Q2 2025 Roper Technologies Inc Earnings Call

Operator: Today's call is being recorded. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing star zero on your touchtone telephone.

Zack Moxcey: I would now like to turn the call over to Zack Moxcey, Vice President of Investor Relations. Good morning, and thank you all for joining us as we discuss the second quarter 2025 financial results for Roper Technologies. Joining me on the call this morning are Neil Hunn, President and Chief Executive Officer, Jason Conley, Executive Vice President and Chief Financial Officer, Brandon Cross, Vice President and Principal Accounting Officer, and Shannon O'Callaghan, Senior Vice President of Financial Services.

Good morning. The report 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 a conference specialist by pressing star zero on your touchtone telephone. I would now like to turn the call over to Zach Moxy, vice president of investor relations, please.

Zack Moxcey: Earlier this morning, we issued a press release announcing our financial The press release also includes replay information for today's call. We have prepared slides to accompany today's call, which are available through the webcast and are also available on our website.

Neil Han: Good morning and thank you all for joining us as we discuss the second quarter, 2025 Financial results. For rubber Technologies joining me in the call this morning are Neil Han president and Chief Executive Officer, Jason Conley, Executive Vice, President and Chief Financial Officer, Brandon cross, vice president and principal accounting officer and Shannon no Callahan, senior, Vice President of Finance.

Earlier this morning we issued a press release announcing our financial results. The press release also includes replay information for today's call.

Zack Moxcey: And now if you'll please turn to We begin with our Safe Harbor Statement. During the course of today's call, we will make forward-looking Subject to Risks and Uncertainties, as described on this page, in our press release, and in our essay.

Neil Han: We are prepared to slides to accompany today's call which are available through the webcast and are also available on our website. And now if you'll please turn to page 2,

Zack Moxcey: to listen to today's call and the context of that. And now please turn to page three. Today, we will discuss our results primarily on an adjusted non-gap and continuing operation. In the second quarter, the difference between our gap results and adjusted results consists of the following items. Amortization of Acquisition-Related Intangible Assets, Transaction-Related Expenses Associated with Completed Acquisitions, and lastly, Financial Impacts Associated with Minority Investments, including Cash Taxes Paid Resulting from the Sale of our Minority Interest in Certificates. Reconciliations can be found in our press release and in the appendix of this presentation on our website.

Neil Han: We begin with our Safe Harbor statement. During the course of today's call. We will make forward-looking statements, which are subject to risks and uncertainties as described on this page in our press release, and in our SEC filings, you should listen to today's call and the context of that information.

Neil Han: And now, please turn to page 3. Today, we will discuss our results primarily on an adjusted non-gaap, and continuing operations basis. For the second quarter, the difference between our Gap results and adjusted results consists of the following items.

Neil Han: Amortization of acquisition related, intangible assets, transaction related expenses, associated with completed Acquisitions, and lastly Financial impacts associated with minority Investments, including cash taxes. Paid resulting from the sale of our minority interest insertion yet.

Zack Moxcey: And now if you 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 Hunn: Neal. Thank you, Zack. And thanks to everyone for joining us this morning. As we turn to page four, you'll see the topics we plan to cover today. We'll start with our second quarter highlights, including reviewing the platform acquisition we announced earlier today, Subsplash. Then we'll go through our segment results and our improved outlook for the full year, and then get to your questions. So let's go ahead and get started. Next slide, please.

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

Neil Han: Thank you Zack. And thanks to everyone for joining us this morning.

Neil Han: As we turn to page 4, you'll see the topics we plan to cover today.

Neil Han: We'll start with our second quarter highlights, including reviewing the platform acquisition. We announced earlier today, subsplash.

Then we'll go through our segment results and our improved outlook for the full year and then get to your questions.

Neil Han: Slide, please.

Neil Hunn: As we turn to page five, let me highlight the four key takeaways for today's call. First, we posted another solid quarter financial result. Total revenue grew 13%. Organic revenue grew 7%. Software bookings grew in the high teens area. And we continue to deliver impressive cash flow with free cash flow margins coming in at 31% for the TTM period. Second, we announced earlier today the acquisition of another great vertical market software provider, Subsplash, which I'll get to in a bit. Then, given the strong first half performance and the anticipated completion of the subsplash acquisition, we're raising our full-year total revenue guidance and our full-year depth outlook.

Neil Han: As we turn to page 5, let me highlight the 4 key. Takeaways for today's call.

First, we posted another solid quarter Financial results.

Total revenue, grew 13%, organic Revenue, grew 7% software booking screw in the High Teens area, and we continue to deliver impressive, cash flow with free, cash flow margins coming in at 31% for the TTM period.

Second, we announced earlier today, the acquisition of another great vertical Market software provider subsplash, which I'll get to in a bit.

Then given the strong first half performance, and the anticipated completion of the subsplash acquisition. We're raising our full year total revenue guidance, and our full year depth Outlook,

Neil Hunn: And finally, we continue to be very well positioned for capital deployment and continue to have more than $5 billion of available firepower over the course of the next 12 months.

Neil Han: And finally, we continue to be very well positioned for Capital employment and continue to have more than 5 billion of available Firepower. Over the course of the next 12 months.

Neil Hunn: Please turn to page 6 where we'll discuss Subsplash. Subsplash is a cloud-native and AI-enabled software provider serving faith-based organizations. As a leading provider of digital engagement, church management, and integrated giving solutions, their purpose-built platform enables customers to serve congregations while engaging with members more effectively. Subsplash partners with 20,000 faith-based organizations to help them become digitally native by deepening member engagement, reducing manual administrative burden through automation, streamlining content distribution, and integrating digital giving solutions, all supporting their customer's core mission. Simply put, Subsplash enables these organizations to allocate more time and resources to what matters most, ministering to and engaging with their congregation in a digitally native way, whether it be online or on an in-person basis.

Neil Han: Please turn to page 6 where we'll discuss subsplash.

Neil Han: Subsplash is a cloud native, and AI enabled software, provider serving faith-based organizations.

Neil Han: As a leading provider of digital engagement Church management and integrated giving Solutions their purpose-built platform, enables customers to serve congregations while engaging with members more effectively.

Neil Han: Subsplash partners with 20,000 faith-based organizations to help them become digitally native by deepening member engagement. Reducing manual. Administrative burden, through automation,

Neil Han: Streamlining content distribution and integrating digital giving Solutions all supporting their customers core mission.

Neil Han: Simply put subsplash enables these organizations to allocate more time and resources to what matters. Most

ministering to and engaging with our congregation in a digitally native way whether it be online or on an in-person basis.

Neil Hunn: Importantly, this customer value proposition strengthens further as the company's AI-native capabilities are further deployed across the product stack.

Neil Han: Importantly, this customer value proposition. Strengthens further as the company's AI native capabilities are further deployed across the product stack.

Neil Hunn: In terms of investment highlights, the purchase price is $800 million. We expect Subsplash to deliver 115 million in revenue and 36 million of EBITDA for the 12 months ending Q3 of 2026. This business meets all of our longstanding acquisition criteria, leader in a niche, competes on the basis of customer intimacy, has strong gross margins, and converts high levels of cash flow. Subsplash reflects the maturing leader acquisition profile of being a higher organic growth business, in this case, in the high teens area, and competes in a $2.5 billion US TAM with about half being currently served, and potential to meaningfully expand internationally.

Neil Han: In terms of investment highlights, the purchase price is 800 million.

We expect Subs Splash to deliver 115 million revenue, and 36 million of ibida for the 12 months ending, Q3 of 2026.

Neil Han: This business meets all of our long-standing acquisition criteria leader in a niche.

Competes on the basis of customer intimacy. Has strong growth margins and converts high levels of cash flow.

Neil Hunn: In addition, Subsplash is well positioned to materially improve their growth and EBITDA margins over the next three or five years, and we expect to deliver this by executing a handful of the available levers. As a result, we expect to see SubSplash's organic revenue growth convert to high 20% EBITDA growth over the next three to five years.

Neil Han: Subsplash reflects the maturing leader acquisition profile of being a higher. Organic growth business in this case, in the High Teens area and competes in a 2 and a half billion dollar US Tam with about half being currently served and potential to meaningfully expand internationally.

In addition, subsplash is well positioned to materially improve their growth and even on margins over the next 3 to 5 years and we expect to deliver this by executing a handful of the available levers.

Neil Hunn: We will finance this transaction with a revolver and report the results in our network software segment. Subsplash represents another powerhouse addition, delivering critical solutions to a customer base with deep, ongoing needs for these capabilities.

Neil Han: As a result, we expect to see Subs splashes or organic Revenue growth convert to high 20% Eva dog growth over the next 3 to 5 years.

Neil Han: We will finance this transaction with a revolver and a report the results in our network software segment.

Subs Splash represents another Powerhouse Edition, delivering, critical solutions to a customer base with deep ongoing needs for these capabilities.

Neil Hunn: To the Subsplash team, we're so excited for you to join Roper. Thank you for all of the super important work you do for your customer community and for trusting Roper to become your permanent partner.

To the subsplash team. We're so excited for you to join Roper.

Jason Conley: So with that, let me turn the call over to Jason to walk through our P&L on balance sheet. Thanks, Neil. And good morning, everyone. I'll now take you through our Q2 financial highlights on slide seven. The second quarter was another solid installment in what we believe will be a good year for Roper. Revenue of $1.94 billion was up 13% over prior year and well balanced with 7% organic growth and a 6% increase from acquisitions, with central reach results contributing since the April 23rd closed For more information visit www.FEMA.gov Organic growth was strong across the portfolio, demonstrating resilient demand for our mission-critical solution.

Thank you for all of the super important work you do for your customer community and for trusting Roper to become your permanent partner.

Neil Han: So with that, let me turn the call over to Jason to walk through our p&l and balance sheet. Jason

Thanks Neil and good morning everyone. I'll now take you through our Q2 financial highlights on slide 7.

The second quarter was another solid installment and what we believe will be a good year for Rober

Neil Han: Revenue of 1.94 billion was up, 13% over prior year and well, balanced with 7% organic growth and a 6% increase from Acquisitions with Central reach results contributing since the April 23rd close date.

Jason Conley: Importantly, and as expected, network software year-over-year growth notably improved from Q1, given more normal comps at MHA, increased freight match unit economics, and recovery at foundation. EBITDA of $775 million was up 12% and generated EBITDA margin of 39.9%. Core Enterprise Operating Margin was flat to the prior year, with Core Segment Margin up 40 bases per year. This follows a similar pattern to Q1, bringing our year-to-date core segment margin expansion to 70 basis points. For the diluted EPS, we delivered $4.87 versus our guidance range of $4.80 to $4.84 on strong revenue growth and excellent core operating leverage.

Organic growth was strong across the portfolio. Demonstrating Brazilian demand for our mission critical Solutions.

Importantly, and as expected network software year-over-year growth, notably improved from q1, given more normal comps at mha increased Freight match, unit, economics, and recovery at Foundry.

Neil Han: Eva of 775 million was up 12% and generated. Evida margin of 39.9%

Neil Han: core Enterprise, operating margin was flat to the prior year with core segment margin up 40 basis points.

This follows a similar pattern to q1 bringing our year to date core segment, margin expansion to 70 basis points.

480 to 44, on, strong Revenue growth, and excellent core operating Leverage

Jason Conley: Finally, free cash flow of $400 million was up 10% versus prior year, which drives TTM free cash flow to over $2.3 billion. The recent passage of the Big Beautiful Bill Act provided a permanent repeal of Section 174, Capitalization of R&D Expenditures. We are therefore reducing our cash tax payments for 2025 by around $150 million to reflect the cumulative reversal of capitalization, of which about $60 million benefited our second quarter. We will also see a benefit of 120 million carrying it next year due to deduction limitations in 2025. Adjusting out the Section 174 impact, our three-year TTM free cash flow CAGR would be about 14%.

Neil Han: Finally free cash flow of 43. Million was up 10% versus prior year, which drives TTM free cash flow to over 2.3 billion.

The recent passage of the big beautiful, bill act provided a permanent repeal of section 174, capitalization of R&D expenditures.

Neil Han: We are therefore reducing our cash tax payments for 2025 by around 150 million to reflect the cumulative reversal of capitalization.

Of which about 60 million benefited, our second quarter.

Neil Han: We will also see a benefit of 120 million carrying the next year, due to deduction limitations in 2025.

Neil Han: Adjusting out the section 174 impact, our 3-year, TTM free cash flow kegger would be about 14%.

Jason Conley: So overall, good news in offsetting some near-term yield dilution and feeling our growth equation.

Neil Han: So overall, good news and offsetting some near-term, deal, dilutions and fueling our growth equation.

Jason Conley: Now let's turn to slide eight and discuss our strong financial position. We finish the quarter with a healthy balance sheet and substantial capacity for continued capital deployment. We exited at 2.9 times net debt to EBITDA, and pro forma for subsplash, this would be around 3.1 times. Additionally, our cash balance was $242 million, and our revolver had $1.4 billion drawn against our $3.5 billion credit. So even with subslash closing this month, as Neil outlined, this gives us over 5 billion in M&A firepower. The substantial capacity positions us very well to continue executing on our disciplined capital employment strategy.

Now, let's turn to slide 8 to discuss our strong financial position.

We finished the quarter with a healthy balance sheet and substantial capacity for continued. Capital deployment.

Neil Han: We exited at 2.9 times, net debt to ibida and pro-forma for subsplash. This would be around 3.1 times.

Neil Han: Additionally, our cash balance was 242 million and our revolver had 1.4 billion drawn against our 3 and a half billion dollar credit facility.

Neil Han: So, even with sub slash closing this month as Neil outlined, this gives us over 5 billion in m&a Firepower.

This substantial capacity positions us very well to continue executing on our discipline Capital employment strategy.

Jason Conley: To that end, while the sponsor-to-sponsor market is still somewhat muted, we are active on a number of both platform and bolt-on transactions that reflect the characteristics of higher growth and increasing long-term value capture, with subsplash being a case in point.

Neil Han: To that end, while the sponsor to sponsor Market is still somewhat muted. We are active on a number of both platforms and both on transactions that reflect the characteristics of higher growth and increasing long-term value capture.

Neil Han: With subsplash being a case in point.

Neil Hunn: With that, I'll turn it back over to Neal for our second highlight of the guidance. Neil?

Neil Hunn: Thanks, Jason. As we turn to page 10, let's review our application software segment. Revenue for the quarter grew by 17% in total and organic revenue grew by 6%. Even our margins were 42.9% and core margins improved 70 basis points in the quarter.

Neil Han: With that, I'll turn it back over to Neil for our segment. Highlights and guidance update. Neil, thanks, Jason as we turn to page 10, let's review our application software segments.

Neil Han: Revenue for the quarter, grew by 17% in total and organic Revenue grew by 6%.

Neil Han: Even on margins were 42.9% and core margins. Improved 70 basis points in the quarter.

Neil Hunn: As it returns to the businesses, we'll start with Deltek. Deltek grew in the mid-singles range in the quarter, both recurring and total revenues. As highlighted on the slide, Deltek continues to have strong migration to their cloud offerings while the business continues to innovate at a rapid pace and is benefited by very strong growth and net retention. As it relates to the federal government contracting outlook, we believe the big, beautiful bill's spending priorities and sheer volume will be a catalyst for market growth, which has been tepid for the last 24 months or so. The timing of market re-acceleration is still to be determined, but we believe it will occur over the course of the next few quarters.

Neil Han: as it turns to the businesses, we'll start with Deltech

Neil Han: Deltech grew in the mid singles range in the quarter. Both recurring and total revenues.

Neil Han: As highlighted on the slide, Deltech continues to have strong migration to their Cloud offerings. While the business continues to innovate at a rapid pace and is benefited by very strong growth and net retention.

Neil Han: As it relates to the Federal Government Contracting Outlook, we believe the big beautiful bills spending priorities and sheer volume will be a catalyst for market growth, which has been tested for last 24 months or so.

Neil Han: The timing of Market reaxis is still to be determined, but we believe it will occur over the course of the next few quarters.

Neil Hunn: Importantly, during the quarter, Dell Tech made substantial progress in regard to their AI based product capability, and recently announced their new flagship GovCon product CostPoint, fully embeds their AI assistant Della to help deploy intelligent task oriented agents to streamline repetitive processes and help users make faster, better informed decisions. Exciting stuff here and lots more to come for sure.

Speaker Change: Importantly, during the quarter Deltech, made substantial progress in regard to their AI based product capability. And recently announced their new flagship govcon product cost Point fully, embeds. Their AI assistant, Della to help deploy intelligent task oriented agents to streamline repetitive processes and help users make faster better informed decisions.

Speaker Change: Exciting stuff here and lots more to come for sure.

Neil Hunn: Adderick continues to be incredibly strong and posted their best bookings quarter in the company's history. The booking strength is broad-based, fueled by their AI-enabled solutions, and is a combination of market share gains, cloud migration, and SaaS growth. Congrats and thanks to Chris and the entire team at Adirond. Keep up the amazing work. continues once again to be steady and solid for us. We continue to see consistent ARR growth and strong customer retention here with strength across our agency, MGA, and carrier solutions. This growth is enabled by their strong go-to-market capabilities and their long-term commitment to product strength.

Adorate contends to be, it continues to be incredibly strong and posted their best bookings quarter in the company's history.

The booking strength is broad-based fueled by their AI enabled Solutions and as a combination of market share, gains Cloud, migration and SAS growth.

Speaker Change: Congrats. And thanks to Chris and the entire team at aderant, keep up the amazing work.

Her continues once again, to Be steady and solid for us.

We continue to see consistent ARR growth and strong customer retention here with strength, across their agency, MGA, and carrier Solutions.

Neil Hunn: We look forward to talking about this and their AI-enabled solutions in subsequent calls.

Speaker Change: This growth is enabled by their strong. Go to market capabilities, and their long-term commitment to product strength.

Speaker Change: We look forward to talking about this and their AI enabled Solutions in subsequent calls.

Neil Hunn: Power plan continues to be outstanding. As we mentioned last quarter, the team has done a great job at making the revenue stream more recurring in nature. In addition, they continue to get amazing feedback with their innovative cloud offerings, which are driving strong SAS migration activity. As a result, Power Plant just continues to win in the market with their new SAS solution and near 100% gross retention. ProCare and Transact C-Board continue to perform very well in their respective markets. OI also saw very good results from the healthcare IT portion of this segment, Strata, Data Innovation, and Clinic.

Power plan continues to be outstanding.

Speaker Change: As we mentioned last quarter, the team has done a great job at making the revenue stream, more recurring in nature.

In addition, they continue to get amazing feedback with their Innovative Cloud offerings, which are driving strong SAS migration activity.

As a result, power plant just continues to win in the market, with their new SAS solution, and near 100% grocery tension.

Neil Hunn: Finally, Central Reach is awesome in the early days, has exceptional momentum, record expansion activity, and a 70% enterprise new client win rate all in a quarter.

Speaker Change: Strata data Innovations and Clinics.

Speaker Change: Finally, Central reach is awesome in the early days as exceptional. Momentum record, expansion, activity, and a 70% Enterprise, new client, win rate all in the quarter.

Neil Hunn: As it relates to the outlook for the second half of the year, we continue to expect organic revenue growth to be in the mid-single-digit-plus area. Please turn with us to page 11. Total revenue in our network segment grew 6% and organic revenue 5% in the quarter. Even on margins remain strong at 54.6% and core margins improved 20 basis As we dig into the individual businesses, we'll start with DAT. D.A.T. was solid in the quarter and had strong RPU improvement. The market continues to be stable, albeit bouncing along the bottom. Also in the quarter, we integrated LoanLink, our Canadian freight match business with DAT.

Speaker Change: As it relates to the outlook for the second half of the year. We continue to expect organic Revenue growth to be in the mid single digit plus area.

Speaker Change: Please turn with us to page 11.

Total revenue, and our Network segment group, 6% and organic Revenue 5% in the quarter.

Speaker Change: Even on margins remain, strong at 54.6% and core margins. Improved 20 basis points

as we dig into the individual, businesses will start with dat.

Speaker Change: Dat was solid in the quarter and had strong Arc to improvements.

Speaker Change: The market continues to be stable, albeit bouncing along the bottom.

Neil Hunn: We expect the integration to deliver, over time, a more unified and efficiently deployed North American Freight Match Network. DAT continues executing exceptionally well on their core strategy of driving enhanced network value for both brokers and carriers. This dual sided approach positions us to better monetize our entire network ecosystem. Supporting this strategy, DAT made significant progress integrating Trucker Tools, our Q4 bolt-on acquisition, and completing the acquisition of ALCO, an AI-native factoring technology solution. Combined with the DAT Network Foundation, these integrated products and assets now deliver substantially more value to both carriers and brokers. Looking forward, DAT will maintain their aggressive execution of this network value enhancement strategy, positioning the business for continued growth, and improves monetization across all.

Also, in the quarter we integrated load link our Canadian Freight match business with dat.

We expect the integration to deliver over time. A more unified and efficiently deployed North American Freight match Network.

Dat continues. Executing exceptionally well, on their core strategy of driving enhanced Network value for both brokers and carriers.

Speaker Change: This dual-sided approach positions us to better monetize. Our entire network ecosystem.

Speaker Change: Supporting this strategy dat made significant progress. Integrating trucker tools! Our Q4, bolt-on acquisition, and completing the acquisition of algo and AI native factoring technology solution.

Speaker Change: Combined with a DAT Network Foundation, these integrated products and Assets. Now, deliver substantially more value to both carriers and brokers

Looking forward, dat will maintain their aggressive execution of this network value enhancement strategy. Positioning the business for continued growth and improves monetization across all.

Neil Hunn: Construct Connect was solid for us in the quarter. Their growth was fueled by strong customer bookings activity and improved customer retention. Of note, this business continues to make good progress with their emerging AI-enabled takeoff and estimating solution. Foundry declined in the quarter as expected, but we continue to see market recovery signs as they grew their sequential AR for the first time since the Actors and Writers strikes. Good to see recovery start here. Also in the quarter, Foundry's new product, Nuke Stage, started gaining traction in the market, specifically with a very large studio and several smaller customers.

Speaker Change: Construct connect with solid for us in the quarter, the growth was fueled by strong customer bookings, activity and improved customer retention of note. This business continues to make good progress with their emerging AI enabled takeoff and estimating solution.

Boundary declined in the quarter as expected, but we continue to see Market recovery signs as they grew their sequential are for the first time since the actors and writer strikes. Good to see recovery start here.

Neil Hunn: Nuke Stage enables the power of post-production compositing to occur in the production phase of the pipeline. An exciting new capability that will help drive cost savings for the industry. Finally, our network healthcare businesses, MHA, SHP, and Softraders were very good in the quarter.

Speaker Change: Also in the quarter for Audrey's, new product, nuke stage started getting Traction in the market, specifically with a very large studio, and several smaller customers.

Nuke stage enables, the power of post-production compositing to occur in the production, phase of the pipeline and exciting new capability. They'll help drive cost savings for the industry.

Finally, our Network Health Care, businesses mha SHP and softwares were very good in the quarter.

Neil Hunn: As we return to the outlook for the second half of the year, we expect to see revenue growth in the mid-single-digit-plus range. Now, please turn to page 12 and let's review our TEP segments quarterly results. Revenue here grew 10% and organic revenue grew 9%. Even our margins came in at 36.7%. We'll start with NetTune, which was, once again, just solid for us. NetTune continues to do a great job with their ultrasonic meter go-to-market execution and continue to see strength in their data and software offerings. Verathon continues to execute at a high level as well. In particular, in the quarter, Verathon saw continued strength in their single-use reoccurring solutions, both B-Flex and GlideScope.

Speaker Change: As a return to the outlook for the second half of the year, we expect to see Revenue growth in the mid, single digits plus range.

Now, please turn to page 12 and let's review our test segments, quarterly results.

Speaker Change: Revenue here, grew 10% and organic Revenue grew 9%

Speaker Change: Even on margins came in at 36.7%.

We'll start with Neptune which was once again just solid for us.

Speaker Change: Net 2 continues to do a great job with our ultrasonic meter. Go to market, execution, and continue to see strengths and their data and software offerings.

Speaker Change: Marathon continues to execute at a high level as well. In particular in the quarter verathon saw continued strength in their single-use reoccurring Solutions but be flex and glad scope.

Neil Hunn: NDI was really good in the quarter. As discussed in prior quarters, NDI delivers proprietary and world-class precision measurement technologies to a wide variety of healthcare OEMs, which in turn enables the OEMs to deliver guidance-enabled solutions across many healthcare markets, such as orthopedic surgery, interventional radiology, and cardiac ablation. Finally, there was strong execution which led to growth across Civco, FMI, Innovonix, IPA, and RFIDM.

Speaker Change: Ndi was really good in the quarter, as discussed in Prior quarters, ndi delivers, proprietary, and world-class Precision measurement Technologies to a wide variety of healthcare oems which in turn enables the oems to deliver. Guidance enabled Solutions across many Healthcare markets such as orthopedic surgery, Interventional Radiology and cardiac ablation.

Finally, there are strong execution which led to growth across civco FMI and of onx IPA and rfids.

Neil Hunn: Turning to the outlook for this segment, we expect to see high single-digit organic growth for the second half of the year. with a stronger third quarter and a more difficult fourth quarter come.

Speaker Change: Turning to the outlook for this segment, we expect to see high single digit organic growth for a second half of the year.

With a stronger, third quarter, and a more difficult fourth quarter comp.

Neil Hunn: Before turning to our guidance outlook, I'd like to reflect on our AI perspective, its transformational potential for customers and our enterprise, and the steps we're taking to build lasting advantage. Our strategy is focused and practical, applying AI to address high impact customer specific challenges. We're confident that AI-based innovation substantially expands our business's TAMs, where we have a high right to win, and will be a core catalyst for our next chapter of growth. The true unlock, the magic, if you will, of AI emerges at the intersection of the specialized mission-critical workflows our customers rely on daily and our deep vertical market expertise.

Speaker Change: Before turning to our guidance Outlook, I'd like to reflect on our AI perspective.

It's transformational potential for customers and our Enterprise and the steps we're taking to build lasting advantage.

Our strategy is focused and practical applying AI to address high impact, customer specific challenges.

Speaker Change: We're confident that AI based Innovation substantially, expands our business's Tams, where we have a high right to win and will be a core Catalyst for our next chapter of growth.

At the intersection.

Speaker Change: Of the specialized Mission critical workflows our customers rely on daily and our deep vertical Market expertise.

Neil Hunn: Our AI initiatives span all our businesses and we're seeing early traction from compliant solutions to AI enhanced products to AI systems and intelligent agents that streamline tasks. We're building solutions that deliver tangible, high-value outcomes. Today, we have approximately 25 AI enabled products either in market or in development. Importantly, our AI innovations create a positive halo effect across many of our businesses, driving booking activity for our broader product stack. This is an exceptionally fun moment to be at the forefront of innovation, redefining and automating workflows across our vertical markets while unlocking new growth and building durable competitive advantages.

Our AI initiatives span all our businesses and we're seeing early traction from compliance solutions to AI enhanced products to AI assistance, and intelligent agents that streamline tasks.

Speaker Change: We're building solutions that deliver tangible, high value outcomes.

Today we have a proximately, 25 AI inable products either in Market or in development.

Speaker Change: Importantly, our AI Innovations create positive, halo effect across many of our businesses driving is booking activity for our broader product stacks.

Neil Hunn: Exciting stuff, for sure.

Neil Hunn: So with that, please turn with us to page 14. Let's turn to our Q3 and increase full year 2025 guidance. Given our strong Q2 performance and anticipated closing of the subsplash acquisition, we're increasing our total revenue growth guide to be in the 13% range. Our organic growth rate of six to seven percent for the full year remains unchanged. Finally, we're increasing our full-year depth outlook to be 1990 to 2005, which includes about a nickel of subsplash solution. Our guide continues to assume a full year effective tax rate in the 21 to 22% area. For the third quarter, we expect adjusted depths to be between $5.08 and $5.12 while absorbing 3 cents of subsplash dilution in the quarter.

This is an exceptionally fun moment to be at the Forefront of innovation redefining and automating workflows across our vertical markets while unlocking new growth and building durable, competitive advantages, exciting stuff for sure.

Speaker Change: So with that, please turn with us to page 14.

Speaker Change: Let's turn to our Q3 and increase full year 2025 guidance.

Given our strong Q2 performance and anticipated closing of the subsplash acquisition or increasing. Our total revenue growth guide to be in the 13% range.

Speaker Change: Or organic growth rate of 6 to 7% for the full year remains unchanged.

Speaker Change: Finally, we're increasing our full year depths Outlook to be 1990 to 2005, which includes about a nickel of subsplash dilution.

Our guide continues to assume a foyer effective tax rate in the 212% area.

For the third quarter, we expected just a depth to be between 5 and 8 cents and 5.12 cents. While absorbing 3 cents of subsplash dilution in the quarter.

Neil Hunn: Now please turn with us to page 15 and then we'll open it up for your questions. will conclude with the same key takeaways with which we started. First, our second quarter financial results were quite good. Second, we announced the acquisition of another market-leading vertical market software business, Subsplash. Third, given our solid start to the year, we're raising our four-year guidance. And finally, we remain well-positioned for further capital deployment. Relative to our financial results, we grew total revenue 13% and organic revenue 7% in the quarter and delivered 31% free cash flow margins in the TTM period.

Speaker Change: Now, please turn with the page, 15, and then we'll open it up for your questions.

Speaker Change: We'll conclude with the same key takeaways with which we started.

Speaker Change: First, our second quarter Financial results were quite good.

Speaker Change: second, we announced the acquisition of another Market, leading vertical Market software, business Subs, splash,

Speaker Change: Third, given our solid start to the year. We're raising our full year guidance and finally

Speaker Change: We remain well positioned for further Capital deployment.

Relative to our finance results. We grew total revenue 13% and organic Revenue 7% in the quarter and delivered 31%, free cash flow margins in the TTM period.

Neil Hunn: We're delighted with our acquisition of SubSplash. As discussed, this vertical market leader is mission critical to the delivery of digital engagement, church management and payments to 20,000 faith based organizations and has several embedded growth drivers that will support high teens revenue growth and expanding margin profile. Next, we're raising our four-year outlook. And 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. Our M&A pipeline continues to be very active and our teams are engaged on several opportunities. As usual, we're excited to pursue these opportunities with our unbiased and disciplined approach.

Speaker Change: We're delighted with our acquisition of subsplash as discussed this vertical Market Leader's Mission critical to the delivery of digital engagement Church management and payments to 20,000 faith-based organizations and has several embedded growth drivers that will support its High, Teens Revenue growth, and expanding margin profile.

Speaker Change: Next, we're raising our foyer Outlook. And finally, we continue to be very well positioned with more than 5 billion of available m&a, Firepower, to employ Capital towards leading vertical Market software businesses.

Speaker Change: Our many pipeline continues to be very active and our teams are engaged on several opportunities.

As usual, we're excited to pursue these opportunities with our unbiased and disciplined approach.

Neil Hunn: Prior to turning to your questions, and if you could flip to the final slide, our strategic compounding flywheel, we like to remind everyone that what we do at Roper is simple. We compound cash flow over a long arc of time by executing a low risk strategy and running our dual threat offense. First, we have a proven powerful business model that begins with operating a portfolio of market leading application specific and vertically oriented business. Once a company is part of Roper, we operate a decentralized environment so our businesses can compete and win based on customer intimacy.

Prior to turning to your questions. And if you could flip to the final slide, our strategic compounding flywheel. We like to remind everyone. That what we do at Roper is simple. We compound cash flow over the long Arc of time by executing a low-risk strategy and running our dual threat offense.

First, we have a proven powerful business model that begins with operating a portfolio of Market leading application, specific and vertically oriented businesses.

Neil Hunn: We coach our businesses on how to structurally improve their long-term and sustained organic growth rates and underlying business quality. Second, we want a centralized, process-driven capital appointment strategy that focuses in a deliberate and disciplined manner on cultivating, curating, and acquiring the next great burglar market leading business to add to our cashflow compounding flywheel. 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.

Once a company is part of a Roper, we operate a decentralized environment so our businesses can compete and win based on customer intimacy.

Speaker Change: We coach our businesses on how to structurally improve their long-term and sustained. Organic growth rates and underlying business quality.

Second, we're on a centralized process-driven Capital employment 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.

Operator: With that, we'd like to thank you for your continued interest and support and open the floor to your questions. All right, thank you.

Speaker Change: Taken together. We compound our cash flow over a long Arc of time. In the mid teens area. Meaning we Double Or cash flow every 5 years or so.

With that. We'd like to thank you for your continued interest and support and open the floor to your questions.

Operator: We will now go to our question and answer portion of the call. We request that our callers delimit their questions to one main question and one follow up. If you would like to ask a question, you may do so by pressing star key, followed by the digit 1 on your touchtone telephone. If you're using a speakerphone, please pick up your handset before pressing any keys. And to withdraw your question, please press star, then the digit 2. Again, we request that our callers delimit their questions to one main question and one follow up.

Dylan Becker: With that, our first question comes from the line of Dylan Becker with William Blair. Please go ahead. Hey, gentlemen, appreciate that question here.

Follow up with that. Our first question comes from the line that Dylan Becker with William beer. Please go ahead.

Neil Hunn: Maybe, Neil, starting for you, kind of the resiliency and strength across the software segments of the business, can you kind of just give us a general breakdown of, again, the emphasis that your customers are kind of focusing on around productivity, kind of in a current context, how that's layering in momentum around AI, and maybe this prolonged period of uncertainty, if there's any easing that you're seeing there, as they can't necessarily sit on their hands, from a decision-making standpoint. Thank you. Yeah, so appreciate the question. So first, I you know, it was nice to see the high teens bookings bookings in the second quarter gives you a sense that in the nooks and crannies of the market that our businesses serve, things are okay.

Dylan Becker: Hey gentlemen, appreciate that question here. Uh, maybe Neil starting for you. Uh, kind of the resiliency and strength

across the software segments of the business. Can you kind of just give us a general breakdown of again, the emphasis that your customers are are kind of focusing on around productivity kind of in the current context how that layering in momentum around Ai and maybe this prolongs period of uncertainty. If, if there's any easing that you're seeing there, uh, as they can't necessarily sit on their hands uh for my decisioning standpoint uh, forever. Thanks

Neil Hunn: Also, I remind you and everybody that the end market exposure we have, generally not not exclusively, but generally are less tied to macro think, you know, education, legal Insurance.

Neil Hunn: I mean, these are areas that healthcare for sure that are generally less macro sensitive, but they don't ignore the macro sensitivity, but that everything as you say, and this is not unique to us, there's just an unprecedented generational opportunity in front of us, all our businesses to really drive so much productivity gains inside of our customers with the use of these FRAI tools. I'm sure others will have questions on this, but lots of momentum in terms of the knowledge that's being built up inside the company and that translating the products into the market and many more products are in development.

Yeah. So um, appreciate the question. So first I, you know, it was nice to see the high teens bookings. Well bookings. In the second quarter gives you a sense that and the nooks and crannies of the market that we or businesses serve. Um, things are okay. Also, I would remind you and everybody that the End Market exposure, we have generally not and not exclusively but generally are less tied to macro think, you know, you know, education legal, you know, insurance? I mean these are areas that health care for sure. That are generally less macro sensitive not but they don't, they're not they don't they don't ignore the macro sensitivity. But that the other thing is you say and and this is not unique to us, there's just an unprecedented generational um opportunity in front of us. All our

Dylan Becker: So that's very exciting. For instance, in Adderant, it was one of our faster growing businesses in the quarter. They were probably our first company to get actual AI-based products, automation-based products into the market. And you see that translating into their bookings activity, not just for the AI specific product, but for the drag along of existing tech stack with it as well. All right, very helpful. Thank you.

Businesses to really drive so much productivity gains inside of our customers. With the use of these of our AI tools, super we can, I'm sure the others will have questions on this, but lots of momentum in terms of, the knowledge is being built up inside the company and that translating into the products, into the, into the market, and then many more products are in development. So, that's very exciting. You know, you know, for instance, an aderant, it was 1 of our faster growing businesses in the quarter. Um, there were 1 of the probably our first company to get actual AI based products automation, based products into the market. And you see that translating into their bookings activity, not just for the AI specific product. But for the drag along of existing Tech stack with it as well,

Neil Hunn: And then maybe on within some of the recent acquisitions as well, to more of a kind of a payments orientation, outgo, obviously, within DAT as well, I guess, can you just kind of give us a broader overview, you have a lot of value across the network and platform, you're driving incremental adoption, kind of how you're thinking about the positioning of embedded and layering and kind of more payments functionality across the suite, and how that can kind of tie into broader team expansion. Yeah, so certainly with with ProCare, certainly with Subsplash, a little bit with Transact and Seaboard, there is a payment element.

Speaker Change: All right, very helpful. Thank you. Uh and then maybe on um within uh some of the recent acquisitions as well too, more of a kind of a payments orientation

Out go obviously uh, within dat as well. Uh, I I guess. Could you just kind of give us a broader overview? You have a lot of value across the network and platform. You're driving incremental, adoption, kind of how you're thinking about the positioning of embedded and layering and kind of more payments functionality across the suite and how that can kind of tie into broader TM expansion. Thank you.

Neil Hunn: The thing that's central to all three of those is that the payments, the right to the payment Opportunity is earned through the software. And and that's very much the case across all three. So we view it as a software led, heavy R&D led to earn the rights, it's very natural control point to have the payments. I'd say it's not a thematic, I would not I would not read too much into the last two or three or four three transactions for if you count ALCA have a payments angle that we have a strategic The specific decision has been made that we want to layer more payments.

Yep. So certainly with uh, with Procare um, certainly with subsplash a little bit or with transact and Seaboard. Uh, there is a payment, uh, element the thing that's Central to all 3 of those is that the payments the right to to the payments

Speaker Change: Opportunity is earned through the software and and that's very much the case across all 3. So we view it as a software-led, heavy R&D lead to earn the rights. It's very natural control point to have the payments. I say it's not a thematic, I would not. I would not read too much into the last uh 2 3 or 4 3 transactions. For if you count Allah, have a payments angle that we have a strategic.

Neil Hunn: I think it's more coincidental than anything else. The other thing about payments is it does create, you know, payments and software and other, a network effect as well, just creates a ton of stickiness. These businesses tend to have very high both gross and net retention. Outgo is a little bit different. Outgo is really the first tech-only, tech-forward, tech-native, I should say, factoring software that's used in the transportation space for the carriers that is really a... Slick User Interface, a slick back-end to enable just an ease of factoring. And so it certainly is, it enables commerce and payments, but it's a slightly different payment setup.

Uh, that says 50 decisions been made that we want to layer more payments. I think it's more coincidental than anything else.

Speaker Change: Um the other thing about payments is it does create, you know is is payments and software and other a network effect as well. It just creates a ton of stickiness.

And these businesses tend to have very high both gross and net retention out. Goes a little bit different out. Goes a, um, is really a, the first tech only tech for tech native. I should say, factoring, uh, software. That's used in the transportation space for the carriers. That it's really a

Slick user interface, a slick um, back end to enable just an ease of factoring. And so it's it certainly. Is it enables Commerce and payments but it's a slightly different payment so set up.

Dylan Becker: Perfect. Thank you guys. Appreciate it.

Speaker Change: Okay. Thank you, guys. Appreciate it.

Brent Thill: And your next question comes from the line of Brent Thill with Jeffries East. Go ahead.

And your next question comes from the line of brand deal with Jeffrey. Please go ahead.

Neil Hunn: Good morning, Neil. Throughout the quarter, I'm just curious, did you see any signs of the tariff headlines or government spending blown on impact anything or perhaps throughout the quarter, maybe things got better as you went through in the back of the quarter? Can you just give us a sense of what you saw in terms of the business trends through the quarter and how that's trended so far in July? Yeah, so on just the broader macro, the tariffs, obviously, all in our tech business is relatively small. I think we said last quarter, it's in the 10 to $15 million range.

Speaker Change: Uh, good morning, uh, Neil. Um, throughout the quarter. I'm just curious. Do you see any signs of of the Tariff headlines or government spending blown on impact anything or perhaps throughout the quarter? Maybe things got better. Um as you went through in in in the back of of the quarter. Can you just give us a sense of of what you saw in terms of the business Trends through the quarter and how, how that's trended so far in July,

Speaker Change: Yeah. So

Speaker Change: Water macro the tariffs. Um,

Neil Hunn: It's still in that the team's working very hard to mitigate that mitigated some of that in supply chain mitigated some of that in pricing. So I won't I think it's too early to call it non effect. But for relative to others, it's quite small. Relative to the broader other uncertainty, I am in pockets, you know, there's uncertainty in K-12 education, so it's just sort of had a muted effect on bookings activity across the industry, and Frontline had a slower bookings quarter, but that's in the backdrop of high teens across the whole enterprise for enterprise bookings.

Business is relatively small. I think we said last quarter, it's in the 10 to 15 million dollar range and that it's still in that the teams working, very hard to mitigate the mitigated. Some of that in supply chain mitigated, some of that and pricing. So, um, I want this, I think it's too early to call it not affect, uh, but for relative to others, it's it's quite small.

Neil Hunn: Otherwise, I mean, government contracting inside of Dell Tech remains muted, as we expected it to occur with the BBB coming through and sort of not knowing what that's going to look like, as well as the sort of hangover or lasting effects of DOGE. But I said in the comments relative to Dell Tech, we think the big beautiful bill is what the industry's been looking for for the last 24 months or so to unlock and sort of get things moving again, given that, one, there's just a lot of spinning in the bill relative to the government contracting, but more importantly, or maybe equally as importantly, is the category of spends from civilian to defense.

Speaker Change: Relative to the broader other uncertainty, I, um, In Pockets, you know, there's, there's uncertainty in K through 12 education. So it's just sort of had a, a muted effect on on booking activity across the industry and Frontline had a slower bookings quarter but that's in the backdrop of High Teens across the whole Enterprise for Enterprise bookings. Um, otherwise, I mean, govern a Contracting inside of Deltech remains muted, as we expected it to occur with, with the BVB coming through, and sort of not knowing what that was going to look like, as well as the, the, the sort of Hangover a lasting effects of Doge. But I said in the comments relative to Deltech, we think the big beautiful bill is, uh, is what the industry's been looking for, for the last 24 months, or so, to unlock and sort of get things moving again, given that 1, there's just a lot of spending in the, in the bill relative to this, the Government Contracting but more importantly or maybe equally as importantly is the category of spins from civil.

Neil Hunn: You know, DOD DHS goes from a relatively low spend where it's contractor spend to a higher contractor spend, so definitely civilian spending is a low contract percentage, and defense spending is a high contract percentage. So it should be the unlock. The timing is to be determined, so there's still got to get contracting and spending into the market, but it should be measured in a small number. Yeah, the timing is definitely the question because you've got agencies that don't have employees that we normally interact with. So you've got just a tactical problem at this point. But the demands are the pipelines very strong at Deltech.

Brilliant to defense, you know, DOD DHS goes from a relatively low spend where it's contractor. Spend to a higher contractor spend said differently, civilian spending is a low contract percentage and defense spending is a high contract percentage. So it uh, it should be the unlock the timing to be determined. So there's still um, got to get contract and get spending into the market but it should be measured in in a small number of quarters. Hopefully. Yeah. And the timing is is definitely the question because you've got agencies that don't have uh, employees that we normally interact with. So you've got just a tactical problem at this point but the demands are the pipeline's, very strong at Deltech.

Neil Hunn: Great, thanks. I would say as we switch questions, I should conclude with, I mean, we're talking about this, we're getting ready for a call. The call down to our businesses on the macro topic was, our business units were cautiously optimistic coming out of the calls, and we were going into the calls not exactly sure we're going to hear, and we left equally cautiously optimistic about the go forward.

Speaker Change: Great, thanks.

I would say as you, as you as we switch questions, I I should conclude with. I mean, we're talking about this, we're getting ready for a call, we the call Downs to our businesses on the macro topic was the our business units were cautiously optimistic coming out of the calls and, and we are going into the calls, not exactly. Sure. We're going to hear and we left equally and cautiously optimistic about the go forward period.

Operator: All right, thank you.

Joe Vruwink: And your next question comes from the line of Joe Vruwink with Bayard. Please go ahead. Great, thanks for taking my questions. I wanted to drill down on the high teens bookings, that seems like a very impressive number, just given the year ago period was an inflection higher in its own right. And it seems like maybe, you know, GovCon or Frontline were not contributors to this quarter. So maybe the question is, what did contribute to the positive trend? And at this point, given bookings have been better now for five quarters, I suppose, do you kind of have the backlog you need to inflect your organic recurring revenue growth closer to the double digit level?

All right, thank you. And your next question comes from the line of Joe brewing with bear. Please go ahead.

Great. Thanks for taking my questions. I I wanted to drill down on the High Teens bookings. That seems like a very impressive. Number just given the year ago period was an inflection higher in its own, right? And it, it seems like maybe, um, you know, govcon or Frontline were not contributors to this quarter. So maybe the question is, what did contribute to the the positive trend and at this point given bookings have been better. Now, for 5 quarters, I suppose do you kind of have the backlog? You need to inflect your uh, organic recurring Revenue growth closer to the Double Digit level.

Jason Conley: Thanks, Joe, Jason. Yeah, no, I think it was a very strong quarter. I think you were correct in highlighting the two areas of weakness that, you know, Luditude was at Dell Tech and Frontline. Otherwise, very strong. I mean, we mentioned that Aderinth had their biggest bookings quarter in history. They landed one of the largest ground-to-cloud conversions ever, so that was good. And then just strength across some of their AI solutions, cross-selling there. You know, healthcare was solid, I'd say. Not spectacular, not above the range, but solid. So I think, you know, as we look into it, it really supports our second-half guide.

Uh, thanks Joe. It's Jason. I uh yeah no, I think it was a very strong quarter. I think you you were correct in highlighting the 2 areas of weakness that that you alluded to was it Deltech and Frontline. Uh, otherwise very strong. I mean we mentioned that aderant had their biggest bookings quarter uh in history. Uh, they landed 1 of the largest ground of cloud conversions. Um,

Jason Conley: I think, you know, as you know, a lot of the bookings activity bends to Q4, so that's playing more for 26. But, you know, after kind of a little bit more of a muted first quarter, having the high teens kind of supports where we thought, you know, where we'd be year-to-date. And so I think that's positive to get back on playing.

Speaker Change: Ever, so that was good. And then just strength across some of the AI Solutions cross-selling there. Um, you know, Healthcare was was solid, I'd say not not spectacular or not above the range but but solid. Um, so I think you know, if as we look into it really supports our second half guide, um, I think you know, we as as you know, a lot of the bookings activities.

The Q4, so that's for playing more for 26. But, you know, this like I guess this after a kind of a more, a little bit more of a muted first quarter, having the High Teens kind of supports where we thought, you know, we were where we'd be year to date and so, um, so I think so, I think that's positive to get back on plane.

Joe Vruwink: And then on AI, you know, it strikes me even relative to last quarter, there's just a lot more happening a lot more references to what the individual business units are working on. Do you maybe have a better sense of how that starts to impact the P&L? Yeah, how is it impacting like R&D spend? Are you getting engineering productivity through your own use of tools? And then when might the revenue implications start to show up? Yeah, so This is the question, so we are definitively getting the internal productivity gains that you'd expect any company to get.

Speaker Change: And then on AI? Yeah, it strikes me even relative to last quarter. There's just a lot more happening, a lot more references to what the individual business units are working on. Do you maybe have a better sense of how that starts to impact the p&l? Um, you know, how is it impacting like R&D? Spend are you getting engineering productivity through your own use of tools? And then when might the revenue implications start to show up

Speaker Change: Yeah, this is the question. So we are definitively getting the internal productivity gains that you'd expect any any company to get

Neil Hunn: 30% and one of our larger software businesses, 30% productivity gains in R&D, for instance, there's productivity gains across customer support, go-to-market, obviously content generation. There's a long way, there's still way more to go get in that regard. And in fact, we have a to-do for our businesses where they're sort of re-underwriting or reimagining their entire business to be AI native. The first part of that is for the customer value chain, sort of first, second, third derivative. The second part that's a fast follow is leaning in very aggressively on the productivity gains. In terms of when all this goodness hits the P&L, it's small today, it's tens of millions in terms of ARR today, that's direct AI native products that didn't exist a year or two ago.

Speaker Change: You know, 30% and 1 of our larger software businesses 30%, um, productivity gains and R&D, for instance, there's productivity gains across customer support, go to market, you know, obviously content generation.

Speaker Change: There's a long way. There's still way more to go get in that regard. Um, and in fact we have a we have a

Speaker Change: To-do for our businesses, where they're sort of re-underwriting or reimagining their entire business to be AI. Native, the first part of that is for the customer value chain. So sort of first second, third derivative of the second part that's a fast. Follow is being leaning in very aggressively on the productivity gains.

Speaker Change: Um, in terms of when all this goodness hits the p&l

Speaker Change: Um, there's it's small today, it's tens of millions, in terms of um are today. That's Direct.

Neil Hunn: It's a multiple of that or two, it's hard to track, but a multiple or two of that in terms of the pull along of the rest of the other tech stack. But we are fundamental believers that this is a compounding effect, it's a compounding effect in terms of the knowledge inside the business, the skill, the curiosity, it's a compounding effect of availing the resources and the dollars, both from freeing up legacy roadmap work to this work and also just having the dollars gained that we talked about at the beginning of this answer. And then that gets compounding in terms of releases and revenue recognition.

Speaker Change: Uh, AI native products that didn't exist, you know, a year or 2 ago. It's a multiple of that or 2. It's hard to track but a multiple or 2 of that, in terms of the pull along and the rest of the other Tech stack.

Speaker Change: But we are fundamental Believers that. This is a compounding effect, it's compounding effect. In terms of the knowledge and inside the business, the skill, the Curiosity, the compounding effect of of availing the resources and the dollars. Both from freeing up Legacy, roadmap work, to this work and also just having the dollars gain that we talked about at the beginning of this answer.

Neil Hunn: So it's going to be small for this year and it'll gain momentum and we get it next year.

Joe Vruwink: Like I said, 25 products either in market or in development, that number is going to be much larger in three months, it'll be much larger in six months, so much so that we'll stop giving you the number because everything's just going to blur together in terms of everything's just going to be AI native, but we're super, super bullish and man is it fun to be innovating in this market right now. Great, thanks for that.

Speaker Change: Um, and then that gets compounding in terms of releases and and and, uh, and revenue recognition. So it's going to be small for this year and it'll gain momentum and we get it next year. Like I said, 25 products either in Market or in development, that number is going to be much larger, um, in 3 months, it'll be much larger in 6 months, so much, so that we'll stop giving you the number because it's everything's just going to blur together in terms of everything's just going to be a data, but we're super. Super bullish. And man, is it fun uh, to be, uh, innovating in this market right now?

Speaker Change: Great, thanks. Thanks. No for that.

Yep.

Brad Reback: And your next question comes from the line of Brad Reback with Steeple. Please go ahead.

Neil Hunn: Great. Neil, following up on that 30% productivity gain comment, how do you decide what falls to the bottom line and what gets invested back into faster organic growth? Yeah, so the strong push to the businesses is at the moment, we've been very consistent with this answer, is we want to do more than for the next period of time than try to get it to the bottom line. You know, there's so much to do, so much opportunity to drive product roadmap, to drive go-to-market expansion, whatever it is at the individual business level.

And your next question comes from the line. Uh Brad. We back with steeple, please go ahead.

Brad: Uh great Neil following up on that 30%, productivity, gain comments. How do you decide what falls to the bottom line and what gets invested back into faster, organic growth?

Yep. So the the strong push to the businesses is at the moment. We've been very consistent with this answer. Is we want to do more

Than for the next period of time, then try to get it to the bottom line. You know. There's so much to do so much opportunity.

Neil Hunn: So that is the mantra for the time being is do more and drive competitive advantage and top-line growth. That's great.

Um, to uh, to drive product roadmap, to drive, go to Market expansion, whatever it is at the individual business level. So that is that is the mantra.

Brad: Uh, for the time being is do more and drive competitive advantage, and and Topline growth.

Neil Hunn: On the AI monetization side of the equation, there's a lot of debate going on inside of software, especially as it relates to seat-based models. Do you have a good sense yet of early successes and the best way to price these products, or is that still very much a work in progress? I think it's a work in process, and I definitely don't believe that or we don't believe there's going to be a one size fits all. So we have products today that again in this early days you have AI products, particularly at Deltek, that are part of the existing subscription that's driving an upgrade to the cloud, which is monetizing that way.

Speaker Change: That's great. I I'm the the AI monetization side of the equation. There's a lot of debate going on inside of software, especially as it relates to seep based models. Do you have a good sense yet of early successes and and the best way to price these products, or is that still very much a work in progress. Thanks.

Speaker Change: I think it's a work in process and I definitely don't believe that or we don't believe there's going to be a 1 size fits all. Um, so we have

products today that again, in this this early days, you have

Neil Hunn: That is certainly not going to be the long-term method for all, but that is clear and obvious for the customer base and that customer base right now. You have others that have a sort of a subscription with sort of a consumption overage, and then you have some that are straight consumption. It's going to be bespoke to the business, to the customer, but if I had to say there's one that there's general some gravitation to, it's going to be sort of a subscription with a consumption over the top of it, but it's hard. We're early days in this, but those are our initial thoughts.

Speaker Change: AI products per particularly a Deltech that are part of the existing subscription. That's driving an upgrade to the cloud which is monetizing that way that is, certainly not going to be the long term method for all. But that is a clear and, and obvious for the customer base and that customer base right now, you have um, others that have a sort of a subscription with sort of

Speaker Change: Of a consumption overage.

Neil Hunn: Perfect. Thank you very much.

And then you have some that are straight consumption and so it's going to be bespoke to the business to the customer. Uh but if I had to say where there's 1 that there's gra General some Gravitation to, it's going to be sort of a subscription with a consumption over the top of it but it's hard to its we're early days in this but that's those, are our initial thoughts.

Perfect, thank you very much.

Joshua Tilton: And your next question comes from the line of Joshua Tilton with Wolf Research Peace Ahead.

Speaker Change: and your next question comes from the line of Joshua till

Speaker Change: we will research this ahead.

Operator: Hey guys, can you hear me? That's a major upset. Great, just two quick ones for me. My first one, I just want to follow up on the Dell Tech subject. And I guess what I'm trying to understand is, if I look last quarter, it feels like you guys pretty much called out similar growth, so no change in the growth of the business from 2Q to 1Q. But you also talked to embedding some more conservatism in your outlook for Dell Tech last quarter because of all the uncertainty. So I guess what I'm trying to understand is, you know, is Dell Tech just performing ahead of what you initially expected when you kind of set our expectations 90 days ago?

Hey guys, can you hear me?

Business from 2q to 1 q, but you also talked to, you know, embedding some more conservatism in your outlook uh for Deltech last quarter because of all the uncertainty. So I guess what I'm trying to understand is um you know is Deltech just performing ahead of what you initially expected. When you kind of set our expectations 90 days ago

Neil Hunn: No, I wouldn't say that. I think we're just, the beautiful bill is giving us, I mean, we had strong pipelines coming into that, but now you're seeing just more activity, especially in defense, which plays strongly to Dell Tech. I think the area that, so we're more bullish, but I don't think it's a bullish for 25 comment. It's more about when we can actually get those orders secured from our customers. So we may, there may be some upside in the fourth quarter, depending on timing, but we haven't yet, you know, sort of contemplated that because it's just been a, it's been just been a very uncertain dynamic in that, in that market.

Speaker Change: No, I wouldn't.

Speaker Change: It's a beautiful bill.

Is giving us, I mean, we had strong pipelines coming into that but now you you're seeing, uh, just more activities, especially in defense, which plays strongly to, to Deltech, I think the, the area that. So, we're more bullish, but I don't think it's a bullish for 25. Uh, common. It's, um, it's more about when we can actually get those orders secured, um, from our from our customer. So we may there may be some upside in the fourth quarter depending on timing but we haven't yet, you know, sort of contemplated that because it's just been a

Neil Hunn: Yeah, and the upside would come in a form of perpetual, which is, you know, in Q4. So it's obviously hard to predict at this stage. The other part is that Dell Tech's only 60% GovCon, 40% is in professional services markets. And they have been, that part of the business has been very strong throughout. Make sense. Maybe just to put a finer point on that, I guess, does the outlook still embed that conservatism that you spoke to last quarter? Yes. Okay.

Speaker Change: Um, it's been just been a very uncertain dynamic in that, in that market.

Speaker Change: Yeah, and the upside would come in the form of a Perpetual which is, you know, and and Q4. So that's, you know, obviously hard to predict at this stage. The other part, is it deltex only 60% govcon. 40% is in Professional Services markets and they have been that the part of the business is very strong throughout.

Speaker Change: Makes sense. Maybe just to put a finer point on that I guess. Does the Outlook still in bed that conservatism that you spoke to, uh, last quarter?

Speaker Change: Yes.

Joshua Tilton: And then maybe just a quick follow-up.

Neil Hunn: Congrats on the acquisition. I feel like it is definitely the ultimate network software. The one question I have is you guys spoke to confidence in improving the growth profile of the business. We're already at high teams. Can you just talk to what you saw during the diligence that maybe gives you confidence that you can improve that profile going forward? Yeah, no. So I think it's we feel confident in the ability to sustain the growth rate but improve the margin profile. I'm happy to get into that, but if that answers your question, I'll stop there. Oh, I'd love to hear that as well, please.

Okay, and then, um, maybe just a quick follow-up. Uh, congrats on the acquisition, uh, I feel like it is definitely the ultimate network software. Um, the the 1 question I have is you guys spoke to confidence and improving the growth profile of the business we're already at, uh, High Teens. Can you just talk to what you saw during the diligence that maybe gives you confidence, uh, that you can improve that profile going forward?

Speaker Change: Yeah, no so I think it's we we feel confident in the ability to sustain the growth rate but improve the margin profile.

Speaker Change: Um, and so I'm sorry, I'm happy to get into that. But if but if, that answered your question, I'll stop there.

Neil Hunn: Hear it as much.

Neil Hunn: Just to give you a sense on the growth rate of the business. So faith based organizations, churches are super early in their in their modernization or digitization, if you will. I mean, it's a the TAM is only 50% served from a tech point of view. And really just now the technology is The competitors and vendors in the space can sort of have a modern church management that manages the church, manages the engagement with the guests, as well as the closed loop, you know, donation, donor sort of economics and sort of how that ties together in a single platform.

Speaker Change: Oh, I I'd love to hear that as well. Please just configured as much. So, hey, the just to give you a sense on the growth rate of the business. So space-based organizations churches are super early and they're and they're modernization or digitization, if you will. I mean, it's a, the The Tam is only 50% served from a tech point of view. Um, and really just now the technology is in, in the, the, the competitors and vendors in the space and sort of have a modern Church management that manages the church manages the engagement with the with the, with the guests as well as the closed loop.

Neil Hunn: So there is just a general wave that we get to ride there. Second is Subsplash, I would call it really the second generation technology platform that's in the market. So very similar to, gosh, a decade ago with our Strata business where we bought the new tech stack. It has demonstrated its ability to gain market share in this growing market, which is why this business will continue to grow above the market at the top line. Now on the margin structure, there is, you know, the prior owner, K1, did a great job from growing this business from a small business to a slightly larger business, but left lots of opportunity to sort of, if you would just generically call it professionalize the business.

You know, donation donor, sort of economics and sort of how that ties together in a single platform. So there is just a general wave that we get to ride. Their second is um subsplash is, I would call it really the second generation technology platform that's in the market so very similar to gosh a decade ago with our strata business where we bought the new tech stack, it has a it's demonstrated its ability to gain market, share in this growing Market, which is why this business will continue to grow above the market at the top line. Now, on the margin structure.

Neil Hunn: Tim's done a great job running the business for sure, but there's opportunities in almost every part of the cost bar you look at, cost of sales, go to market, R&D. The way you can... Improve the payments, sort of what's underneath the hood relative to the payments infrastructure. So there's, there's a dozen plus more levers available. We've underwritten to about half of those in the margin improvement where over the course of the next three to five years, it'll look like a not quite as high as the network margin, but, but meaningfully improved, substantially improved from where it is.

Um, there is, uh, you know, the prior owner K1 did a great job from from growing, this business, from a small business, to a, um, a slightly larger business. But left lots of opportunity, uh, to sort of, if you would just generically call it, professionalize the business, Tim's done a great job running the business for sure. But there's opportunities in almost every part of the cost party. You look at cost of sales, go to market R&D,

Speaker Change: Um, the way, uh, you can, um, improve the payments sort of what's underneath the hood rather than the payments, uh, infrastructure. So there's, there's a dozen plus more levers available. We've underwritten to, about half of those in the margin Improvement where over the course of the next 3 to 5 Years, it'll look like um, a not quite as high as the network margin but uh but a meaningful improved substantially improved from where it is.

Neil Hunn: Final thing I'll say on that is just remind everybody our strategy for the last couple three years is to buy these maturing leader profiles, which this is just that. And so you get a business that is earlier in its life cycle relative to the Sam Tam conversion, and then they get the scale and other cost structure, which unlocks more value for a shareholder. Very helpful, glad I asked you to follow up.

Final thing I'd say on that is just to remind everybody our strategy uh for the last couple 3 years is to buy these maturing leader profiles which this is just that and so you get a business that is earlier in its life cycle relative to the Sam Tam conversion and then they get the scale and other cost structure which unlocks more value for a shareholders over time.

Speaker Change: Very helpful. Uh, glad I asked you to follow up.

Ken Wong: Thank you. And your next question comes from the line of Ken Wong with Oppenheimer.

Neil Hunn: Please go ahead. First question, on the big beautiful bill, clearly some impact on DelTec, timing unknown. As we think about some of your other segments, are you guys, have you guys thought through what tailwinds, headwinds might potentially impact some of the other sectors that you guys cater to? Yeah, so quite a bit, as you'd expect. So I think we've drained the, the Dell tech.

Ken Wong: Thank you. And your next question comes from the line of Ken Wong with Oppenheimer. Please go ahead.

since um,

Yeah. Have you guys thought through what Tailwind headwinds uh might potentially impact some of the other sectors that you guys cater to?

Neil Hunn: So I'll leave that unless you have follow up questions there. Obviously, we have a lot of exposure to healthcare, whether it's all indirect to the payer to Medicaid, it's all everything's indirect. Obviously, we serve providers of healthcare, either through healthcare IT or with medical products. As you dig into sort of what the 10-year Medicaid sort of impact is going to be, roughly 12, the estimate is roughly 12 million people will roll off of Medicaid, but somewhere between 5 and 7 million of those will go on to some other commercial or ACA coverage. So the net effect of total dollars is going to be, our estimate is flat to up over this period of time, so we would expect there to be, you know, minimal if any impact, call it just neutral for a franchise.

Ken Wong: Yeah, so quite a bit as you'd expect. So I think we've drained the uh the Deltech so I'll leave that unless you have follow-up questions there. Um, obviously we have a lot of exposure to health care, but whether it's all indirect to the payer to Medicaid, it's all everything's indirect obviously, we serve providers of health care, either through Healthcare it or with medical products.

As you dig into sort of what the 10-year. Medicaid, sort of impacts going to be. Um, roughly 12. The estimate is roughly 12 million people who roll off of Medicaid but somewhere between 5 and 7 million of those will go on to some other commercial or ACA coverage. So the net effect of total dollars is going to be our estimate is flat to up over this period of time.

Neil Hunn: Final thing I'd say, I've been around healthcare IT for my entire career, 25 years or so, and the one constant is there is always reimbursement pressure on the providers, whether it's commercial, Medicaid, Medicare, whatever it is, and it's just a way of life. And when you serve that community, if you do one of two things, you generally are going to be in a good spot, which is if you deliver a tangible hard dollar ROI, which essentially all of our healthcare IT assets do, or if you deliver a clinical benefit that is unique and compelling, which every one of our medical product businesses do.

Ken Wong: So we would expect there to be, you know, minimal if any impact call just neutral for our franchise final thing. I'd say, I've been around Healthcare it for my entire career, 25 years or so. And the 1 constant is, there is always reimbursement. Pressure on the providers, whether it's commercial, Medicaid, Medicare or whatever it is. And it's just a way of life. And if, when you serve that Community, if you do 1 of 2 things, you generally are going to be in a good spot, which is if you deliver a tangible hard,

Ken Wong: Roi. Which essentially all of our Healthcare, it assets do.

Neil Hunn: And so it's sort of a neutral. And then on K-12 and higher ed, we would call that neutral-ish as well. Certainly K-12, there's very, there's small dollars that are tilting towards private, but for the larger K-12 public enterprise, it's largely non-event. And on higher ed, it puts more pressure on performance, if you will, for the higher ed institutions, which plays into the theme of our transact investment, which is better engagement of the students, so they can attract the students and retain the students, which is exactly what our software and capability is. And I would just add on healthcare, our central reach business, the Medicaid impact is more to adults than children and most of the end consumers and children.

Ken Wong: Or if you deliver a clinical benefit, that is unique and compelling which everyone of our medical product businesses do. And so, um, it's sort of a neutral and then on K through 12 and higher ed, we would call that neutral ish as well. Um, certainly K through 12, there's very, there's small dollars that are tilting towards private. But for the larger K through 12 public,

Neil Hunn: So fairly muted impact there. And then a lot of our alternate site healthcare businesses are more indexed Medicare versus Medicaid. So again, not a huge Got it, fantastic.

Enterprise. It's um, it's largely a non-event and on higher ed. It puts more pressure on on performance if you will, for the higher ed institutions, um, which plays into the theme of our of our transact investment, which is better engagement of the students, so they can attract the students and retain the students which is exactly what our software and capability does there. And I would just add on on Healthcare, our Central reach business, the Medicaid, um, impact is more to adults than children and most of uh, um, and and, and, and consumers and children. So, apparently needed impact there. And then a lot of our alternate site, Healthcare businesses are more indexed to Medicare versus Medicaid. So, um, again, not a huge impact.

Neil Hunn: And then just a quick follow-up on the record, Adderant Quarter, any unique... Is it just legal tailwinds that are driving that, or is this more specific to idiosyncratic dynamics that you're seeing within your business that you guys called out? Maybe starting to see some AI flow through, would just love to hear what you guys are seeing drive that outsized performance. Yeah, so just just to frame Adderant, and so everybody understands it doesn't paint too broad of a brush with legal tech. Adderant is in the the business of law, not the practice of law. So think about and their principal go to market AI based products right now are on the concept of how you automate and streamline time entry to cash collection, and substantial gains still still gains to happen on the technology and product side.

Ken Wong: Got it. Fantastic. And then just a quick follow up on on the record aderant quarter any unique.

Legal Tailwind. That, that, that are driving that, or is this more specific to idiosyncratic dynamics, that you're seeing within within your business? I think you guys called out, um, you know, maybe starting to see some AI flow through would just love to to hear what you guys are seeing drive that that outside performance.

Neil Hunn: So we just Adderant over eight or nine years has been the clear market share winner. I mean, going from 30 to 55% market share plus or minus the largest law firms in the world. And, and there's a large move to cloud that is still happening there, which is driving the bookings.

Yeah, so I just just to frame add it and so everybody understands it doesn't paint too broad of a brush with legal Tech aderant is in the uh, the business of law. Not the practice of law. So think about and their principal go to market. AI based products right now are on the concept of how you automate and streamline time entry to cash collection and substantial gains Still Still gains to happen on the technology and product side. So we just ater over.

Neil Hunn: But let's make no mistake about it. Adora has the technology halo in the market right now on the business of law period full stop. Final thing is the largest law firms are winning in the market, right? They're they're gaining share.

8 or 9 years has been the clear market share winner. I mean, going going from 30 to 55% market share plus or minus the largest law firms in the world. And uh and there's a large, uh, move to Cloud that is still happening there, which is driving as a bookings, but let's make no mistake about it. Aderant has the technology Halo on the market right now on the business of law period, full stop.

Neil Hunn: And so we're riding along with that as Perfect, thank you.

Ken Wong: Final thing is the largest law firms are winning in the market, right? They're they're gaining share, and so we're riding along with that as well.

Perfect, thank you.

Terrell Tillman: And your next question comes from the line of Terrell Tillman with Truist Securities. Please go ahead. Yeah, thanks. Hi, Neil, Jason and Zack. A lot of my questions have been answered, but you have a bunch of platform businesses. So I still have a few. One thing I was going to ask about ProCare is it's starting to move into the organic calculation. I think you all have had some, some leadership changes, go to market investments. And also, I think you were working on improving attached rate of payments. Just how's ProCare performing? Particularly, it's becoming more of an organic calculation than I had a Neptune follow up.

Speaker Change: And your next question comes from the line of Terry Tillman, the truest security please go ahead.

Neil Hunn: Yeah, sure. So ProCare, the first year was mixed. The first year it under delivered on our expectation on growth, it was more like a 10 ish percent grower with our expectation of 15. The root causes of that are known and already countermeasured, and you alluded to some of them. So it's been a complete change of the leadership team to be more growth-oriented, to be more process-oriented. So there's a new CEO, CFO, CRO, CTO, right? So those are the leadership changes. So what's happened as a result of leadership changes is the go-to-market is massively improved. Where we are winning in the market and the principal competitor is not, so that's a great outcome.

Yeah sure. So Procare. Um the first year was uh mixed in the first year at under delivered on our expectation. On growth it was more like a 10-ish percent grower with our expectation of 15,

Speaker Change: The root causes of that are known and already counter measured and you alluded to some of them. So it's been a, a complete change of the leadership team to be more growth oriented to be more process oriented. So there's a new CEO CFO cro CTO, right? So that's those are the leadership changes. So, what's what's happened? As a result of leadership changes is the go to market is massively improved.

Neil Hunn: The product, the customer support, there's a great Lean Kaizen event on how to solve customer support tickets more quickly about six or eight weeks ago already having an impact, and so you're seeing rotation there.

Um, where we are winning in the market and the principal competitor is not. So that's a great outcome.

Neil Hunn: We expect, by the way, for the second half of the year to be back on slope of 15% mid-teens organic growth for the reasons that I've just cited, so feel very good on a go-forward trajectory. ProCare was just a little worse than we thought early on. In terms of attach of payments, it's been solid, keep me honest, Jason, and at 75% plus or minus range, right? So that's been a consistent attach rate, and also I'd say payments, there's another thing I'd say, the whole payments. Apparatus has improved from a functional, operational point of view in the period that Thanks, Neil.

Speaker Change: Um, the product, uh, the customer support, there's a great lean Kaizen, event on, how to how to solve customer support, tickets more quickly about 6 or 8 weeks ago, already having an impact. And so you're seeing rotation there

Um, we expect that, by the way, that for the second half of the year to be back on slope of 15%, mid teens organic growth for the reasons that I've decided. So feel very good on a go forward. Trajectory Pro Care. It was just a little worse than we thought. Early on terms of attached of payments, it's been solid. Um, help me. Keep me. Honest. Jason and at 75% minus range, right? So that's been a consistent

Speaker Change: Um, um, tax rate and also I'd say payments is another thing. I would say payment the whole payments um,

Apparatus as improved from a functional operational. Point of view in a period that we've owned them as well.

Neil Hunn: That's a lot of great color. I'm glad I asked about ProCare.

Neil Hunn: And I guess just to follow up on Neptune, and it relates to kind of TEPs more broadly, but, you know, with this meter data management solutions, the billing acquisition, you know, and then on top of just ultrasonic meter reading, like, do these just create opportunities for solid for longer or potentially some re-accelerations of growth from some of these newer dynamics? Thank you. Yeah, so there's a long answer which we can all spare everybody with. The short answer is we think these are, these are the kind of connecting the meter to cash is a unique, compelling, and really, Neptune's the only one playing running that strategy.

Speaker Change: Thanks know. That's a lot of great color. I'm glad I asked about Procare and I guess just the follow up on Neptune and it relates to kind of tips, more tips, more broadly. But, you know, with this map, uh, meter data Management Solutions, the billing acquisition, you know, and then on top of the ultrasonic meter reading like the, these just create opportunities for solid for longer, or is there potentially some re accelerations of growth from some of these newer Dynamics? Thank you.

Yeah, so there's a long answer which we can all spare everybody. With the short answer is we think these are

Neil Hunn: And we think it's highly, highly compelling, especially in the segment of the market where Neptune really competes in wind, which is a long tail of smaller municipalities. where they want to have a single vendor that stitches all this together in that compelling way. And then when you put in, once you have that, then you can do leak detection and you can help them engage with the municipalities, engage with their end customers with more automation and more perhaps AI-based communications, we'll see what that looks like. It's very early days. And so we're competing and winning today based on the strength of the GoToMarket channel and the product that we have, which we would claim very aggressively that we have the best static meter from a readability point of view.

Um, these are the connecting the meter to Cache is a unique compelling and uh, really Neptune's only run playing running that strategy and we think it's highly highly compelling, especially in the segment of the market where Neptune really competes in Wind, which is in a long tail of smaller municipalities.

Where they want to have a single vendor that stitches all this together and that compelling way. Um, and then when you put in, once you have that, then you can do leak detection and you can help them engage with the, the municipalities engage, with their end, customers with more Automation and more. Um, perhaps AI based Communications, we'll see what that looks like. It's very early days and so,

Neil Hunn: And in the future, we expect that to pick up, but it's going to, the growth to pick up, but it's going to take some time for this to fully get into the market. Thanks, Neal.

So we're competing and winning today based on the strength of the, of the go to market Channel and the product that we have, which we would make, we would claim very aggressively that we have the best static meter from a from a readability point of view. Um and in the future we expect that to pick up but it's going to the growth to pick up but it's going to take some time for this to fully get into the market.

Neil Han: Thanks Neil.

Yep.

Joe Giordano: And your next question comes from the line of Joe Giordano with TD Cowen. Please go ahead. Hey, good morning, guys. Good morning. Hey, so When you did just based on your comments on pro care that you just gave like When you reflect on that, how do you kind of prevent similar things from happening? I know they're totally different markets, but when you look at central reach subsplash now that you're going to bring on board, how do you kind of prevent those things before they start?

Speaker Change: And your next question comes from the line is Joe Giordano with 2D counties. Go ahead.

Joe Giordano: Thank you. Good morning, guys.

Good morning morning. Hey, so

Joe Giordano: when you just based on your comments on Procare that you just gave like,

Joe Giordano: when you reflect on that, like how do you kind of

Joe Giordano: Prevent similar things from happening. I know they're totally different markets but like when you look at Central reach Subs, Splash now that you're going to bring on board, like how do you kind of prevent those things before they start?

Neil Hunn: Yeah, so I'd like to ask Jason to add some comments to this when I'm done. So we've learned a lot in the in the pro care maturing leader. I think at the end of the day, this is a We had Jason, we had Janet, who leads our CAP employment, we had Shannon, who is here with us on FP&A, and our group executives sort of in weekly and every other weekly meetings. And we saw some of these challenges occurring, and some of which we moved very quickly, and some of which we waited. And I think the number one learning is, you just don't wait, right?

Speaker Change: Yep. So I'd like to ask Jason to add some comments to this when I'm done so

Speaker Change: Um we've we learned a lot in the in the in the Procare maturing leader. Um, I think at the end of the day, this is a

Jason Conley: It's the number one learning. It's simple, and it's so fundamental to learning as that is. It is true, and we've observed it. And so, in transact, or subsplash, or central reach, to the extent we see something, we're just not gonna wait in the early ones. The other, but I'll let you take it from there.

Jason Conley: Anything you wanna add, Jason? Yeah, no, I think it starts in diligence, and we have now, I think, staffed up appropriately in certain areas where if we don't see the proper telemetry on a business, or just some of the infrastructure, we can help the business sort of illuminate that so that we can have conversations that'll drive actions quicker. And so, that was another key learning at ProCare. And so, we've got a pretty rigorous schedule and execution plan on every deal. We thought we had one with ProCare, but now, as you learn, you fine-tune that a little bit more.

We've had, we had Jason, we had Janet who leads our cap employment, we had Shannon who is here with us and FTA and our group, Executives sort of, in weekly and every other weekly meetings and we saw some of these challenges occurring and some of which we move very quickly and some of which we waited and I think the number 1 learning is, we you just don't wait, right? Is the number. 1 learning is simple and it's so fundamental to learning is that is it is it is true and we've observed it and so and and uh and transact or subsplash or sensory reach to the extent. We see something. We're just not going to wait, um, in the early ones, the other. But I'll let you take it from there. Anything you want to add Jason? Yeah, I know, I think it's, uh, it starts in diligence and you know, we we have now, I think,

Neil Hunn: And since then, be it transact or central reach, we've had a much smoother integration. Both of those are tracking really well on our value creation plan. And so, good lesson learned for us.

Neil Hunn: Final thing I'd say on that is when we did our post-mortem, we took care of the board, the last board meeting, we summarized it in that we got the slope right. So the market, the market growth, the competitive intensity, the competitive positioning, the number of jump balls, the right to win in payments, all of that, the slope of the forward growth rate, we got exactly right, if you will, slope. The intercept, we got wrong, right? And so the good news is the intercept, as things are, 99% in our control about the way you operate the business.

We can help the business, uh, you know, sort of eliminate that so that we can have conversations that will drive actions quicker. And so that was another key learning at Procare and, and, uh, so we've got a, a pretty rigorous. Um, schedule. And, and, and execution plan on every deal, we have, we thought we had 1 with Procare, but now we as you learn, you fine, tune that a little bit more and, you know, since then it be a transact or Central reach, um, you know, we've had a much smoother integration, both of those are, uh, tracking really well, uh, on our on our value creation plan. And so, uh, good lesson learned for us.

Neil Hunn: And so I just wanted to give you the context. We went straight into what we did, but it would be harder and be a bigger issue if the slope was wrong, if we got something wrong about the market growth rate or the competitive intensity, but that is all fully intact.

Final thing I'd say on that is when we did when we did our postmortem with Procare of the board, the last board meeting. Um, we summarized it in that, we got the slope, right? So the market, the market growth, the competitive intensity the competitive, positioning the number of jump balls, the the right to win in payments. All of that is the slope of the of the forward growth rate. We got exactly right. If you will slope The Intercept, we got wrong, right? And so since the good news is The Intercept is of things are 99% in our control about the way you operate the business. And so I just wanted to give you the context. We went straight into what we did, but it would be harder. It would be a bigger issue. If the slope is wrong, if we got something wrong about the market, growth rate or the competitive intensity, but that is all fully intact.

Neil Hunn: There on subsplash specifically, can you talk about the market landscape there a little bit in the competitive landscape? I mean, I guess It doesn't feel like a structural growing market in terms of like the total TAM, I guess. But it's interesting to hear like only 50% serve. So just curious to hear like what the competitive Yeah, so just to give you some sense of the market size or the market, it's about a two and a half billion dollar market for software, like I said, about half served. In terms of church attendance, call it flattish over a 20-year period of time.

Speaker Change: There. Um on sub slash specifically. Can you talk about the the market landscape there a little bit in the competitive landscape? I mean,

Speaker Change: I guess.

it doesn't feel like a

structural growing market in terms of, like the total Tam I guess. Um, but I it was interesting to hear like only 50% serve. So just curious to hear like, what the competitive landscape is.

Yeah. So, just to give you some sense of the, uh, of the market size or the market. It's a about a 2, and a half billion dollar market for software. Like I said, about half,

Neil Hunn: The last two or three years it's up, you know, low single digits, but we've sort of assumed just flattish church attendance, and this is all U.S., I should say. The number of faith-based organizations, the number of buildings is actually up a couple percent. And then giving is actually up about 4 or 5% over the last 10 or 20 years. And then on top of that, then you have the digitization going from essentially no technology to manage, operate, engage with the congregates to now starting to do that. And so that's why you have a sort of call it nine-ish percent growth rate in the market and then the ability for this company to compete and win on top of that, which they've done for the last, you know, five, six, seven years.

Half of served. Um in terms of church attendance, call it flattish over a 20 year period of time the last 2 or 3 years is up. You know, low single digits but all we've sort of assumed just flat as Church attendance and the this is all us, I should say. Um we the number of faith-based organizations the number of buildings is actually up a couple percent.

Speaker Change: Um, and then giving is actually up about 4 or 5% over you know, the last 10 or 20 years.

Speaker Change: And then on top of that, then you have the digitization going from essentially no technology to manage operate engage with the with the, with the congregate um, to now, starting to do that. And so that's why you have a sort of call it 9ish percent, you know, growth rate in the market and then and then the ability for this company to compete and win on top of that, which they've been a, which they've done for the last, you know.

Neil Hunn: So there's a lot of penetration that still happened there. The import also relative to the competitive intensity, there is engagement technology which Subsplash really created, invented as a clear market leader. When you engage, when you use modern day engagement technologies, and this is more than just websites and live streaming for churches, then you find there's a 15% increase in donations when you engage the congregate that way, which then loops in the ability to drag along the church management software and other elements into this single stack. So lots of good flywheel effects here that the company's demonstrated in their most recent history and we've underwritten to going.

Neil Hunn: Final thing is something like 50% of donations in churches are still cash in check. So there's still a large digitization of payments as well. Okay.

567 years. Um, so there's a lot of, a lot of penetration to still happen there. The import also reveled up to the competitive, intensity, um, there is, um, engagement technology, which subsplash really created invented. Is a clear market leader. When you engage, when you use modern-day engagement Technologies, and this is more than just websites and live streaming for churches. Then you find, there's a 15% increase in donations, uh, when you engage the, the congregate that way, which then Loops in the ability to drag along the church management software and other elements into this single stack. So lots of good flywheels effects here that the companies demonstrated in the in their, in their most recent history and, and we've underwritten 2 going forward.

Final thing is something like 50% of donations and churches are still cash and checks so there's still a large digitization of payments as well.

Speaker Change: Thank you guys.

Deane Dray: Thank you.

Operator: And your next question comes from the line of Deane Dray with RBC Capital Markets. Please go ahead. Thank you. Good morning, everyone. Morning Deane.

Thank you. And your next question comes from the line of dingri with RBC Capital markets. Please go ahead. Thank you. Good morning everyone.

Neil Hunn: Hey, just want to circle back on the DAT and load link combination. It makes intuitive sense here. But can you flesh out like what the synergies are expected to be both on kind of go to market, but might there be any costs in Yeah, I think it's first, the first big opportunity for us is there's a managerial synergy if you will, we've got a, an amazing leadership team at DAT. And the businesses are essentially the same one in the Canadian market one in the US market. So we just get a network oriented leadership team thinking about the network is one.

Good morning Dean. Hey, uh, just want to Circle back on the DAT and load link combination. Um, it it makes intuitive sense here. But, uh, can you flesh out like what the synergies, uh, are expected to be both on kind of go to market, but might there be any cost synergies?

Neil Hunn: Two, there is a cross border US to Canada, and maybe in the future, US to Mexico, subtlety in the freight match, matching business, which will be able to better manage in a, when we sort of have the businesses together. In terms of the actual network, the underlying technology itself, that's where we're sort of taking a wait and see approach on that. I mean, the two markets, the two networks fundamentally operate very, very, very well today. DAT in the US is extraordinarily busy, in an exciting way, integrating the trucker tools, transaction, the outgo transaction, and executing the monetization strategy.

Neil Hunn: So, as you know, essentially every broker and every carrier in the US, North America, is on the DAT network, and we monetize both sides through a subscription. And now we're going down, looking at the value stack of a carrier, in this case factoring. We have that captive now to DAT, and we have partnerships, for instance, with legal services and fuel cards. Now, on the broker side, you look at what we can do to help them. It starts with tracking, with trucker tools, and there's other things that DAT is working on. And so you have that sort of US-centric, or either that port to the Canadian market over time as well.

The underlying technology itself. That's, we're we're sort of taking a wait and see approach on that. I mean, the 2 markets, the 2 networks, fundamentally operate to they very, very well today. Dat in the US is extraordinarily busy, um, and an exciting way, um, integrating the trucker tools transaction, the outgo transaction and executing the monetization strategy. So as you know, essentially, every broker and every carrier in in the US North America is on the DAT uh Network and we we monetize both sides, do a subscription and now we're going down. Looking at the value stack of a carrier. In this case factoring we have that captive. Now the DAT and we have Partnerships for instance with legal services and fuel cards and on the broker side, you look at what they're what we can do to help them. It starts with, with tracking, with trucker tools. And there's other things that the at is working on. And so you have that sort of us Centric oriented that that port

Neil Hunn: So it's really playing the medium to long game here, Dean, versus some short-term synergy. Great, that was really helpful.

Speaker Change: to the Canadian Market over time as well so it's really like um it's really per playing the longer go the medium the long game here Dean versus some short-term Synergy play

Deane Dray: And just to follow up, and Neil, I'm not sure how much you can comment, but has there been any change in the board's thinking about potentially exiting some of the non-software businesses? There was a media article suggesting Neptune might be exited. Can you comment on this? Anything about potential time Yeah, Deane, I'll say what we said publicly for the better part of, you know, two and a half years, which is it was really just November of 2022. When this the current portfolio came into existence, when, as you know, the driving force behind divesting Transcore and ZTAC and the industrial businesses.

Speaker Change: Great, that was really helpful and just, uh, follow up and Neil. I'm not sure how much you can comment. But has there been any change in the board's thinking about potentially exiting some of the non-s software businesses? There was a a a media article uh suggesting Neptune might be accident.

Speaker Change: Um can you comment on this uh anything about potential timing? Thanks?

Neil Hunn: to CD&R and various Singapore telecom engineering, etc. was to beat the cyclicality out of our business. And so that was the decision that we made. And we then we like that decision. Product businesses we have today are great businesses. They meet all of our criteria, leaders in its markets that compete on intimacy, that have great year in economics. Margin Profile. They're consistent or slightly better than organic growth aspirations. And so they have a they're doing particularly well in the portfolio is not and proving to be non cyclical. So that's our strategy.

Yeah, yeah. Dan, I'll I'll say what we've said publicly for the better part of, you know, 2 and a half years which is it was really just November of 2022. When this, the current portfolio came into existence when and as you know, the driving force behind, uh, desting TransCore and ztech, and the industrial businesses.

Speaker Change: To cdnr and various in Singapore, Telecom engineering, Etc, was to beat the cyclicality out of our business. And so that was the decision that we made. And we, we then we, we like that decision. We with the product businesses, we have today are great businesses. They meet all of our criteria leaders, and its markets that compete on intimacy, that have greater economics. And

Operator: And we're going to Thank you.

Speaker Change: Margin profile, they're consistent or solidly better than organic growth aspirations. And so they have a they're doing particularly well in the portfolio is not and proving to be non-cyclical. So that's our strategy. And, and, and we're going to play this 1 through.

Operator: Unknown Speaker.

Thank you.

Operator: Thank you.

Scott Davis: Your next question comes from the line of Scott Davis with Milius Research. Please go ahead. Hey, good morning. Good morning, Scott. Thanks for joining. Thanks for having me.

Yep, and you.

Speaker Change: Your next question comes from the line of Scott Davis and Milius research. Please go ahead.

Speaker Change: Hey uh, good morning guys.

Speaker Change: Good morning Scott. Thanks for joining.

Scott Davis: I just want to follow on Deane's question, but in a different way. When you think about the structural change that has occurred at Roper, which has been pretty meaningful the last few years, and now you include Subsplash, which seems like it's a pretty interesting deal. What do you think your core growth rate or kind of entitlement growth rate has changed? Yeah. So. So our, our portfolio that in the Thanksgiving of 2022 time we snap the chalk line with the investors we talked about the historical growth rate of that portfolio was somewhere in the six, six and a half percent.

Speaker Change: Uh, no thanks for having me. Um, hey, I just want to follow on on kind of Dean's question. But in a different way, what when you think about the structural change that has occurred at Roper, which has been pretty meaningful the last few years, what, what do you, what would you and now you include subsplash, which seems like it's a pretty um,

Interesting deal. But what do you think your, your core growth rate or, or kind of entitlement growth rate is has changed? Kind of, I don't know, just say 20202 to 2026.

Speaker Change: Yeah. So

Speaker Change: uh so our our the portfolio that in the Thanksgiving of 2022 time, we snap the chalk line with the investors. We talked about the the historical growth rate of that portfolio was somewhere in the 6, 6 and a half percent range.

Neil Hunn: We believe that we have improved the sort of through cycle, if you will, so the minimal cycle that we have, you know, puts or takes in a given year, to be in the seven, seven and a half range. We've said that for the last couple years. This isn't any guidance to this year, next year, this is sort of through year over year, so people aren't confused. And The Art of the Possible is in the mid-eighths with this portfolio. Then, as we buy businesses that are growth accretive, subsplash is something like 15 basis points, growth accretive, organic, I think, century each was 30 or 40 basis points, something like that.

Speaker Change: Um, we believe that we have improved the sort of through cycle if you will. So the minimal cycle that we have you know, puts or takes any given year to be in the 7 7 and a half range. We've said that for the last couple years, this isn't any guidance to this year next year. This is sort of through your year-over-year. So people aren't confused

Speaker Change: Um and the Art of the possible is in the mid eights with this portfolio.

Neil Hunn: Then it either A, provides a hedge to what I just said, or B, provides an opportunity to stack on top of that. So that's, I hope that answers your question, but happy to clarify anything.

Speaker Change: Then, um, as we buy businesses that are growth, accretive subsplash, is something like 15 basis points. Growth of creed of organic, I think Century each was 30 or 40 basis points, something like that, then it either a provides a hedge. So, I just said or B provides an opportunity to stack on top of that.

Um so that's I hope that answers your question but happy to clarify anything I just said.

Scott Davis: No, that doesn't answer it. And then, look, there's been a lot of questions on Subsplash, but just to be clear. I'm not asking for an exact number, but within your deal model, are you assuming that subsplash will be somewhere around segment, average, EBITDA margin, year five-ish? Does that sound about right? It's going to be a little bit below Scott because NETWORK is in the mid to high 50s EBITDA and so we'd say it would be in the low 40s. Okay. I gotcha. Okay. Thank you guys. You bet.

Speaker Change: No, that that does answer it. And then look there's been a lot of questions on subsplash but just to be clear and, you know with

Speaker Change: I don't I'm not asking for an exact number but within your deal model, are you assuming that subsplash will be somewhere around. Segment average, avadim margin year 5ish is that sound about right?

Yeah, we'd say it'd be in the low 40s. Yep.

Speaker Change: Okay.

Operator: And this concludes our question and answer session. I would like to turn it back to Zack Moxcey for any closing remarks. Thank you everyone for joining us today. We look forward to speaking with you during our next earnings call. And the conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

And this confuses your question and answer session, I would like to turn it back to Zack Moxy for any closing remarks.

Thank you everyone for joining us today.

Speaker Change: Next earnings call.

Speaker Change: And a conference has now completed. Thank you for attending today's presentation. You may now disconnect