argument change based on the election. That's why I think we're starting to see some of the enterprise government contracting activity starting to fall a little bit at least for the.
Speaker Change: One bigger target if you will is relatively well understood.
Unknown Executive: Great. Thanks, guys. Yep, thanks.
Speaker Change: Great. Thanks, guys.
Speaker Change: Yes. Thanks.
Joseph Ritchie: Your next question comes from Joe Ritchie with Goldman Sachs. Your line is now open. Hey, good morning, guys.
Speaker Change: Your next question comes from Joe Ritchie with Goldman Sachs. Your line is now open.
Speaker Change: Hey, good morning, guys.
Joseph Ritchie: So my first, my first question, just a little bit longer term, Neil, is you, you know, have these ambitions to grow the portfolio at a faster clip, you know, over the longer term period? Do you think you have the right portfolio in place? Or is there maybe some addition by subtraction to help you kind of achieve the ambitions of maybe, you know, more of like a high single digit type organic growth number going forward? I think the portfolio we like, we think that there is, we have high confidence there's opportunity for every business inside of Roper to do better.
Joe Ritchie: So my first my first question just a little bit longer term. Neil is is you have these ambitions to grow the portfolio at a faster clip over the longer term period do you think you have the right portfolio in place or is there may be. Some addition by subtraction to help you kind of a key.
Joe Ritchie: Ambition, but maybe more of like a high single digit type organic growth number going forward.
Speaker Change: I think we the portfolio we like.
Speaker Change: Think that there is we have.
Speaker Change: Since there is opportunity for every business inside of Rupert to do better.
Neil Hunt: No company has reached its full potential for relative to its organic growth. What we like about our approach of pre-organic growth is it tends to be quite sticky and sustainable. The downside is it takes time, right? There's no, it doesn't happen in a year. And, you know, we cited it, you know, at our investor day, I'll cite it here again. I mean, a great example for us in TEP is our marathon business. You know, eight or nine years ago it was a low single-digit growth business. Now it's a low-teams, maybe higher growth business, we think sustainably for quite some time.
Speaker Change: No company has reached its full potential for our relevant towards its.
Speaker Change: Organic growth.
Speaker Change: What we like about our approach of where organic growth is it tends to be quite sticky and sustainable the downside as it takes time right. There's no it doesn't happen in a year.
Speaker Change: We cited it at our Investor day outside of here again, I mean, a great example for us and SAP as our Verathon business eight or nine years ago was a low single digit growth business now its a low teens, maybe higher growth business, we think sustainably for quite some time.
Neil Hunt: It takes, just unfortunately, it takes time to get the strategy right, to enable the strategy, to build the talent office, to seed in deeply a culture of continuous improvement. We're four or five years in across the portfolio for that. And so we're definitely gaining some traction, but we'd like our odds in terms of being able to improve the organic growth.
Speaker Change: Takes unfortunately, it takes time to get the strategy right to enable this strategy to build a talent offense to the seed and deeply our culture of continuous improvement.
Speaker Change: Four or five years and across the portfolio for that and so we're definitely gaining some traction.
Speaker Change: But we like our odds in terms of being able to improve the organic growth.
Neil Hunt: And in addition, as I mentioned, I think one of the, definitely one of the, I think the first question today is, as we deploy our capital, we're definitely tilting towards slightly higher growth businesses, like Transact, combined with Seaboard, High Singles, Pro Care, Big Teams. So there's gonna be a little bit of mix-up over time in terms of the portfolio. Now, that makes a lot of sense.
Speaker Change: And in addition, as I mentioned I think it was definitely one of the early the first question today is as we deploy our capital where it's definitely tilting towards slightly higher growth businesses.
Speaker Change: <unk> Bios Seaboard high singles growth here to teams, so theres going to be a little bit of mix up over time.
In terms of the portfolio.
Speaker Change: Yes.
Speaker Change: Okay got it that makes a lot of sense and then maybe just following up on that last point with your leverage now around three times net leverage.
Neil Hunt: And maybe just following up on that last point with your leverage now, you know, around three times net leverage. And I recognize that the pipeline is still strong. Do you expect to see any pause in M&A activity as you delever and then start to get a little bit more opportunistic? Or could you see yourself doing transactions in the next, you know, in the near term called the next three to six Yeah, I mean, the, as Jason alluded, we've got, you know, 4 billion plus of M&A capacity as we sit today, over the course of the next 12 months or so.
Yes.
Recognize that the pipeline is still strong.
Speaker Change: To see any pause in M&A activity as you Delever and then and then start to get a little bit more opportunistic or or could you see yourself doing transactions in the next.
Speaker Change: In the near term call. It the next three to six months.
Speaker Change: Yes.
Speaker Change: So as Jason alluded, we've got $4 billion plus of Emma.
Speaker Change: M&A capacity as we sit today.
Speaker Change: Over the course of the next 12 months or so we're very active in the M&A markets, it's a very attractive market.
Neil Hunt: We're very active in the M&A market. It's a very attractive market. There's lots of sellers. One of the largest sponsors in the world, European sponsors, I was on CNBC earlier this week and asked about what's the mantra. It's sell, sell, sell. So there's a lot of LP pressure, DPI matters a lot. And so there's essentially, you know, three or four years worth of deals that are compressing here in the next year or two. And so it's a very attractive market. We plan to be active in that. Great to hear. Thank you.
Speaker Change: There's lots of sellers.
Speaker Change: One of the largest sponsors in the world European sponsors on CNBC earlier, this week and asked about what's the mantra that sell sell sell so there's a lot of.
Speaker Change: A lot of LP pressure, Dci matters, a lot and so theres essentially.
Speaker Change: Three or four years worth of deals that are compressing here next.
Speaker Change: Next year or two and so it's a very attractive market and we plan to be active in that.
Speaker Change: Yeah.
Speaker Change: Great to hear thank you.
Thank you.
Christopher Glynn: Your last question comes from Christopher Glynn with Oppenheimer. Your line is now open. Yeah, thanks. I was going to ask also about the deal dynamics out there. You answered the supply side. On the demand side, is that still very favorable to where you're seeing, you know, diluted buyer activity per deal? In terms of the competitive intensity on a per deal basis, That's a question. It's hard to ultimately know.
Speaker Change: Your last question comes from Christopher Glynn with Oppenheimer. Your line is now open.
Christopher Glynn: Yeah. Thanks, I was going to ask also about the.
Christopher Glynn: Steel dynamics out there you answered the supply side.
Christopher Glynn: On the demand side is that still very favorable to where you're seeing.
Speaker Change: Diluted buyer activity per deal.
Speaker Change: In terms of the competitive intensity on a per deal basis.
Speaker Change: That's the question, it's hard to ultimately no I mean, I would what's called out that we did the transact deal on a proprietary basis.
Neil Hunt: I mean, I would call out that we did a transact deal on a proprietary basis. I would say that our M&A teams are engaged in engaging in more proprietary or quasi-proprietary opportunities than I can recall quite some time. But I think it's – so we know those are facts.
Speaker Change: I would say that our M&A teams are engaged and engaging in more proprietary or quasi proprietary opportunities than I can recall quite some time.
Speaker Change: But yes.
Neil Hunt: I think where I would speculate a little bit with so many opportunities that are going to be coming out of pipeline, I think all buyers are going to be a little more discerning early in processes, which might lead to a little bit lower competitive intensity, but hard to know that to be an absolute case.
Speaker Change: And I think.
Speaker Change: So those are facts, I think where I would speculate a little bit with so many opportunities that are going to be coming down the pipeline I think all wire is going to be a little more discerning early and processes, which might lead to a little bit lower competitive intensity, but hard to know that to be an absolute case.
Neil Hunt: Okay, and then in terms of Deltek and the general GovCon exposure, one of the stimulus in megaprojects, a lot of compliance. hurdles are gating that process. Are you seeing any, you know, increased letting or, you know, momentum in that? And what's the implication for those platforms in 20? I would say the, I would just refer back to what we were talking about before we go, Con, it has been for Six quarters slow-ish, based on the uncertainty. About four to six quarters slow, based on the uncertainty of the government spending, the operation of the government. We saw some reissues here in the last quarter or two, relative, especially in the enterprise class.
Speaker Change: Okay, and then in terms of deltak and the general Gov Con exposure.
Speaker Change: One of the stimulus and Mega projects a lot of compliance.
Speaker Change: Hurdles or gating that.
Speaker Change: Process are you seeing any.
Speaker Change: Increased letting or.
Momentum in that and what's the implication for those platforms in 'twenty five.
Speaker Change: I would say.
Speaker Change: Referring back to we're talking about before we go cut it has been for.
Speaker Change: Six quarters slow ish based on the uncertainty.
Speaker Change: Four to six quarters slow based on the uncertainty of the government spending the operation of the government.
Speaker Change: We saw some green shoots here in the last quarter or two relative, especially in the enterprise class. Some of the larger customers are starting to be acquisitive again deltec.
Neil Hunt: Some of the larger customers are starting to be inquisitive, again, of Dell Tech. The exact underpinnings of the drivers, some of that might be infrastructure, but some of it might be other things. That's not in our specific purview.
Speaker Change: The exact underpinnings of the drivers maybe some of that might be infrastructure, but some of it might be other things that's not in our specific for you.
Speaker Change: Okay. Thank you.
Unknown Executive: Okay. Thank you.
Nate: Thank you, Nate.
Speaker Change: Yes. Thank you.
Unknown Executive: This concludes our question and answer session.
Unknown Executive: This concludes our question and answer session.
Speaker Change: This concludes our question and answer session. We will now return back to Zack Moxie for any closing remarks.
Zack Moxcey: We will now return back to Zack Moxcey for any closing remarks. Thank you everyone for joining us today. We look forward to speaking with you during our next burning call.
Zack Moxcey: We will now return back to Zack Moxcey for any closing remarks. Thank you, everyone, for joining us today.
Zack Moxie: Thank you everyone for joining us today, and we look forward to speaking with you as our next earnings call.
Unknown Executive: We look forward to speaking with you, sir, and it's very cool.
Unknown Executive: The conference has now concluded. Thank you for attending today's presentation.
Unknown Executive: This concludes, the conference has now concluded. Thank you for attending today's presentation. You may now
Speaker Change: This concludes the conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Unknown Executive: You may now disconnect.
Speaker Change: Okay.