Q4 2024 Roper Technologies Inc Earnings Call
[inaudible]
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 now.
Now please turn to page three.
We will discuss our results primarily on an adjusted non-GAAP continuing operations basis for the fourth quarter. The difference between our GAAP results and adjusted results consists of the following items amortization of acquisition related intangible assets transaction related expenses associated with completed acquisition of <unk>.
Charge related to the settlement of the power plant in 2020 litigation matter and lastly financial impact associated with our minority investments reconciliations.
The reconciliations can be found in our press release and the appendix of this presentation on our website now if you'd please turn to page four I'll hand, the call over to Neal after our prepared remarks, we'll take questions from our telephone participants Neil.
Zack and thanks to everyone for joining our call.
So looking forward to sharing our fourth quarter and full year results with you. This morning.
As we turn to page four youll see the topics we plan to cover today.
We'll start by highlighting our strong fourth quarter and full year 2024 financial and operating performance.
I'll then go through our results in greater detail.
Our balance sheet, including our M&A capacity and discuss our very impressive cash flow growth and performance.
Then I'll discuss our segment highlights and introduce our 2025 and Q1 guidance.
After closing remarks, we'll open up the call for your questions. So let's go ahead and get started next slide please.
As you turn to page five you wanted to highlight the three key takeaways for today's call.
Our cash flow growth was strong once again, demonstrating our consistent and durable compounding capability.
Second we entered 2025 with improving momentum.
And third we now have over $5 billion of acquisition firepower at a time when the M&A markets are becoming increasingly more attractive.
Now as it relates to our cash flow compounding capability two.
2024 was another example of how our model works.
Grew revenue, 14% in the year, which was nicely balanced between organic and inorganic contributions and deployed $3 6 billion towards market, leading vertical software businesses headlined by our acquisitions of <unk> and transient campus.
Of note, our 2024 cohort of acquisitions not only meet our historical criteria, but also meets our higher growth and higher returns ambitions.
As a result, we grew free cash flow was 16% for the year topping $2 billion for the first time in our history.
With free cash flow margins of 32%.
Another great year, and our long history of cash flow compounding.
As we look to 2025, we're excited to talk to the positive momentum we're experiencing.
First we're seeing accelerating demand for our mission critical solutions broadly across our businesses.
Specifically throughout 2020 for our enterprise bookings accelerated ending in the high teens growth area in Q4.
This bookings momentum combined with consistently high gross and net retention supports the continued growth and expansion in high singles area for a $4 $6 billion base of software recurring and reoccurring revenues.
Given this we're initiating our 2025 total revenue guide to be north of 10% with organic revenue growth in the 6% to 7% range with adjusted depths between $19 75 and $20.
On the capital deployment front, our disciplined approach.
We benefit our company and our shareholders this year.
Specifically, we now have over $5 billion of available M&A firepower.
This is particularly important given the backdrop of the current M&A market.
And that is poised for high levels of deal activity over the next couple of years.
Great year team and look forward to seeing you at our leadership meeting next week.
I'd like to ask everyone to turn to page six.
I will discuss our long term growth algorithm.
In March of 'twenty, three we concluded our first ever Investor day with a component of our long term mid teens cash flow growth algorithm as you see here on the left.
As you compare it 24 performance on the right hand sides of this you'll note were right in line with our strategy, namely posting 14% revenue growth, 41% core margin leverage and adding 800 basis points of growth third capital deployment capability.
All yield 16% cash flow growth.
Importantly, 2020 Three's performance was quite similar with 15% revenue growth solid operating leverage and consistently good cash flow growth.
We execute our algorithm by running a dual threat offense, namely first driving consistent and improving levels of leveraged organic growth and second deploying the enterprise's capital towards the best ideas that we consistently cultivate and execute upon.
Importantly, as we do this we not only grow but we improved the underlying quality of our enterprise and our portfolio across several dimensions, including growth the level of recurring revenue and asset intensity.
In short this is how our model works 2024 is no exception a year, where our <unk> ratio was quite high and importantly, we have strong momentum heading into 'twenty five.
So with that Jason Let me turn the call over to you. So you can walk through our quarterly and full year results Jason.
Jason: Thanks, Neil let's turn to page seven.
Jason: We had an excellent finish to 2024 with Q4 being our highest revenue quarter of the year at 16%, bringing us to just under $1 9 billion.
Jason: Acquisitions contributed a solid 9% as a full quarter of transact is flowing through along with sequential gains realized the pro care.
Jason: Organic revenue grew 7% with our software segments coming in line with expectations and our test segment slightly outperforming as I'll discuss shortly.
Jason: EBITDA of $744 million was 13% over prior year and represented 39, 6% of revenue.
Jason: Core EBITDA margin, which excludes the impact from our 2024 acquisitions was down 30 basis points compared to prior year.
Jason: Of note some of our software businesses, mainly within our <unk> segment took $9 million of targeted and opportunistic restructuring actions, which they absorbed in the fourth quarter.
Jason: And which will better position these businesses going forward.
Jason: That's a $4 81 was above our guidance range is $4 70 to $4 74, despite the costs associated with the restructuring.
Jason: So all in a very good quarter.
Jason: Now I'll flip to page eight where I'll briefly cover our Q4 segment performance.
Jason: Application software posted 24% revenue growth with an 18% contribution from acquisitions and 6% from organic growth.
Jason: Importantly, organic recurring and reoccurring revenue grew 8% in the quarter and the year led by double digit SaaS growth as customers move from on premise to the cloud.
Jason: EBITDA margin of 41, 5% includes our 2024 acquisitions that come into Rover at lower margin, but provide greater opportunity for margin expansion over time.
Jason: Core margin was 30 basis points over prior year on a comparative basis.
Jason: Turning to network software revenue growth of 3% was in line with expectations and an improvement over the last couple of quarters.
Jason: Our freight match business returned to growth.
Jason: Neil will unpack the dynamics of 2025, but we expect the segment to post mid single digit growth in the year with exit velocity above that range.
Jason: EBITDA margin here wasn't spectacular 57, 4% in the quarter.
Jason: <unk> finished strong with 12% revenue growth in the quarter.
Jason: Verathon capped off a terrific year with record revenue EBITDA and cash flow.
Jason: Also Neptune had outstanding operational execution across both mechanical and ultrasonic product lines.
Jason: And EBITDA margin here was 20 120 basis points over prior year at 34, 8%.
Jason: Alright, now I will turn to page nine we will look at the full year results.
Jason: All in all this was a great year for Roper.
Jason: We delivered on our long term growth algorithm with mid teens revenue and free cash flow growth.
Jason: This is underpinned by a balanced contribution of acquisition and organic revenue growth, which combined came in at 14% to print at just over $7 billion of revenue.
Jason: A new milestone for Roper.
Jason: Our disciplined capital deployment strategy generates consistent and repeatable performance, which has been demonstrated over time and is what our investors can expect going forward.
Jason: Organic growth is also repeatable and fortified and we're well positioned for further improvement.
Jason: As Neil mentioned, we ended the year with $4 6 billion of software recurring and reoccurring revenue that we expect to organically grow in the high single digit range in 2025.
Jason: Further it is a good time to remind everyone that over 85% of our revenue is in the U S.
Jason: Which limits currency and potential tariff risk, while capturing domestic opportunities that lie ahead.
Jason: EBITDA of over $2 8 billion was 13% versus prior year with EBITDA core margin consistent with the prior year.
Jason: So clicking into margins and operating leverage a bit.
Jason: Core segment operating leverage was strong at 49% and including corporate G&A was 41%.
Jason: We made significant progress in 2020 for to build out expanded capital deployment and growth capabilities.
So we see that continuing in 2025, but then moderating in 2026 and beyond with a return to leverage on corporate G&A.
Jason: Most importantly free cash flow was outstanding in 2024, as Neil had mentioned coming in at nearly $2 3 billion and up 16% or $320 million of our prior year with 32% free cash flow margins.
Jason: We finished the year above expectations, which positions us quite well going into 2025.
Jason: And just looking back since 2021, our free cash flow has compounded 14% if adjusted for one section section 174 that went into effect in 2022.
Jason: We are really pleased with the steady and consistent growth in cash flow.
Jason: And as we move forward, we expect free cash flow margins of 30% or more.
Jason: So beyond the numbers you see here, we see great things happening within Rover.
Jason: We have significantly enhanced and expanded our capital appointment team and processes.
Jason: Additionally, our multiyear focus on talent is really taking shape as we're feeling the best business leaders in our history and now we're starting to see those leaders higher great leaders.
Jason: This is resulting in more data driven strategies and more deeply connected operating plans that give us confidence in long term acceleration of organic growth.
Jason: Reflecting on my 18 years with Roper I can say this is a banner year for both strategic and operating progress.
Jason: Now, let's turn to slide 10 to discuss our balance sheet.
Jason: As I mentioned earlier Q4 free cash flow was better than expected with 15% growth over prior year.
Jason: Additionally, we exited our minority position in <unk> this quarter.
Jason: As a reminder, <unk> is a professional services automation software company.
Jason: We partnered with P firm have valley to execute on our successful first chapter of our value creation plan.
Jason: And in exiting our position we received $246 million of proceeds which is a <unk> multiple of our invested capital over a 14 month period.
Jason: So terrific financial outcome, and a great learning opportunity to acquire as we look at businesses that have higher growth profiles and profitability improvement potential.
Jason: Thank you to the team that have valley for the opportunity to partner and learn.
Jason: At quarter end, our net leverage was two six times and as of today, we have full access to our $3 5 billion revolver.
Jason: So this puts our strong projected cash flow provides us with over 5 billion that we can deploy toward high quality acquisition opportunities this year.
Jason: And just to note 2024 market activity was a little quieter than we originally expected.
Jason: Despite this we were able to deploy $3 6 billion for some great vertical market software businesses highlighted by pro care and transact.
Jason: In 2025, we believe the log jam should break free.
Jason: From our direct conversations with sponsors and for what many are stating publicly there is a pressing need to provide liquidity to limited partners.
Therefore, we anticipate being very busy this year on the deal front.
Jason: So with that I'll turn it back over to Neil.
Neil: Yeah. Thanks, Jason.
Neil: Turning to page 12, let's review our application software segment.
Neil: Revenue for the year grew by 21% in total and organic revenue grew by 6%.
Neil: EBITDA margins were 43% and core margins improved 40 basis points in the year.
Neil: We like what we're seeing across the businesses in this segment.
Neil: From a market perspective, we exit 'twenty four and a much improved states at <unk> 25, with momentum, which is highlighted by our second half organic bookings growing solidly in the double digit area.
Neil: In addition to recurring revenue base and retention levels remained quite healthy tier.
Neil: Another thing we like across the segment as the amount of business and talent building that occurred throughout the year.
Neil: For example, Deltec made meaningful investments in their cloud Tech stack, specifically with Gen AI investments and saw meaningful improvement in enterprise bookings during the second half of the year.
Neil: Importantly, this all occurred during our planned and scheduled CEO succession for Mike Corkery to Bob Hughes.
Neil: Similarly at or it was super good throughout 2024, while furthering their product Lee with meaningful Gen AI deployments and cloud migration activity.
Neil: In 2024 at our it was our leading net retention business, reflecting their strong market position innovation capabilities and strong customer intimacy.
Neil: Furthermore, was superb and.
Neil: And delivering their enterprise capabilities to the largest customers in the market.
Neil: Seeing compelling and steady bookings throughout the year, leading to consistently strong AUR.
Neil: Gross.
As it relates to power plan, Joe and the team there did an excellent job deploying their first cloud native products and migrating several critical industry, leading customers to this product as.
Neil: As a result, Powerplant AOR growth was the best in its history as the market continues to respond to power plants innovation.
Neil: As discussed at the onset of the call we successfully deployed $3 6 billion towards vertical market.
Neil: <unk> acquisitions with the largest tubing pro care and transact campus, both rolling up into this segment.
Neil: We're off to solid starts and we look forward are there meaningful contributions to the segment and the enterprise and the many years to come.
Neil: The remaining businesses in the segment posted solid organic gains.
Neil: Great job by our leaders and teams this group through 'twenty throughout 'twenty four we're proud of you and your accomplishments.
Neil: Now turning to the outlook for 'twenty five we expect to see consistent levels of organic growth towards the higher end of the mid singles range.
Neil: For the first quarter, we expect margins for this segment to be down year over year on a reported basis similar to Q4 as transact campus acquisition revenues come in at a seasonally lower rates.
Please turn to page 13.
Neil: Organic revenue in our network software segment grew 3% for 2024.
Neil: As we've discussed all year, our network growth rate was impacted by the market and our freight matching businesses and the writers and actors strikes related to foundry.
Neil: Excluding these businesses. This segment grew in the mid singles area, which demonstrates the underlying quality of this group.
Neil: EBITDA margins continue to be strong at 56, 1%.
Neil: Similar to that of our application software segment. We're excited by the progress made across this group of businesses for example.
Neil: <unk> navigated difficult freight market conditions, Jeff Clements, our new leader did a tremendous job advancing the tech stack and market position of <unk>.
Neil: Of note our network has never been more resilient and the threat from fraudulent actors has been meaningfully mitigated.
Neil: During the fourth quarter, we completed the bolt on acquisition trucker tools Chuck.
Neil: Trucker tools is a perfect complement to <unk> offering providing real time visibility to the network participants.
Neil: As a reminder.
Neil: Strategy is to capitalize on its market leadership.
Neil: Providing continually increasing value to both sides of the freight network, helping to drive higher retention and enhanced network monetization.
Neil: Very similar story at foundries, while a difficult financial year due to the market conditions related to the strikes foundry continued to innovate at an accelerated pace.
Neil: With particular focus on Gen AI and computational AI based features.
Neil: This is one of the significant benefits of the Roper operating model.
Neil: One of our businesses hits a market issue, we continue to invest if not accelerate investment. So we can be the primary market share benefactors when the market recovers and this was certainly the case with the ATM foundry in 2024.
Neil: We like what we saw across the balance of the companies here.
Neil: The pipeline aggressively upgraded their talent.
Neil: Better align their organizational structure with our customers' needs and had very solid growth in 2024.
Neil: Construction next.
Speaker Change: Where we executed another planned succession to Buck Brody as Matt strategy that took the reins at frontline was super in the year.
Speaker Change: This organization continues to be a learning organization, improving lead generation quality and conversions, which led to solid revenue and <unk> growth.
Speaker Change: Importantly, construction act is building a set of potentially transformative products leveraging AI technologies.
Speaker Change: Finally, the alternate site health care software businesses were once again solid in the year.
Speaker Change: As we turn to the outlook, we expect to see revenue growth improve to be in the mid singles range for the full year benefited by Dht's network value capture and consistent performance across the remainder of this group.
Speaker Change: Given improvement throughout the year, we expect our 2025 organic exit run rate to be north for the mid singles area.
Speaker Change: Organic revenue growth in the first quarter will be a bit lower than the full year in the low singles rates given the Q1 comp created by <unk> a year ago.
Speaker Change: Prior to turning to our test segment, we'd like to spend a moment talking about the significant strides we've made with our <unk> development and deployment over the last year.
Speaker Change: As you know each of our businesses primarily competes on the notion of customer intimacy.
Speaker Change: This intimacy.
Speaker Change: Super deep knowledge of our customers' businesses needs and workflows.
Speaker Change: Neat and competitively differentiated advantage of Roper and our businesses.
Speaker Change: Now that <unk> are improving and fidelity and becoming increasingly more commoditizing cost effective we are laser focused on combining our intimacy deep.
Speaker Change: Deep reservoir of data and the Gen AI technologies to innovate and deliver compelling solutions and.
Speaker Change: And we made meaningful steps in this direction in 2024.
Speaker Change: The name <unk>.
Speaker Change: <unk> AI product assistance that Delta can address.
Speaker Change: The beginning of automated and specific client compliance time series time entries that address.
Speaker Change: Real time fraud detection at.
Speaker Change: Post production content creation automation at foundry.
Speaker Change: Automated construction takeoff at construction ex <unk>.
Speaker Change: Insurance forms automation at <unk>, and many more exciting journey II technology deployments throughout 2025.
Speaker Change: Future is exciting in this regard for sure.
Speaker Change: Now please turn to page 14, and let's review our segments full year results.
Speaker Change: Revenues here grew 9% on a total and organic basis and EBITDA margins came in at 35, 2% just great results here.
Speaker Change: We'll start with Verathon, which was simply awesome and 24.
Speaker Change: <unk> strength is driven by the team's exceptional level of discipline discernment and tenacity.
Speaker Change: Throughout 2020 for Verathon, just one in the marketplace, becoming the market share leader in the U S for single use bronchoscope and extending their global market share lead and video laryngoscopy.
Speaker Change: Obviously, we continue to be bullish about verathon and their future.
Speaker Change: For the full year Neptune was very very good.
Speaker Change: They continue to see strong ultrasonic static meter demand and increasing adoption of their meter data management software offerings.
Speaker Change: And from an operational and market momentum view, they're exiting the year stronger than ever great job by the <unk> team.
Speaker Change: Indeed, our northern digital returned to growth in Q4, following a very challenging year due to the difficult comparable that resulted from a large customer product launch in 2023.
Speaker Change: Good things in the future for MDI.
Speaker Change: Finally, Cisco and IP ended the year with very good if not great financial results.
Speaker Change: Rats.
Speaker Change: As we look to 2025, we expect to see high single digit revenue growth for this segment.
Speaker Change: So with that please turn with us to page 16.
Speaker Change: Let's turn to our Q1 and full year 2025 guidance.
Speaker Change: Based on what we previously discussed in the segment overviews, we're initiating our 2025 financial guidance to grow total revenue north of 10%, which excludes any future capital deployment benefits.
Speaker Change: Embedded in this guide is organic revenue growth in the 6% to 7% range.
Speaker Change: Finally, we expect full year adjusted depth to be in the range of $19 75 and $20.
Speaker Change: Our guy continues to assume a full year effective tax rate in 'twenty, one 'twenty, 2% area.
Speaker Change: For the first quarter, we expect adjusted depths to be between $4 70, and $4 74.
As we absorbed lower acquired margins in application software and a tougher comp to our network segment.
Speaker Change: Now please turn to page 17, and then we'll open it up for your questions.
Speaker Change: We will conclude with the same three key takeaways with which we started.
Speaker Change: First our cash flow growth was strong once again, demonstrating our consistent and durable compounding capability.
Speaker Change: Second we entered 2025 with improving momentum and.
Speaker Change: And third we now have a $5 billion of acquisition firepower at a time when the M&A markets are becoming increasingly more attractive.
Speaker Change: As it relates to our cash flow compounding model.
Speaker Change: We grew free cash flow, 16% on the back of 14% total revenue and 6% organic revenue growth.
Speaker Change: Our M&A capability deployed $3 6 billion towards vertical market leaders, which help drive our compounding flywheel, but also improve the quality of our portfolio.
Speaker Change: Importantly, our fundamentals are strong and we exited the year with quite positive momentum.
Speaker Change: We saw a reacceleration of our fourth quarter organic revenue growth to 7%.
Speaker Change: Also on a full year basis, we grew our enterprise software bookings in the double digit area better in the second half and continue to see high single digit growth in our $4 6 billion recurring and reoccurring revenue base.
Speaker Change: Importantly, our enterprise continues to get better as we grow in 2024, we upgraded key leadership talent.
Speaker Change: A few of which we highlighted earlier, we expanded our capital deployment capabilities and capacity.
Speaker Change: Advance, our operating model and made meaningful strides developing and deploying gen AI based solutions.
Finally, we are very well positioned with more than $5 billion of available M&A firepower to deploy capital towards leading hurdle vertical market software businesses.
Speaker Change: The M&A markets are very active and appear to be accelerating pace given the increasing pressure limited partners are placing on their private equity GPS for liquidity.
Speaker Change: Our M&A team is very busy cultivating and building a robust pipeline of attractive acquisition opportunities.
Speaker Change: As usual, we're excited to pursue these opportunities with our unbiased and disciplined approach.
Speaker Change: Now as we turn to your questions and if you could flip to the final slide our strategic compounding flywheel wed like to remind everyone that what we do at Roper is simple.
Speaker Change: We compound cash flow over the long arc of time by executing a low risk strategy and running our dual threat offense.
Speaker Change: First we have a proven powerful business model that begins with operating a portfolio of market, leading application specific and vertically oriented businesses.
Speaker Change: Once the company is part of Roper, we operate a decentralized environment. So our businesses can compete and win based on customer intimacy.
Speaker Change: We coach our businesses on how to structurally improve their long term and sustainable organic growth rates and underlying business quality.
Speaker Change: Second we run a centralized process driven capital deployment strategy that focuses in a deliberate and disciplined manner on cultivating curating and acquiring the next great vertical market, leading businesses to add to our cash flow compounding flywheel.
Speaker Change: Taken together, we compound our cash flow over the long arc of time at the mid teens area, meaning we double our cash flow every five years or so.
Speaker Change: So with that we'd like to thank you for your continued interest and support and open the floor to your questions. Operator. Please go ahead.
Thank you so much.
Speaker Change: We will now go to a question you chip pushing article you quicker to Congress seem to be Christians to wind me Christian and one final.
Speaker Change: If you would like to ask the question. So repressive spiky calibrated. Please just one on your touchstone.
Speaker Change: If youre using a speakerphone please pick up your handset before pressing.
Speaker Change: Hi, There a question please press star.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Can you for your questions to one me and one store.
Speaker Change: Your first question comes from the line of Ken Wong behind me.
Ken Wong: Fantastic. Thank you for taking my question.
Ken Wong: I just wanted to ask about that 6% to 7% organic growth outlook.
Ken Wong: Clean is that number are there any notable one off headwind tailwind that we should be thinking about that impacting that from getting into the steady state.
Ken Wong: Hey, Ken This is Jason Thanks for the question no nothing nothing onetime in nature. We did talk about just in the first quarter in our NSS segment, we talked about this last quarter. Our MH business had a one time thing that sort of pop through so little bit lower organic growth in the first quarter at <unk>, but then that will start to.
Ken Wong: Pick up as.
Ken Wong: We talked about high single digit recurring revenue that will be more in Q2 through Q4.
Ken Wong: Think about pro care coming in organic in the second quarter and then just some of the bookings we talked about in the second half converting into revenue.
Ken Wong: More in the late first quarter early second.
Ken Wong: Hard to see that inflect up.
Ken Wong: Nothing really unusual in our in our test segment, we still expect strong growth.
Ken Wong: Across the enterprise and.
Ken Wong: We've said this before this 2024 is kind of our cleanest baseline year since 2019 with just all of the Covid then supply chain noise that we experienced so we feel good about the setup for this year.
Speaker Change: Okay Fantastic and then just a quick follow up as far as Unclogging. The M&A logjam in 'twenty five and as you look at the pipeline of potential deals.
Speaker Change: Any preference for growth bolt ons or or or looking more standalone category leader types.
Speaker Change: Yes, Ken it's Dan I'll take that one so our team and we talked on the prepared remarks, we added a fair amount of capacity and capability.
Speaker Change: And our M&A.
Speaker Change: <unk>.
Speaker Change: Group this past year and they've done a lot of say were building a lot of relationships with sponsors with companies directly.
Speaker Change: Both on the platform side and on the bolt on side, Nobody got 5 billion to deploy.
Speaker Change: We'll be able to do everything that makes sense from a bolt on point of view with and hopefully find one or two platforms sort of it's very situation dependent but yes, there'll be a balance between the two.
Speaker Change: Perfect. Thanks, a lot.
Speaker Change: Thank you so much and our next.
Speaker Change: Question comes from the line of George again TD colleagues.
George: Hey, guys good morning.
Speaker Change: Good morning, Gary.
Speaker Change: So like coincidentally the water companies at my House literally right now putting in a new Nokia and meters. So I hope that's factored into the next quarter guidance center, guys static and mechanical.
Speaker Change: Yeah.
Speaker Change: And it looks like once he's done.
Speaker Change: Alright.
Speaker Change: Great. So it was good to hear some of the AI tools you guys are deploying here I was wondering if there's a way to quantify either in terms of ability to price differently in charge for new <unk>, new capabilities and what it's done there or what is done internally for you guys in terms of margins and making your business is more profitable and more efficient.
Speaker Change: Yeah, So I'll say it in 24, it was a great year of learning early momentum, but we went through seven or eight examples of things. We're in the market with from a product point of view, but the momentum is just is just there's just.
Speaker Change: Building from here.
Speaker Change: Very encouraging breakthroughs, obviously that the world's focused on this last week, which makes the models even cheaper more commoditized, which means you can deploy them and more specific use cases for lower cost. So its got our teams thinking or just on a call with several of our Cto's yesterday on what their early thoughts are there. So it's super encouraging about the future.
Speaker Change: I will tell you in terms of the specific.
Speaker Change: Mathematical can we point to it in 24, it's very hard to point to.
Speaker Change: Got this many millions of revenue or we save that many millions of costs, but there is definitively a halo effect, where we've seen bookings increase for instance.
Speaker Change: Amazon that's funny at or it.
And because they are the leader on this we've seen bookings pick up of Deltec because of the the della assistant that they have.
Speaker Change: On the on the productivity side real breakthrough gains on customer support starting to see gains on on the R&D side, but we're not looking at it initially from a how do we take cost out of the enterprise we looked at it about how can we serve our customers more efficiently and how can we chew up more of our roadmap right. How can we take the productivity.
Speaker Change: <unk> to be offensive. This is how we're thinking about it.
Speaker Change: Yes that all makes sense and then follow up the <unk>.
Speaker Change: One business that I guess people are a little concerned there might be some sort of headwinds just from a from a U S policy standpoint could be like the <unk> com piece of Deltec, just curious what you've seen there and if that's a valid concern or and if it is like how does that play out.
Speaker Change: Yes, so deltec.
Speaker Change: Their customers, which are a federal government contractors use contractors and dosed and all of the policy. It's super early to know really how its going to shake out I will tell you. The guiding principles of those a couple that are important is the accountability for contractors are going to increase pricing models may change to be more performance based.
Speaker Change: <unk>.
Speaker Change: They may have to modernize their systems all of that plays into the strengths of deltec because with more accountability is going to be more audits compliance.
Speaker Change: Just acquired a wonderful company called <unk>, which is about how do you manage more performance based pricing so that feels pretty good.
But it's very early to know at the other day.
Speaker Change: How this how this will flow.
Speaker Change: Importantly bookings in government contracting in Q3 and Q4.
Speaker Change: In activity through the first part of Q1 of Deltec jug of a contract they have been quite robust. So the customers speaking with their wallets at least through this.
Speaker Change: The same relatively bullish about the opportunity.
Speaker Change: Okay. Thanks, guys I appreciate the color.
Speaker Change: Thanks.
Speaker Change: Thank you.
Speaker Change: Your next question comes from the line of General feeling.
Speaker Change: Yes.
Speaker Change: Okay great.
Speaker Change: Hi, Brian Thanks for taking my questions.
Speaker Change: Following up on your AI comments. So we've heard recently from some of the large enterprise vendors horizontal vendors that yes.
Speaker Change: This ends up being quite positive thinking about what we've seen from small language models commoditize the model, you're able to differentiate at the business process layer.
Speaker Change: I'd say in broker sks, you're typically dealing with I would say more unique than regulatory burdens.
Speaker Change: MS processes does AI make it easier for others to come in and tackle those or do you think because you're the incumbent you have starting product. Okay. So you have the distribution that.
Speaker Change: As you would expect and is deepening intermodal speed because of the progress thats happening in the intermodal space.
Speaker Change: So we're super paranoid on this question is engaged with our companies all through 'twenty four.
Speaker Change: IOP process through the strategy process precisely on this question.
Speaker Change: Where are we where we land on it is.
Speaker Change: We're in a very good position to be the winner and it's really I tried to comment in the prepared remarks. We're a couple of reasons. One is we are really intimate with our customers. I mean this is not for instance, I'll use. The example, we're not about how do you create a project based professional services Bill we're about how there's a specific law.
Speaker Change: Firm, creating specific bill for specific clients as compliant to that client's billing requirements. It's a very nuanced specific thing.
Speaker Change: Talking about intimacy, that's why we talk about so at the intersection of the intimacy the intersection of the data we have and now with the new enabling tools. We believe that were uniquely advantaged to be able to solve problems that heretofore haven't been able to solve it be solvable with the technology is available at the time. The other thing is important to note at least in our verticals we participate.
Speaker Change: We are in every one of our companies. We are the market share leader, we have relative market share advantage of in some cases, you know one point too in other cases, we're twice or two five times the size of the next largest competitor. So we have scale advantage in these small niches to be able to make these investments and so so we like we like the course of travel, but we're going to remain.
Speaker Change: Vigilant and paranoid and encourage and press our companies to make the investments at the at a pace that makes sense to be able to compete and win.
Speaker Change: Okay, that's great color.
Speaker Change: On the outlook for next year I would imagine you are run rating high teens bookings going forward, but the last few quarters now has been pretty impressive I think run rate double digits. It probably gets to something better than a mid single digit outcome for aaas organic.
Speaker Change: I guess are you starting the year baking in any sort of hedge I know you just addressed in deltak, but maybe any risk points that are a consideration and thats the risks arent born out.
Speaker Change: It raises later on.
Speaker Change: Yeah, just Jason I think we finished 2024 at five 6% to be exact on Aaas and I think we had we had strong gross revenue retention in the year than we had as you.
Speaker Change: Good bookings in the second half of the year. So that's all part of the growth equation.
Speaker Change: So we don't think we're going to be better than that and I think it's just we're going to want to see how the first half plays out I mean, obviously I think if you think about the year again.
Speaker Change: <unk> is going to roll organic in the second quarters that will help the growth rate but.
Speaker Change: Yes, I think if we continue to see the momentum we saw in the second half there could be some chance for upside, but you know how that converts to revenue is a little slower than.
Speaker Change: Just immediate impact unless as perpetual or the one upside I would say in the in the year is it.
Speaker Change: <unk> enterprise.
Speaker Change: <unk> remains strong and there is a bias to perpetual which candidly we hope there isn't just over a long term, but if there is then we would have we could have some upside there for the for the year.
Speaker Change: Thank you.
Speaker Change: Thank you so much.
Speaker Change: Our next question comes from the line of Terry Tillman Chewy Securities. Your line is now.
Speaker Change: Okay.
Terry Tillman: Yeah, Hey, Neil Jason and Zach it's good to see this dope right offense in action.
Terry Tillman: I guess, maybe my first question and I.
Speaker Change: I appreciate the call out on the enterprise software bookings strength, but what I'm curious is could you stack rank a little bit from as you talk to the leaders of the businesses.
Speaker Change: What's kind of is there any macro that's actually starting to help.
Speaker Change: Green shoots on that front or just some execution because sometimes you do change out some of the leadership enhanced go to market optimization, and then thirdly like conversion to SaaS could you maybe kind of double click into what do you think are some of the most plenty of drivers of this enterprise software bookings strength and I had a follow up.
Terry Tillman: Okay, Terry will do or I'll do my best to hit all the points you just raised there so.
Terry Tillman: First I would say from a macro point of view.
Terry Tillman: Compared to where were at this time last year versus now we certainly feel it's a more stable.
Terry Tillman: Look for the macro which is positive for sure.
Terry Tillman: Jason mentioned I mentioned, they're paired remarks, we think we attribute a lot of the success, we're having to having better leaders with more precise choice space right to win based strategies and execution model to be able to deliver and so where we've been able to mature this and have this.
Terry Tillman: These methods and means to be in place the longest we are seeing the benefits.
Terry Tillman: And it's clear and obvious it's a great part of Roper It takes a little bit of time for all of us to work because theres no fast way to build enduring sustainable improved organic growth rate, but it happens methodically over time, and we continue to turn the crank.
Terry Tillman: Examples of that.
Terry Tillman: Certainly what we're seeing of deltak adder and power plan.
Chris Rock: Chris Rock connect.
Chris Rock: So few I mean, theres other vertically verathon for sure MDI. There is I mean, you can go through the list and every company is getting better but those are some of the highlights in terms of where all this is really starting to sort of click and we're seeing over at along our mediamark sort of acceleration organic.
Chris Rock: And then I think there was a question I don't know if is it just a general question about SaaS conversions. We continue that's a that's a longer term growth driver for us are still north of $900 million of on premise maintenance that we're in the process of prana.
Chris Rock: Product <unk> and moving to the cloud.
Chris Rock: North of two times clip in terms of in terms of IRR and so that's a that's a nice.
Chris Rock: A nice tailwind the amount of <unk>.
Chris Rock: Perpetual has been going down over time, so to the extent, there's a J curve, we've sort of just habits and embedded in our results over the last few years and so it's a nice longer term tailwind.
Speaker Change: Yes, thanks for that and then just Jason as it relates to that.
Speaker Change: I don't know if this is maybe this is a hard question, but pricing and packaging of value kind of monetization with some of the initiatives.
Speaker Change: Would that actually start hitting and then how impactful. Thank you.
Speaker Change: Yes, sure yes so.
Speaker Change: I think in the fourth quarter, they had an action on.
Speaker Change: After the market or have the side of the network and then there'll be another one.
Speaker Change: Sometime in the first half of this year probably.
Speaker Change: Then a little bit more at the end of at the end of this year as well so.
Speaker Change: So you know and it all relates to what Neil talked about which is just increasing.
Speaker Change: Sorry.
Speaker Change: Safety and the reliability of trading partners on the network just what we're doing from a fraud perspective and performance perspective on that.
Speaker Change: Load board, so just continuing to innovate as more innovations coming a lot of releases are going to have this year. So we're really excited about.
Speaker Change: What's happening at the 18th yes, while we're just on the Ato put a plug in for this small bolt on we did in the quarter Trucker tools. We think this one has a potential to just be a terrific add to the network real time visibility to all the network participants.
Speaker Change: We have.
Speaker Change: The concept of having the customer base, we have on the carrier and the broker side and then delivering more value to both sides of the network with trucker told us in being able to monetize from there really exciting potential with us with this bolt on.
Speaker Change: Thank you.
Speaker Change: Yeah.
Speaker Change: Thank you.
Speaker Change: Our next question is from the line of Brent Thill with Jefferies.
Speaker Change: Jefferies two questions.
Speaker Change: Good morning, Neil.
Speaker Change: When you think about AI. It just seems like there is a.
Speaker Change: A distracting light among some of the software buyers and trying to figure out what to do with that or are you seeing any of that distraction in your engagements in the sales engagements or is this your verticals or insulated they're more focused on the business value.
Speaker Change: Pieces more backburner.
Speaker Change: What are what are you seeing from.
Speaker Change: From that <unk>.
Speaker Change: Oh behaviors.
Speaker Change: We've also been asking that question quite a bit and we've not seen.
Speaker Change: A distracted I mean, maybe in the first half of last year. When this was all new and everyone's just canvassing like hold on what's going on that was part of the first half macro that was going on part of that interest rates economic inflation all of that but as of late there has been none of that and I would I would attribute the root cause of that to be we are the <unk>.
Speaker Change: System of record for the for the vast majority of what our customers do and they're looking to us to enable will take the enabling technology Gen. AI and then apply it to very specific settings. They don't have a competing.
Speaker Change: <unk> S P a large whatever.
Speaker Change: We did we write our next two we are the system of record and we are the system that they need to operate the network or get their lead generation or whatever it might be.
Speaker Change: Okay.
Uh huh.
Speaker Change: Appreciate kind of your comments on M&A and the magnitude of things that can unlock this year I guess.
Speaker Change: Just kind of the area around focus and what you're focused on I know you can't tell us the lanes are going but.
Speaker Change: Should we expect kind of similar lanes are you open to doing something different than you've done in the past how do you think about kind of the direction given the magnitude of the M&A cleanup, that's that seems to kind of that happened in the industry. This year.
Speaker Change: So no work.
Speaker Change: Were always have been and will continue to be like wildly focused on what it is that we do it right. So for platforms. It is small market vertical market leaders that have enduring competitive advantage you can understand.
Speaker Change: <unk> observed the competitive forces that is the leader that has growth that is compelling to us where we can.
Speaker Change: Potentially add more capital to do bolt ons I mean that is what we do.
Speaker Change: We will continue to be business pickers, first and foremost and not sort of be somatic vertical investors like we want to put X dollars into this theme, we're just going to always be business pickers, now where that ultimately takes us.
Speaker Change: It's to be determined based on how the deals.
Speaker Change: Manifest over the course of the next year or two.
Speaker Change: Great. Thanks.
Speaker Change: Yes.
Speaker Change: Thank you. Our next question comes from the line is being engineered RBC capital markets.
Speaker Change: Thank you and good morning, everyone.
Speaker Change: Hey, Deane good morning, good morning.
Speaker Change: Hey, I know, it's not a big dollar amount, but you did call out that $9 million of restructuring could you.
Speaker Change: Expand on that like how many businesses, what's the payback and I'm really interested in the Genesis of this.
Speaker Change: <unk> this had nothing to do with headquarters. This was all bottom up but just be interested in how it was initiated.
Speaker Change: Yes, I can take that Dean so yes. It was a couple of businesses. It was mostly in our <unk> segment and the largest was at Dell Tech and I think just this coincides with.
Speaker Change: He is coming in and taking a look at.
Speaker Change: Where they want to make some reinvestments back in the business. So obviously going to get some flow through in 2025, but we'll have some reinvestment back into things like product things like growth.
Speaker Change: And so that was that just an opportune it domestic opportunity to do that and then we had a couple I guess I had a couple of smaller ones to where it was again, just having a having a good fit.
Speaker Change: Finish to the year and wanted to just make sure that they could take.
Take some actions rolling into 'twenty five.
Speaker Change: I would just characterize it as good healthy belt tightening.
Speaker Change: Good to hear and.
Speaker Change: Just separately could you give us an update with any kind of specifics regarding the transact integration with seaboard just.
Speaker Change: What kind of initiatives.
Speaker Change: Where and how might that play out during the course of this year.
Speaker Change: Sure. So so so far it's going really well, we've identified $20 million of cost synergies and those will mainly start rolling through in the first quarter of this year. So so thats going well the team has been.
Speaker Change: Set and they've actually added some new capabilities to the executive team they've got a new head of services that just joined that's part of the value creation plan is sort of creating a.
Speaker Change: As they are moving a lot more customers to the cloud with their their campus IV solution, having a professional services organization that can manage that in a in a.
Speaker Change: Accretive way.
Speaker Change: Then just really I think overall, making a lot of progress on the integration we've underwritten.
Speaker Change: And ERP, that's going to cut across the business and that should create efficiencies over time, not immediately but over time and so yes. We're excited about I think the debt.
Speaker Change: The feedback from the market has been really positive around where they are going from a product roadmap perspective.
Speaker Change: Showing what the cloud native solution can do from transact and so I think it's not only the transact customer base. That's on premise is excited but now you are increasingly seeing the seaboard.
Speaker Change: Customers, saying Hey. This is this is the right way to go and so we think that's just going to create some great cross sell tailwind in the next couple of years here.
Speaker Change: Great. Thank you.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Scott.
Speaker Change: Your line is now.
Scott: Hey, good morning, guys.
Speaker Change: Good morning, Scott.
Speaker Change: The last few quarters kind of sequentially, you've gotten increasingly more positive on an M&A in the outlook and such and you.
Speaker Change: Certainly we are active.
Speaker Change: Over the last year as well, but this is kind of a unique situation. It feels like in 'twenty five would you consider issuing equity Neil.
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: If the opportunity set where we're wide enough where it would.
Speaker Change: Where it makes sense.
Speaker Change: So.
Speaker Change: Obviously, the first first source of capital is going to be the $5 billion and are on our balance sheet and our debt capacity.
Speaker Change: If the market then at that point.
Speaker Change: Continued to present very compelling deals to us than certainly we would consider the use of equity, but the bar is higher the return bar is higher the asset quality is even higher because the cost of capital is higher so that all goes into the into the decision making process but.
Speaker Change: Let's be clear, we will be delighted to be able to deploy to $5 billion that we have that will that drives a compounding compounding machine for us.
Speaker Change: Even in difficult years.
Speaker Change: It is clear for the record I mean in the years, where there wasn't a lot going on in the last couple of years, we got our work done as well, so that's where our relationships sort of always being in the market.
Speaker Change: <unk> sort of.
Speaker Change: Benefits us maybe even the most is when the times are not as good and so it will just be steady deploy as a capital through good times and bad that's alright, and I'd also just say that the metabolism of all these assets and private equity is not going to be immediate.
Speaker Change: Take more than a year for that to happen. So I don't think its going to be all at once so this will not.
Speaker Change: Not clear and 25, it will be a 25% to 26 clearing for sure.
Speaker Change: So there's no sense of panic on the other side, Okay I got you.
Speaker Change: Alright, and just just kind of it.
Speaker Change: You guys had been talking about talent upgrades I don't know, maybe a year or so but when you think about talent.
Speaker Change: And what do you think about kind of a ratio of internal.
Speaker Change: When youre filling jobs external versus internal do you feel like Youre building enough internal talent, you kind of mentioned that the winners higher winners.
Speaker Change: I certainly believe in that but do you guys think about that like how.
Speaker Change: How that fill rates should be internal versus external or if there's some optimal or mostly external just given your business mix and just kind of curious how you think about that.
Speaker Change: No were for <unk>.
Speaker Change: Five or six years, we have really deploying aggressively what we call. Our talent offense, that's focused on selection of talent development talent and the engagement of talent.
Speaker Change: And we have as we've talked about widely and often we have the attributes the behavioral attributes of our field leaders.
Speaker Change: Need to be competitive curious learners that can think long term and make that long term actionable today, and then be completely kicked up and excited to build the underlying capabilities of the business or behavioral attributes. We look for so we started this we had to go outside right. But then the development part of this talent offense has been it's early signs.
Speaker Change: Our encouraging right. So we have strasser that move to frontline, we got Brody that that's now leading construction by the way <unk> started the Roper office of the CFO of antibiotics and then construct connect analysis CEO construct connect.
Speaker Change: So it would not surprise me if there were other leadership moves within the portfolio as the as the bench. If you will gets deeper and broader and better and that's always going to be our first call. If you think about it just about risk management point of view Scott when we were.
Speaker Change: Needed to sort of replace the upgrade the talent that frontline, we're able to move.
Speaker Change: Move Strassner frontline the CFO Brody to the CEO of construct connect the head of <unk>. The CFO and then we go out to the market the higher SG&A leader versus a CEO of one of our larger businesses right. So a risk management point of view it works all around.
Scott: Okay, good color and congrats on the quarter. Good luck. This year guys. Thank you. Thanks, so much Scott.
Speaker Change: Thank you.
Speaker Change: Next question comes from the line of Steve Tusa of Jpmorgan.
Steve Tusa: Hey, good morning.
Speaker Change: Hey, good morning, good to hear that.
Steve Tusa:
Steve Tusa: Really strong cash in the quarter, obviously, 32% is above 30, but it's meaningfully above 30.
Steve Tusa: Are you at some point going to change that algorithm.
Steve Tusa: Or is there something about the 32, there was a bit over driven in the fourth quarter and then how do we think about that should we think about that as kind of normal seasonality.
Steve Tusa: This year for you guys as we move into the first and second quarter on cash.
Steve Tusa: So I mean this was a really strong renewal season for us.
Steve Tusa: I had to call out specific companies stemming deltec, an ad or it just drove down record DSO.
Steve Tusa: And even.
Steve Tusa: Even strata emerging from the integration with <unk> tell us they've got everything in line by the end of this year and have just a great finish to the year.
Steve Tusa: On a net timber also spectacular so just great work here, a little bit better than we thought so it may come alone might come out of Q1, just a little bit so, but nothing super unusual I'd just say on the nonoperating front. We did issue a couple of billion of new bonds in our first coupon payment will be due in like.
Steve Tusa: I think February and April of this year. So that's more of a 'twenty five versus 24 item, but I mean overall, it's just a really strong year.
Speaker Change: Yeah, and then just 111 last one for you Neil you guys are clearly, making some progress on integrating AI.
Speaker Change: Are there any businesses, where I'm sure you are.
Speaker Change: Your reviews <unk>.
Speaker Change: Yes.
Speaker Change: Lots of these questions, but is there any businesses where you see.
Speaker Change: Perhaps threats.
Speaker Change: Where at the margin.
Speaker Change: You guys are obviously on the watch for any incremental competition coming from this disruption.
Speaker Change: And any signs of that whatsoever, and obviously you guys are reacting by investing.
Speaker Change: But what are you seeing from that perspective for businesses that have always been very strong and had relatively high market shares.
Speaker Change: Yes, so I would say we spent a lot of time at the portfolio level worrying if theres a X essential threat at the portfolio level.
Speaker Change: Last year, there was one company that we had on the watch list did the work and they move them off the watch watch list from a threat point of view actually think its medium to long term a tailwind now that we understand the landscape in the IP ownership landscape better than a year ago in that in that end market and then I would say hey, and <unk>.
Speaker Change: Certain of our verticals are there teeny tiny startups that are doing very bespoke small AI things, yes, but all the customers are actually want to consolidate vendors not proliferate vendors and so it just gives us an opportunity to sort of be the benefactor of the winter because of that trend.
Speaker Change: Yes that makes a lot of sense alright, thanks for the answers appreciate it.
Speaker Change: You bet.
Speaker Change: Thank you.
Speaker Change: The next question comes from the line of Julian Mitchell with Barclays. Your line is now.
Julian Mitchell: Hi, good morning.
Julian Mitchell: Maybe just wanted to start with any color on the EBITDA margin outlook. They spent a lot of revenue related questions, but in 2024.
Julian Mitchell: The core margin firm wide was flat headline including acquisition down a touch so as we're thinking about 2025.
Julian Mitchell: Should we think about sort of core margins, maybe up slightly and then the headline margin flat and that sort of back half loaded with first half margin down year on year, and then up in the back half is that the way to kind of think out EBITA margins.
Julian Mitchell: Yes, I think you summarized it well core margin be be.
Julian Mitchell: Be up a little bit I talked especially at the segment level.
Julian Mitchell: The up nicely and then.
Julian Mitchell: Acquisitions, especially on like you said, especially in the first half with transact coming these transact is largest.
Julian Mitchell: Margin quarters, the third quarter or about 50% of their EBITDA comes in that quarter. So lower in the first a little bit lower in the second so yes, I think the way you described it is spot on.
Speaker Change: That's great and then my follow up just on the TEP.
Julian Mitchell: Segment, we haven't had many questions on that yet.
Julian Mitchell: So I'm trying to understand.
Julian Mitchell: As youre thinking about kind of the revenue outlook here.
Julian Mitchell: Maybe home in a little bit what you were expecting for net tune I think there's some noise around various kind of meters businesses and sort of customer inventory reductions. So how youre thinking about net <unk> for 2025 revenue.
Julian Mitchell: So maybe any color on how did the test.
Julian Mitchell: Backlog perform in Q4, I think it was down about 30 ish percent year on year in Q3, but also very elevated base. So just kind of how have orders or book to bill move there.
Speaker Change: Yes, I'll take the first part and ask Jason I'll take the second part regarding the backlog so hey.
Speaker Change: Our strength in this segment and Neptune is I think something like 40% of the segment and so we certainly expect them to be good in the year. When we are guiding to where we're guiding in the HST area. The other thing Thats, just but there was some.
Speaker Change: There was some noise in the comps in the prior year, we had we talked about India I, we've talked about our products all of that sort of in the rearview mirror. So we just have a clean base to grow from.
Speaker Change: And it's pretty it's pretty consistent growth across the group here.
Speaker Change: Yes, I mean, just on backlog I think we've talked AD nauseum about the supply chain lead times and things that happened over the last few years and that's that's normalized out instead of a little bit higher backlog there than say pre COVID-19. So that's positive and I would just say.
Speaker Change: Early signs in this year that a lot of the distributors are.
Speaker Change: Restocking significantly in the sales kickoff that Don and his team had a PD weeks ago indicates just continued strength in the market. This year. So.
Speaker Change: It will kind of get us back to where we were pre COVID-19, which is fine right, which is that we work off of one to two month backlog and just continue to see growth without working on off of back off of a backlog.
Speaker Change: That's great. Thank you.
Speaker Change: Youre welcome.
Speaker Change: Thank you so much.
Speaker Change: And this concludes our question and answer session and we will now with feedback.
Steve Tusa: Steve for any closing remarks.
Steve Tusa: Thank you everyone for joining the call today, we look forward to speaking with you during our next earnings call.
Speaker Change: Thank you presenters and thank you ladies and gentlemen, the conference is now concluded. Thank you for attending and you may now disconnect.
Speaker Change: Okay.
Speaker Change: Okay.