Q1 2025 Roper Technologies Inc Earnings Call
Okay.
[music].
Speaker Change: Good morning, everybody Technologies Conference call will now begin today's call is being recorded all participants will be in a listen only mode should you need assistance. Please signal.
Speaker Change: A conference specialist by pressing star zero on your telephone keypad.
Speaker Change: I would now like to turn the call over to Jack Murphy, Vice President of Investor Relations. Please go ahead.
Jack Murphy: Good morning, and thank you all for joining us to discuss the first quarter 2025 financial results for Roper technologies. Joining me on the call. This morning are Neil Hunn, President and Chief Executive Officer, Jason Connolly Executive Vice President and Chief Financial Officer, Brandon Cross Vice President Principal accounting Officer, and Shannon O'callaghan Senior Vice President of Finance.
Jack Murphy: Earlier. This morning, we issued a press release announcing our financial results.
Jack Murphy: This release also includes replay information for today's call.
Jack Murphy: We have prepared slides to accompany today's call, which are available through the webcast and are also available on our website.
Jack Murphy: And now if you'll please turn to page two.
Jack Murphy: 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 are described on this page in our press release and in our SEC filings.
Jack Murphy: Listen to today's call in the context of that information.
Jack Murphy: Now please turn to page three.
Jack Murphy: Today, we will discuss our results primarily on an adjusted non-GAAP continuing operations basis for the first quarter. The difference between our GAAP results and adjusted results consists of the following items amortization.
Jack Murphy: Amortization of acquisition related intangible assets.
Jack Murphy: Transaction related expenses associated with completed acquisitions, and lastly financial impact associated with our minority investment in the core.
Jack Murphy: Reconciliations can be found in our press release and in the appendix of this presentation on our website.
Jack Murphy: And now if you 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 Thank you Zack and thanks to everyone for joining our call.
Jack Murphy: As we turn to page four you'll see the topics we plan to cover today.
Neil Hunn: Well start with our Q1 highlights which included reviewing our most recent acquisition Central rates. Then we'll go through our segment results in a modestly improved outlook for the year and then get to your questions.
Jack Murphy: Let's go and get started next slide please.
Neil Hunn: As we turn to page five let me highlight the four key takeaways for today's call.
Neil Hunn: First our quarterly financial results were solid with Q1 total revenue growing 12%.
Neil Hunn: Organic revenue growing 5% as expected and cash flow growing 12% over the last 12 months.
Neil Hunn: Secondly, we successfully completed last week, the acquisition of central reach which I'll discuss in a bit.
Third given our solid start to the year and the completion of the central each acquisition, we are raising our full year total revenue guidance and modestly increase their full year depths outlook.
Neil Hunn: Finally, we continue to be very well positioned for capital deployment with more than 5 billion of available firepower over of course over the next 12 months.
Neil Hunn: As we turn to page six allow me to remind everyone about the durability of our business model.
Neil Hunn: As a castle compound or it is critical our underlying cash flow generation capability every enterprise is in fact durable.
Neil Hunn: While no business is immune from the current macroeconomic trade and policy environment, We feel our enterprise is far better suited than most to withstand the uncertainty.
Neil Hunn: So this and over 85% of our revenues are generated in the U S.
Neil Hunn: We're 85% of our software revenues recur.
Neil Hunn: Our enterprise solutions are mission critical and this criticality is best demonstrated by our 95% gross retention.
Neil Hunn: More importantly, we have a very efficient business model that long term converts about 30% or a touch better of our revenue to free cash flow.
Neil Hunn: All of this is further enhanced by our capital deployment Optionality.
Neil Hunn: So with this reminder, let's now discuss the newest acquisition sure.
Neil Hunn: Our family of companies Central region.
Neil Hunn: As we turn to page seven I'll start with what sensor each does.
Neil Hunn: So to reach its market, leading cloud native software solution that enables applied behavior analysis, or <unk> therapy providers to deliver care for individuals with autism spectrum disorder.
Speaker Change: On a daily basis about 200000 professionals, you said reaches platform to perform their daily tasks, such as setting up clients running their practice scheduling care collecting clinical data and processing reimbursement claims.
Speaker Change: So it sort of reaches offerings enable an overworked population of therapists to deliver more and better care to the autism community.
Speaker Change: This is all done in a cloud native modern tech platform that utilizes gin AI on a robust basis.
Speaker Change: As it relates to the deal.
Speaker Change: We paid $1 65 billion net of a $200 million tax benefit.
Speaker Change: We expect such rights to deliver about $175 million of revenue.
Speaker Change: 75 million of EBITDA for the TTM period, ending June 2026.
Speaker Change: Further we expect central reach this revenue and EBITDA to continue to grow in the 20% area or a touch higher once it turns organic for reporting purposes.
Speaker Change: As you can see such reach meets all of our longstanding acquisition criteria.
Speaker Change: Leader in its market.
Speaker Change: Competes on the basis of customer intimacy.
Speaker Change: Our strong gross margins and converts high levels of cash flow.
Speaker Change: In addition, central reach reflects our new maturing liter criteria of being a higher growth business in this case in the 20% area.
Speaker Change: We financed the acquisition with a revolver and report the results at our application software segment.
Speaker Change: Now turning to page eight will briefly walk through the long term drivers of central reaches growth.
Speaker Change: As you can see at the top here central reach as the leader in a market with strong sustainable tailwind.
Speaker Change: First there is a long term persistent shortage of ABB therapist compared to patient demand.
Speaker Change: The scale of this for you so the U S alone. The current annual demand is approximately 900 million hours were only about 300 million therapists hours are currently being supplied.
We estimate the carryout to exist for the next decade, both in the U S and throughout the developed world.
Speaker Change: And finally century, just winning with the winners being their clients tend to be the industry aggregators. So essentially reaches customers grow so does central reach.
Speaker Change: As we've talked about on the prior page search reaches solutions are mission critical to delivery of care.
Speaker Change: There are tools help measure outcomes ensure compliance and realized reimbursement.
Speaker Change: Perhaps more so so it's really just solutions unlock operational efficiencies, which allow for more care hours to be delivered to a grossly unserved underserved patient population.
Speaker Change: Finally, touch where each has multiple levers available to both grow revenue and expand margins.
Speaker Change: These levers include expanding their product portfolio.
Speaker Change: Cross selling of our new AI powered solutions.
Speaker Change: Changing to win new logos.
Speaker Change: <unk> pursuing adjacent markets, such as speech and occupational therapies and bring their solutions to international markets.
Speaker Change: Importantly, while we grow this business, we expect to see continued margin expansion in.
Speaker Change: In short this is a powerhouse business is a critical solution to a huge challenge the world is facing.
Speaker Change: So the central reach team so excited for you to join Roper.
Speaker Change: For all you do for the autism community and for trusting roeper to become your permanent partner.
Speaker Change: With that let me turn the call over to Jason to talk through our P&L and our balance sheet Jason.
Jason Connolly: Thanks, Neal and good morning, everyone.
Jason Connolly: As you heard from Neil we had a good start to the year.
Jason Connolly: Revenue of $1 9 billion was up 12% led by an 8% contribution from acquisitions, mainly via our transact and pro care portfolio additions and organic growth of 5%.
Speaker Change: Coming into 2025, we expected Q1 to be our lowest quarter for organic growth given some comp challenges in our networks segment.
Jason Connolly: So 5% was in line with that expectation.
Jason Connolly: To click into the monthly cadence throughout the quarter.
Jason Connolly: For software enterprise bookings were up low single digits in the quarter. This was expected following very strong Q4 performance across the portfolio.
Jason Connolly: Importantly, pipelines remained healthy given the essential nature of our solutions yes.
Jason Connolly: Yes, we are cautiously optimistic and mindful of the current macro environment heading into Q2.
Jason Connolly: For products demand improved throughout the quarter, particularly at Neptune and verathon without any indication of pull forward activity.
Jason Connolly: EBITDA of $740 million was up over 9% in total and nearly 10% on a segment basis.
Jason Connolly: Reported EBITDA margin of 39, 3% was down 90 basis points versus prior year.
Jason Connolly: Core EBITDA margin, which exclude acquisitions was solid at 48%, representing a 50 basis point margin expansion or 53% Incrementals.
Jason Connolly: Regarding acquisition margins Q1 is transaction lowest margin quarter as about half of transact EBITDA comes in the third quarter of each year.
Jason Connolly: Due to a high concentration of terminals and back to school transaction volume.
Jason Connolly: We will expect margin expansion from Q1, as we progress throughout the year.
Jason Connolly: For diluted EPS, we delivered $4 78, which was above our guidance range of $4 70 to $4 70.
Jason Connolly: Led by strong margin performance.
Jason Connolly: Finally on free cash flow Q1 came in at $507 million, which was down 1% versus prior year.
Jason Connolly: Note that this figure includes a legal settlement of $24 million, which was funded in January and we discussed in our last earnings call.
Jason Connolly: So Q1 free cash flow was a bit low it was not unexpected given the exceptionally strong Q4 working capital performance that I discussed in our last call.
Jason Connolly: Overall free cash flow margins. If you look over the last few years, we've been in the 31% to 32% range.
Last quarter I had mentioned that we issued $2 billion of bonds in Q3 2024.
Jason Connolly: The first coupon payments are occurring in February and April of this year.
Jason Connolly: Along with the legal settlement in Q1 has about a $70 million or 80 bps impact on free cash flow margins. This year.
Jason Connolly: Operationally, we feel good about working capital conversion and the structural free cash flow margin profile going forward.
Jason Connolly: Now I will turn to slide 10 to discuss our strong financial position.
Jason Connolly: We finished the quarter with net debt to EBITDA of two four times with a fully undrawn revolver.
Jason Connolly: Last week, we closed on central reach and use the revolver to fund the acquisition.
Jason Connolly: This brings our pro forma net leverage to around three times.
Jason Connolly: As we roll forward, our expected cash flow and leverage ratios, we remain in a great position, even after funding central reach.
Jason Connolly: 5 billion of capacity to deploy towards high quality acquisitions.
Jason Connolly: To that end, we continue to work to a very strong pipeline of opportunities today.
Jason Connolly: Given the uncertain macro backdrop, some PE sponsors are understandably, taking a breath.
Jason Connolly: However, as we have discussed many PD sponsors need to return capital to Lps in the near future and so the current market dislocation creates a favorable environment for Roper.
Jason Connolly: In summary, our unique and resilient business model creates opportunity during times of uncertainty.
Jason Connolly: So with that I'll turn the call back over to Neil.
Neil Hunn: Thanks, Jason as you turn to page 12, Let's review our application software segment.
Neil Hunn: Revenue for the quarter grew 19% in total and organic revenue grew by 6%.
Neil Hunn: EBITDA margins were 41, 4% and core margins improved 110 basis points in the quarter.
Neil Hunn: This group of companies continues to demonstrate resilience and deliver on our growth expectations.
Neil Hunn: As we turn to the businesses, we'll start with Delta Delta.
Neil Hunn: <unk> grew in the mid singles range in the quarter, both recurring and total revenues.
Neil Hunn: As we highlighted on the slide don't set continues to have strong migrations that our cloud offerings, while the business continues to innovate at a rapid pace.
Neil Hunn: Benefited by very strong gross and net retention.
Neil Hunn: <unk> continues to be very strong with record first quarter bookings and strong cloud migration activity in the quarter.
Neil Hunn: <unk> continues to gain market share and carry this momentum forward.
Neil Hunn: Our plan also was outstanding in the quarter.
Neil Hunn: Over the last several years the team has done a great job at making the revenue stream more recurring in nature.
Neil Hunn: In addition, they continue to get an amazing feedback with our cloud offerings, which are driving strong SaaS migration activity.
Rafi: Also during the quarter, we promoted Rafi sure Aderans CLO to succeed Joe Gomes as the next CEO of power plan.
Neil Hunn: <unk> is now leading pro care for us.
Neil Hunn: We love senior high potential leaders be placed in a position to have even higher levels of impact.
Neil Hunn: Turning to Virtu for which was once again steady and solid for US we continue to see consistent growth and strong customer retention here.
Neil Hunn: Pro care, our platform acquisition from a year ago has done a nice job competing and winning in the market increasing its market share versus the primary competitor.
Neil Hunn: That said there is a clear opportunity for the business to reach its full potential both in terms of operational efficiency and growth.
Neil Hunn: Because of this we ask Joe <unk>, who has been a CEO within the Roper portfolio for eight years to lead pro care going forward.
Neil Hunn: We look forward to Joe replicating his prior Roper leadership obsess at pro care.
Neil Hunn: Finally, the combination between transact and seaboard is going according to our integration plan and the combined business is performing well in the market.
Neil Hunn: Now turning to the outlook for the balance of the year, we see no change in the trajectory of there'll be outlook and continue to expect to see organic growth in the mid single plus range.
Neil Hunn: Also and as we highlighted last quarter, we want to remind you that transaction revenue earnings and margin profile are highest in the third quarter as Jason mentioned earlier.
Neil Hunn: Please turn was to page 13.
Neil Hunn: Organic revenue in our network software segment grew 1% in the quarter as we expected given the difficult prior year comp at MSA.
Neil Hunn: EBITDA margins remained strong 55, 3%.
Neil Hunn: As we dig into the individual businesses, we'll start with D. A T.
Neil Hunn: <unk> grew in the quarter as expected based on increased <unk> <unk>, driven by carrier and broker price actions product packaging and continued customer cross sell activity.
Neil Hunn: In addition, <unk> continues to innovate at a rapid pace and did a great job integrating our recent trucker tools bolt on acquisition.
Neil Hunn: For the balance of the year, we continue to expect to see DHT grow based on the price actions rolling into the recurring revenue.
Neil Hunn: From a market point of view spot market volumes and monetize network participation continue to bounce along the bottom.
Neil Hunn: What we expect to occur for the balance of the year.
Neil Hunn: Both MH and foundry declined in the quarter as expected for MH, a due to a prior year difficult comp and for foundry due to the final elements of the actors and writers strike hangover.
Neil Hunn: That said, we did see nice green shoot activity at foundry during the quarter and now feel confident that the worst is behind and foundries are are will in fact returned to growth this year.
Neil Hunn: Construction Act was strong for us in the quarter.
Neil Hunn: Growth was fueled by strong customer bookings activity and improved retention.
Speaker Change: In addition building on what Matt strategy started our new leader, but Brody is doing a terrific job leaning into gen AI and developing very interesting innovative and potentially groundbreaking products.
Neil Hunn: We look forward to talking more about this in future calls.
Neil Hunn: Finally, our alternate site health care businesses soft riders and SSP continued to grow nicely winning in the marketplace.
Neil Hunn: As we turn to the outlook, we continue to expect to see revenue growth in the mid singles range for the balance of the year.
Neil Hunn: Now please turn to page 14, let's review our segments full year results.
Neil Hunn: Revenue here grew 6% on a total and organic basis and EBITDA margins came in at 36, 2% solid results.
Neil Hunn: Before we get into the business specifics the vast majority of our tariff exposure resides within this segment.
Neil Hunn: The good news is that most of our cross border flows are U S. MCA compliant, which obviously mitigate most of the tariff impact.
Neil Hunn: Our teams will continue to work this issue and further mitigate as needed.
Although none of us are enjoying the continually evolving tariff situation. It is yet. Another example of the nimble execution capabilities of our organization.
Neil Hunn: In March with all the tariff noise started kicking up in earnest our business leaders went to work to countermeasure the risk.
Neil Hunn: Reworking the necessary supply chain activity.
Neil Hunn: Nice job by the teams and keep up the great work.
Neil Hunn: Now turning to Verathon verathon.
Neil Hunn: <unk> continues to be rock solid for us coming off an incredible 2024 in Q4.
Neil Hunn: A nice job growing in Q1.
Neil Hunn: The source of their strength remain consistent they are single use bronchoscope or be flex product leadership, and our video laryngoscopy, our glide scope market leadership.
Neil Hunn: Importantly, verathon has built a true world class new product development capability with several new product releases slated for this year.
Neil Hunn: We look forward to talking about these new products as soon as they are launched.
Neil Hunn: Turning to Neptune, which was just solid once again for us.
Neil Hunn: They continue to do a great job with our ultrasonic meter go to market execution.
Neil Hunn: Also and importantly in the quarter, we completed the acquisition of a cloud based utility building software solution for Neptune.
Neil Hunn: The Neptune team as long crafted our strategy based on the unique unmet needs of their customers.
Neil Hunn: From their market research and ongoing discussions with customers.
Neil Hunn: Became abundantly clear that Neptune could solve a persistent industry problem by closing the loop and the meter to cash cycle.
Neil Hunn: This acquisition provides <unk> with a final piece of this strategy.
Neil Hunn: So we look forward to talking about the enhanced customer value by fully connecting the water meter read to data management to billing and collection processes.
Don Diemer: Thanks to Don Diemer.
Don Diemer: And the entire net to leadership team for completing this incredibly strategic acquisition exciting stuff.
Don Diemer: Of note, both Verathon and Neptune order momentum improved as the order as the quarter progressed.
Don Diemer: Turning to our Cisco medical products business. They unfortunately declined in the quarter based on a very difficult prior year comp.
Don Diemer: Finally, India nailed it in the quarter and we need to brag on this business and the team for a bit.
Don Diemer: They have proprietary and world class precision measurement technologies.
Don Diemer: <unk> health.
Don Diemer: Health care applications worldwide.
Don Diemer: Over the past few years the team has done an amazing job of hyper focusing other medical markets and their OEM clients.
Don Diemer: In addition, they have built and are building a world class go to market capability to match their product strengths.
Speaker Change: Based on this they're winning and important submarkets within health care, namely orthopedic surgery, interventional radiology and cardiac ablation, great job, Dave and your entire team.
Speaker Change: Turning to the outlook for this segment, we continue to expect to see high single digit revenue growth for the balance of the year.
Speaker Change: So with that please turn to page 16.
Speaker Change: Let's turn to our Q2 and increased full year 2025 guidance.
Speaker Change: Given our solid Q1 start the closing of our central reach acquisition.
Speaker Change: Our outlook for the balance of the year, we're increasing our total revenue growth outlook from 10% to be in the 12% area.
Speaker Change: Our organic growth rate of 6% to 7% for the full year remains unchanged.
Speaker Change: Finally, we're increasing our full year depths outlook by a nickel on the low and the high end to be 1980 to 20 <unk> five <unk>.
Speaker Change: Included in this outlook is 15th of central reach dilution.
Speaker Change: Our guy continues to assume a full year effective tax rate in the 21% to 22% area.
Speaker Change: For the second quarter, we expect adjusted depths to be between $4 80, and 44, and we are absorbing <unk> a central hates dilution in the quarter.
Speaker Change: Now please turn to page 17, and then we'll open it up to your questions.
Speaker Change: We will conclude with the same four key takeaways with which we started.
Speaker Change: First our first quarter financial results were solid and our business has remained very resilient to the current trade and macroeconomic dynamics.
Speaker Change: We successfully completed the acquisition of central reach.
Speaker Change: Third given our solid start to the year and the completion of the <unk> acquisition, we're modestly raising our full year guidance and finally, we remain well positioned for capital deployment, where we continue to have more than 5 billion of available firepower over the course of the next 12 months.
Speaker Change: Despite the macroeconomic uncertainties in the market when it comes to acquisitions Roper remains open for business.
Speaker Change: As it relates to our compounding model.
Speaker Change: We grew total revenue, 12% and organic revenue, 5% in the quarter and free cash flow of 12% over last 12 months.
Speaker Change: We're delighted with our acquisition of central reach as discussed this vertical market leader is mission critical to the delivery of autism care and has several embedded structural growth drivers that will support its 20% revenue and EBITDA growth outlook.
Speaker Change: Finally, we continue to be very well positioned with more than 5 billion of available M&A firepower to deploy capital towards leading vertical market software businesses.
Speaker Change: Our M&A pipeline continues to be very active and our teams are engaged on several opportunities.
Speaker Change: It is always difficult to predict timing of deals.
Speaker Change: But we remain quite bullish on our ability to deploy capital this year.
Speaker Change: Keep in mind at least historically, we have found times of uncertainty it can be advantageous for deploying capital.
Speaker Change: <unk> in the summer of 2020.
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 simple.
Speaker Change: We compound cash flow over a long arc of time by executing a low risk strategy and running a 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 business.
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 business to add to our cash flow compounding flywheel.
Speaker Change: Taken together, we compound our cash flow over a long arc of time in the mid teens area, meaning we double our cash flow every five years or so.
Speaker Change: With that we'd like to thank you for your continued interest and support and open the floor to your questions.
Speaker Change: And we'll now go to a question and answer portion of the call. We request that our callers limit their questions. Your one main question and one follow up if you would like to ask a question you may do so by pressing star key colored by the number one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before.
Brent Thill: Question on the keys and so we do all your question you may do so by pressing star followed by the number two again, we request the callers to limit their questions to one main question and one follow up with that the first question comes from the line of Brent Thill with Jefferies. Please go ahead.
Brent Thill: Good morning, Neil I'm curious to get your perspective on what's happening with the P. In <unk>.
Brent Thill: With what the behavior, Jason mentioned, some hesitancy I think that makes sense, but.
Speaker Change: Maybe just give us a quick overview on what you're seeing.
Brent Thill: Good morning, Brent Thanks, Thanks for joining.
Brent Thill: This morning, yes.
Brent Thill: What we're seeing in the deal.
Brent Thill: What you would expect to see by the way with all the.
Brent Thill: Uncertainty generally as a slowdown.
Brent Thill: But what we're seeing on the ground.
Brent Thill: With our pipeline with our conversations with sponsors.
Brent Thill: Some bankers companies is just.
Brent Thill: Consistent drumbeat of activity.
Brent Thill: Pipeline.
Brent Thill: Is as robust as it's been.
Brent Thill: We're super pleased obviously that we got central reach done this year.
Brent Thill: We still have 5 billion deploy over the next 12 months or so.
Brent Thill: But we would we would sort of have our what we're seeing at the high level just a general macro uncertainty disconnect to what we're seeing at the ground level. So we'll just have to see how it plays out in terms of the balance of the year, but we're certainly cautiously optimistic and as we said in the prepared remarks, you know times of uncertainty.
Brent Thill: Oftentimes in our history or present very unique opportunities to.
Brent Thill: To deploy capital.
Brent Thill: Great and quick follow up just on Delta on that exposure can you help us understand what what youre seeing there and.
Brent Thill: If you if you could give an update the percent exposed in that sector. It would be helpful. Thanks.
Brent Thill: Yeah sure happy to do that so.
Speaker Change: Belichick is 60%.
Speaker Change: Hum of their business is focused on helping federal government contractors run their business, 40% are on other professional services oriented markets.
Speaker Change: The broader.
Speaker Change: It's a broad set of activities that has.
Speaker Change: Created amount of uncertainty in the government contracting part of the Dell Tech customer base, it's obviously dose, but it's the budget uncertainty. It's the government shut down the debt ceiling all of that taken together as you would expect creates a fair amount of uncertainty.
Speaker Change: So what happens in that uncertainty is the pipeline pushes to the right a touch as we've seen that says since we've owned this business since 2016, and so we've seen this pattern play out before so things pushed to the right touch.
Speaker Change: The customer sentiment.
Speaker Change: When we talked with our leadership team there during our quarterly call Downs is actually.
Speaker Change: Quite good they feel like this is a short term speed bump versus any medium or long term concern.
Speaker Change: And what happens when the pipeline pushes to the right <unk> growth rate just slows the touchstone Deltec will grow this year, but we probably will take a point or we have taken a point or two of growth off of deltec organic growth rate for this year given the uncertainty.
Speaker Change: Yeah, it's more acute too because the Gov Con enterprise segment is mostly if theyre doing expansions are add ons, it's mostly through perpetual licenses, so that'll impact in year.
Speaker Change: Great. Thanks.
Speaker Change: Yes, you bet.
Speaker Change: And your next question comes from the line of Brad Reback with Stifel. Please go ahead.
Brad Reback: Oh, great. Thanks very much.
Brad Reback: As it relates to free cash flow and operating cash flow should we expect a return to growth here in June or is it more back end weighted.
Brad Reback: Yes, thanks for the call Brad it's going to be more backend weighted Q2 for US I'd mentioned on the prepared remarks, we had we havent done bonds and a few years. So we did our first offering Q3 of last year and some of the coupon payments aren't due until April and so we just got a little bit of a timing between P.
Brad Reback: Interest and cash interest so that will impact the second quarter also just noting the second quarter is usually our lowest quarter of the year, because we make two federal tax payments, but then as we roll through to the second half you're right it'll be a very strong Q3, we have.
Brad Reback: Our transact business will have a full quarter of that they get most of their EBITDA and cash flow in the third quarter, our frontline businesses, particularly strong in the third quarter as well so expect.
Brad Reback: At our second half than a first half.
Speaker Change: That's great and then just real quick on central reach given that there are 200000 providers on the platform does the gross retention rate look a little different here than maybe other aspects of the software business.
Speaker Change: Yes. It does it does a bit if you would think about it just customer only logo only it's in the mid mid to high.
Speaker Change: Ninety's, but when you add to your point some of the therapists that come in and out of the market. Then it's more of a sort of a low ninety's gross retention, but we get that back on the net retention rate, we get as as the market consolidates.
Speaker Change: And those go to the to the winters, we get that through net retention. So net retention is kind of $1 15 to 120 range. So that's kind of how we think about it.
Speaker Change: Great. Thanks very much.
Speaker Change: You bet.
Speaker Change: And your next question comes from the line of Joshua Tilton with Wolfe Research. Please go ahead.
Joshua Tilton: Hey, guys can you hear me.
Speaker Change: We can good morning.
Speaker Change: Good morning, guys. Thanks for squeezing me in here, maybe just to start.
Speaker Change: I guess I just want to take it back and be a little high level I guess I I heard a lot on the call the word uncertainty but.
Speaker Change: But I also heard a lot of them are called the word <unk>.
Speaker Change: Durability and you guys do you believe that all the businesses are pretty durable even in the current environment.
Speaker Change: I guess can you just help us high level understand in the context of your decision to pretty much reiterate the guidance on the top line like where are there some offsetting puts and takes in the guidance that maybe either give you. We don't give you some wiggle room, if the macro gets worse from here or maybe even better.
Speaker Change: Just to start thank you.
Speaker Change: Well, you're right I mean, I think the durability gave us confidence to reiterate.
Speaker Change: The puts and takes I would say.
Speaker Change: We just talked about deltak might be a little bit weaker, but <unk> got other businesses that had.
Speaker Change: Strong bookings that are materializing in terms of recurring revenue throughout the year. So now we're sort of holding holding serve there I'd say at a N S pretty much the same holding serve you know we talked about how <unk> is going to improve throughout the year, we still believe that to be the case foundry saw some green shoots as Neal.
Speaker Change: Talk about and so we expect that business to exit.
Speaker Change: In sort of a high single digit range somewhere in there and then really within <unk>.
Speaker Change: There hasn't been a lot at the top level, but I would say our MDI business certainly has some some good tailwind some of these new.
Speaker Change: Indications that they're they've been targeting for years in terms of cardiac ablation and orthopedics have taken hold so I'd say that got us confident in maintaining our guidance for the year.
Speaker Change: Super Helpful. And then maybe just a little more nuanced follow up to that.
Speaker Change: Can you just talk.
Speaker Change: The durability of Deltec.
Speaker Change: Specifically for the third quarter, just how you think about it throughout the rest of the year. I know you guys gave some high level commentary on the moving pieces in that business there, but maybe how we should think about your visibility into that business and then just durability as we move throughout the year.
Speaker Change: I mean Dell Tech is.
Speaker Change: Is 80% to 85% recurring which gives you an amazing amount of predictability and durability.
Jason Connolly: As Jason alluded there is a little bit.
Jason Connolly: Of perpetual that business still has that we've that we've trimmed off a little bit as I mentioned, that's essentially what's driving our slightly lower growth outlook for the total year and we will we'll stop short of giving you any quarterly sort of specifics on individual businesses.
Jason Connolly: I tried but I appreciate it guys. Thank you so much.
Jason Connolly: Yeah.
Jason Connolly: Yeah.
Speaker Change: And your next question comes from the line of Joseph.
Speaker Change: And a link with Baird. Please go ahead.
Speaker Change: Okay great.
Speaker Change: Great. Thanks for taking my question I guess, what I'm thinking about confidence for the remainder of the year bookings for software order patterns for products are about as good as it gets slightly thinking about leading indicators maybe beyond what you have in hand, what spend that perspective within businesses that are more reliant on Clos.
Speaker Change: Whereas subscription transitions that would seem to be maybe something that's a slightly harder proposition relative to the businesses, where you know when renewals are coming due and you can make an assumption for renewal rates are there any indications around the transition oriented revenues.
Speaker Change: Where maybe a customer preference could slow if the macro remains uneasy out there.
Speaker Change: Okay.
Speaker Change: Yes. Thanks for the question, Joe So Aaron as our kind of our leader in this in the pack in terms of cloud transition.
Speaker Change: And I'm actually Q1 was very strong for them and.
Speaker Change: And they're starting to actually move into the higher end of the client base in terms of cloud transition. So didn't see any indications yeah I understand your point and we didn't we didn't see it there.
Speaker Change: Deltak, but that's not as much of a as much of a tailwind for them and so.
Speaker Change: That kind of is in this sort of uncertainty bucket with those but that'll happen eventually.
Speaker Change: Otherwise yeah, we didn't see at our plan had a nice quarter actually great great point, So powerplay and just launched their tax for fixed asset product about two quarters, one or two quarters ago.
Speaker Change: Really good uptake there their recurring revenues now growing double digits as a result of that.
Speaker Change: So yes, nothing that we could that we could see in terms of our transition.
Speaker Change: Transition to the cloud and slowing customer decision, making has seen any of that.
Speaker Change: Okay, that's great.
Speaker Change: Then you kind of touched on this with deltak, but extending more broadly how would you frame those stress tests around the nonrecurring elements of it.
Speaker Change: And as.
Speaker Change: It could decline speed possible, there and I know, it's a next I'll throw on reoccurring to those question. So you have a mix of perpetual license I would assume very high margin, but then also services and payments.
Speaker Change: The profit margin implication.
Speaker Change: Non recurring pieces are declining I would imagine it's probably good for your margin next just kind of a framing there.
Speaker Change: I think the perpetual and the service are fairly offsetting relative to recurring relative to SaaS subscription.
Speaker Change: So I don't think it will have any meaningful margin impact there.
Speaker Change: And network are.
Speaker Change: Nonrecurring is really small so it's not as significant.
Speaker Change: I think it is a question in terms of N. A S. That's probably the only area that has some some question in terms of where it's going to be this year, it's probably going to be up a little bit.
That's at least our current thinking.
Speaker Change: But we'll see how the year plays out.
Speaker Change: Great. Thank you.
Speaker Change: And your next question comes from the line of Terry Tillman with <unk> Securities. Please go ahead.
Terry Tillman: Yeah, Hi, Neil Jason and Zach Thanks for taking my question and follow up the first one just relates to the central reach we enjoyed reading the 2025 market report they put out I think it said 75% of customers are purchasing AI solutions.
Speaker Change: I'm curious I know you just brought us into the fold but is.
Speaker Change: As the AI driven revenue meaningful at all at this point for Central region and are you seeing some of that kind of I attach rate yet on any of the other AR apps software products and then I had a follow up.
Speaker Change: Yes sure so the.
Speaker Change: Central reaches AI products or are new to the market I mean, there are new in the last 12 months.
Speaker Change: And that Theres, three essentially buckets of products and that they didn't all get released.
Speaker Change: Nine or 12 months ago, it's been a rolling release, so no. It we've got it's not a material amount of revenue for central reach but it is a one of their meaningful growth drivers going forward that the company. Both the company and we are excited about.
Speaker Change: Yeah.
Speaker Change: And to your second part of that question. The second part of your question about the arrest of Roper.
Speaker Change: It's I would say central reaches leading relative to the Roper portfolio, but my guess is the balance of the portfolio will catch up quickly and the first derivative of AI sort of the the GPT is that right along with them with our products or the fraud exposure that was sort of.
Speaker Change: Mitigated those sorts of applications.
Speaker Change: We've done a very good job now as most companies are pivoting into the second derivative, which we think is a huge tam expander for US. This is where you get the agenda digital employees. So our companies are very very busy.
Speaker Change: <unk>, our software with the identity capability into the workflows of our of our customers. We would expect to monitor monetize those on our work completed basis. So we're very excited about that but it's still pretty early but it's moving at a very very very quick clip.
Speaker Change: Got it thanks, and I didn't mean to cut you off Neil just a follow up question relates to core EBITDA margin for you Jason I think it was up 50 bps in the first quarter, how do we think about core EBITDA margins for the year. Realizing you know you have another acquisition that's in the mix now.
Speaker Change: Yes, I think core EBITDA margins will be I think up a little bit this year.
Speaker Change: At the segment level right.
Speaker Change: And then we've got probably with the Corp. G&A. It's more flattish. If you include that but still strong I think we had a good you know and in terms of as I.
Speaker Change: I think acquisition margins are going to get better throughout the year and the core will sort of hold our network.
We'll probably get a little bit better in the second half just through through scale.
Speaker Change: And then and then tap tap had a good quarter, we think that's going to kind of continue throughout the year, just with the NDA and some are and some of our verathon as products come to market.
Speaker Change: Thank you.
Speaker Change: And your next question comes from the line of Ken Wong with dumping behavior. Please go ahead.
Ken Wong: Alright, Thanks for taking my question.
Ken Wong: You guys mentioned deltec pushed a little to the right as you.
Ken Wong: If you look across your portfolio and you think through kind of customer or sales conversations and any other areas, where you're seeing some modest shift to the right.
Ken Wong: Not really I mean, we studied that.
Ken Wong: Intently.
Ken Wong: And intensely as we went through our quarterly reviews and really look forward. It was it was clear at Dell Tech. It was just not clear at other places doesn't mean that it might not happen a little bit, but it hasnt happened yet.
Speaker Change: I would say I'm, an adder and had the highest bookings quarter they've ever had.
Ken Wong: Strata had a phenomenal quarter in terms of you know.
Speaker Change: In terms of Tcp's, so total contract value, which will benefit us over several years.
Speaker Change: But they had a really good quarter for <unk> was a little soft, but they had an exceptionally strong Q4, so we weren't surprised to see a little bit of a year over year.
Speaker Change: Weakness there talked about construct can actually talk about foundry and we talked about software is S. H B I pipeline was.
Speaker Change: With fine in the quarter so.
Speaker Change: Yeah.
Speaker Change: Got it.
Speaker Change: And I guess should you should you happen to see.
Speaker Change: Yeah, some erosion going forward.
Speaker Change: Help us think through you know I guess, what what are the counterplay countermeasures that you guys are thinking about would it be more.
Speaker Change: Margin defensive or are there particular actions that you guys would potentially implement to try to maintain growth what would be.
Speaker Change: Your next step should should something emerge.
Speaker Change: Yeah, So I think for US we kind of have this natural incentive.
Speaker Change: Incentives for the business as they usually are very thoughtful about the pacing of of investment and so if they start to see some weakness.
Speaker Change: It's in their best interest to make sure that they're being prudent obviously, making the right investments and.
Speaker Change: And were very transparent with areas they should not be cutting but.
Speaker Change: They naturally have that sort of in there.
Speaker Change: And their P&L and also I would just say.
Speaker Change: The incentives are variable to throughout the company and so it's based on growth. So we get some of that margin preservation there as well.
Speaker Change: Perfect. Thanks, guys.
Speaker Change: You bet.
Speaker Change: And your next question comes from the line of Scott Davis with Melius.
Speaker Change: Research. Please go ahead.
Scott Davis: Hey, good morning, guys.
Speaker Change: Good morning, Scott.
Speaker Change: Hey, just wanted to clarify because we're just kind of glossed over it a little bit but it sounds like tariffs are the big kind of nothing Burger for you guys and it seems somewhat isolated to marathon is that is that a fair statement.
Speaker Change: I wouldn't say, it's isolated to verathon. It's it's most of the product business in the tipped segment have to deal with some amount of tariff impact, but the vast majority Neptune verathon.
Speaker Change: <unk> is <unk> compliant.
Speaker Change: That's why we're able to sort of be a sort of a 10 to 15 million dollar issue.
Speaker Change: Okay fair enough alright.
Speaker Change: And moving to something more important.
Speaker Change: The poor activity that we're seeing just seems like it could be hit an air pocket, maybe in <unk> or later in <unk>.
Speaker Change: You don't seem to be concerned about.
Speaker Change: Freight activity kind of if and when that occurs is there particular you guys.
Speaker Change: Less expose I suppose at the at the ports is as otherwise for DVT.
So we're watching it as you would expect on a daily on a weekly basis, when we look at the metrics.
Speaker Change: Scott I think that maybe the simplest way to think about it as you know the the paying or the monetize part of the network on the carrier side.
Speaker Change: Flexes, but not like day to day to demand right and so if there was for instance in March if there was a pull forward across the economy for pre tariff shipping we do not see a surge in.
Speaker Change: And carrier demand in the network just like if there's a little bit of slack in the system, we won't see it immediately turn off now if it's sustained that way for six months to 12 months, then we would expect to see.
Speaker Change: And impact on the carrier side of the network.
Speaker Change: So we just have assumed going into the beginning of the year sort of flattish.
Speaker Change: On the carrier volume units and Thats, where we are maintaining it.
Speaker Change: M D T will grow this year because of the price actions.
Speaker Change: And and we'll we'll see how things play out from here.
Speaker Change: Okay. Good color. Thank you appreciate it good luck guys.
Speaker Change: Pass it on thanks.
Speaker Change: And your next question comes from the line of Deane Dray with RBC capital markets. Please go ahead.
Deane Dray: Thank you and good morning, everyone.
Speaker Change: You bet Dr. Dre, how are you doing really well. Thank you. So I want to circle back on central reach and it's a bit unusual I mean, its a good problem to have to explain you don't typically get a business with this type of growth profile, you know often P. E has public company.
Speaker Change: <unk> for someone at a 20% growth plus so just how is this available and what percent of the funnel have these kind of growth profile for you.
Speaker Change: Yep, so on sort of how did this come about I would say it was a very traditional process for us. This was a business that was owned by insight we've known the insight team for awhile.
Speaker Change: There was Jan and her team about a year ago, we're talking with insight. This wasn't about this asset we had an opportunity to meet the CEO plus or minus a year ago, we started doing our proprietary market work.
Speaker Change: Nine months ago, or so we liked a lot of the structural elements of the market the growth drivers. They are solving a real problem in society.
Speaker Change: AI and AI as a strong tailwind with very limited sort of headwind or risk associated with it in this end market and then the process started in a very traditional way with an investment bank. It was very competitive.
Speaker Change: But as we've been able to do in the last handful of deals we've really been able to articulate the roper value proposition to the management team right. So what is life like inside of Roper the advantages of having permanent long term forever capital.
Speaker Change: Ray you can the way you can grow your business inside of that and and.
Speaker Change: In this case there were many LOI submitted but because we had one management, we're able to get the callback and had the opportunity to SM.
Speaker Change: We essentially have a weak finish the transaction, which we did so we're very excited by that the process the way that unfolded in terms of what's in the pipeline. The vast I mean, the vast majority of the funnel are these maturing leader type businesses.
Deane Dray: They are the growth rates could are going to range between 10 and 25%. This doesn't mean that every deal has to be in the twenties, but deane as you know what we're solving for here in our in our revised capital appointment strategy as it is.
Speaker Change: Sort of 30 or 40% better returns in year five.
Speaker Change: And we can get there we can solve for that a couple of different ways, but the opportunities in the market that are plentiful are these more higher growing businesses to help solve for that where you get both the growth and the benefit of margin expansion over time.
Speaker Change: I'd also just say in terms of bundles.
Speaker Change: Good mix of also of <unk>.
Speaker Change: Bolt ons right. So we've been really active on the bolt on front and I can say.
Speaker Change: Continuing to see that as well.
Speaker Change: Got it and just to confirm here does central reach is it accretive to Cri on a total company basis and at what point does that contribution.
Speaker Change: Positive.
Speaker Change: It is working capital Central reach is working capital negative and what's important for us through our Cri lenses that we just remain negative from a working capital point of view. So the incremental transaction doesn't have to be incrementally negative to the fleet. It just has to make sure we stay negative.
Speaker Change: Got it thank you.
Speaker Change: You bet.
Speaker Change: And your next question comes from the line of Joe Giordano with Cowen. Please go ahead.
Joe Giordano: Hey, guys good morning.
Speaker Change: Good morning, Joe.
Speaker Change: Can you just walk me through the guide mechanics like the walk from prior to occur and one.
Speaker Change: A small beat in the quarter versus guide hold organic absorbed <unk> and still raising so like is there a kind of a contingency that was being removed like where is the offset here.
Speaker Change: Yes, I think you've characterized it right and we had a little bit of <unk>.
Speaker Change: And margin in a little bit of interest contingency in our last guide and so I talked about all the things that are.
Speaker Change: Holding within a S <unk>.
Speaker Change: <unk> is a little bit weaker, but others are offsetting that.
Speaker Change: NSS is about on as we talked about probably a little bit better on margin I would say versus our last guidance. So that's that's what gets you to the revised pretty much updated guidance that flows through the Q1 beat.
Speaker Change: Okay that makes sense and obviously I've been getting a lot of calls on deltak as far as what the exposure is I mean, you've talked about it a lot on this on this call. So we don't have to go crazy here, but is that the primary doge risk kind of like done now.
Speaker Change: This market is going back to Tesla.
Speaker Change: And we haven't seen any big changes to these businesses yet like we not just can.
Speaker Change: Can we stop worrying that is happening.
Speaker Change: I think the.
Speaker Change: I think again like I said it earlier I just I don't want to characterize this as just a dose thing I mean, it does but what our pattern recognition of running this business as 2016 is when there is.
Speaker Change: A potential government shutdown.
Speaker Change: And the budget uncertainty that too is.
Speaker Change: People don't know where the spending is going to be at the period right. So it's all of this that's blended together has created the uncertainty, but this community of government contractors provide essential services.
Speaker Change: To the government and so.
Speaker Change: So that's why we think this is a short term thing and not a structural or even a medium term thing you know.
Speaker Change: I think the most recent you just go to dose I think the most recent conversations are we're sort of stuck at 160 or 170 billion and people are going to take we take that as a win as opposed to try to get to the trillion or whatever the number is going to be and then obviously with must spending more of his time going back to his other day jobs and having the limited <unk>.
Speaker Change: Dave and his government contractors government employment status will certainly probably slow down the dose.
Speaker Change: Impact.
Speaker Change: Yes that makes sense great. Thanks, guys I appreciate it you bet.
Speaker Change: And your next question comes from the line of Steve Tusa with Jpmorgan. Please go ahead.
Steve Tusa: Hi, good morning.
Speaker Change: Hey, good morning, Steve.
Steve Tusa: Just on the organic.
Steve Tusa: Just maybe some color on the two key organic and then secondarily on education, there's obviously a lot going on there as well with the government.
How they are kind of pressuring some of these higher Ed organizations.
Steve Tusa: Organizations and anything there that you guys are seeing as well.
Steve Tusa: I'll, let Jason take the first I'll take your education question, Yes, I mean, I think we're going to it'll step up from Q1 a bit.
Steve Tusa: It's.
Steve Tusa: I think it will have a little bit of Oh, the increase just as you see pro care Rolling in obviously NFS is going to go up to mid singles.
Steve Tusa: As we talked about the beginning of the year, which is D. T in foundry ramping and we don't have the MH a comp issue.
Steve Tusa: And then high singles.
Steve Tusa: Range probably for cap.
Steve Tusa: Just with all the things we've talked about it's true for Q2 as well.
Steve Tusa: Yeah.
Steve Tusa: And the primary education and education generally.
Steve Tusa: There is noise in the system, but when you read through what the administration is thinking about doing a department of education, it's essentially not cutting funding. It's just it's just block granting the funding down to the states. If you look at the 25 CR Department education funding equals 24.
Steve Tusa: The the title one sort of funding is like 80% by the way and the President and the Secretary of Iran. Repeat have said, that's not going to be touched in terms of the total amount. There is certainly some pressure on on dei and sort of the conflict in Maine on some of the athletes and whatnot.
Steve Tusa: What about holding back funding, but so I think those are bespoke issues.
Steve Tusa: Big Arching overarching thing is the funding dollars are not going to change just maybe the administration of the funding dollars might change.
Steve Tusa: Going forward. So we haven't heard theres been though like slow down or or or panic at the customer level about there about their funding.
Speaker Change: Okay and then just lastly, just in April here the software bookings have you actually seen acceleration from the low single digit.
Steve Tusa: We don't get that information.
Speaker Change: Okay, great. Thanks for the detail.
Steve Tusa: Thanks for the detail.
Steve Tusa:
Speaker Change: And your next question comes from the line of Julian Mitchell with Barclays. Please go ahead.
Julian Mitchell: Hi, good morning.
Speaker Change: Just wanted to.
Speaker Change: Follow up on a little bit on the organic sales sort of acceleration you have dialed in so I guess you grew total company, 5% organic Q1, I think it's 5% organic over the last 12 months and.
Speaker Change: It seems that sort of enterprise software bookings a little slow to start the year I think the backlog at <unk> was down.
Speaker Change: 40% or so in December so just wanted to sort of the assumption of an acceleration, so maybe 8% plus growth in the back half.
Speaker Change: The confidence there and is there anything outside of foundry, that's turning round of law.
Speaker Change: Well I mean, I think we will.
Speaker Change: Start with network and foundry, obviously, but then D T as well I mean, we're assuming carriers are going to be flat, but even despite that we're expecting the business to get better throughout the year and have a decent exit velocity.
Speaker Change: We've talked about tap already I think that which is really just.
Speaker Change: You know Neptune.
Speaker Change: Continuing to get better.
Speaker Change: Throughout the year.
Speaker Change: Of an easy comp in the third quarter, if you recall.
Speaker Change: And then.
Speaker Change: Talk about MDI being another component of tap that's.
Speaker Change: Given us confidence in the guidance there.
Speaker Change: First thing I'd say Julian is as it relates to the bookings activity on a trailing 12 months bookings activity is up low double digits and it takes time for that bookings activity to work its way into revenue. So that's in the machine and converting to revenue as we speak. So we have broad tailwind strength on bookings activity Q4 is amazing Q.
Speaker Change: Three was a little bit slower as we expected so I would not read too much just listen to your question I would not read too I think you're reading too much into our Q1s booking number because you really got to look at what the buildup of the bookings is that sort of feeds the machine.
Speaker Change: That's helpful. Thank you and then just my follow up would be on the application software.
Speaker Change: EBITDA margin. So you had this sort of 300 bips.
Speaker Change: Hey, Duane and I guess to the EBITDA margin.
Speaker Change: <unk> year on year in the first quarter.
Speaker Change: How are you sort of thinking about that play out over the balance of the year as sort of central reach come in and is that called our mix you had of 100 bps or so a good run rate for the rest of the year.
Speaker Change: Yes.
Speaker Change:
Speaker Change: So, yes, I think as I'm, just trying to trying to parse out what you're saying here I think on a core basis.
Speaker Change: We should see margin expansion this year.
Speaker Change: Maybe not as much as we saw in the first quarter, but certainly up nicely we talked about.
Speaker Change: Dell Tech targeted restructuring last year, we've seen some benefits of that this year and then the acquisition margins I talked about let's just kind of take park central reach to the side for a second those will get better throughout the year.
Speaker Change: Cause.
Speaker Change: You've got a ramping up of activity at pro care, and then you've got transact, having a seasonally strong.
Speaker Change: Third quarter, and actually better second quarter than first quarter, So that'll get better throughout the year and then central reach to your point will come in at.
Speaker Change: At sort of low forty's.
Speaker Change: EBITDA margins, so that'll that'll benefit and <unk> got a benefit this year because of they did some belt tightening in Q4, which carries through for the full year.
Speaker Change: That's great. Thank you.
Speaker Change: You bet.
Zack: And this concludes our question and answer session I'll now return back to Zack <unk> for any closing remarks.
Zack: Thank you everyone for joining us. This morning, we look forward to speaking with you during our next earnings call.
Zack: This conference call has now concluded. Thank you for attending today's presentation you may now disconnect.
Zack: Yeah.