The Roper Technologies Conference Call is about to begin, with Zack Moxcey, Vice President of Investor Relations, leading the call. He is joined by other executives from the company and they will be discussing the third quarter financial results. The call is being recorded and all participants will be in listen-only mode. The company has prepared slides to accompany the call and a Safe Harbor statement is provided to remind listeners of the risks and uncertainties involved. The results will primarily be discussed on an adjusted non-GAAP and continuing operations basis, with the difference between GAAP and adjusted results explained. Reconciliations can be found in the press release and presentation appendix.

The speaker, Neil Hunn, thanks everyone for joining the call and shares the agenda for the meeting. He mentions that the company has performed well in the third quarter and will discuss financial highlights, results, and increased guidance. He also mentions the company's focus on M&A and strong cash flow performance.

In the third quarter, Roper deployed $2 billion for acquisitions, including Syntellis and Replicon, and made a minority investment in Certinia. The company increased its full year total revenue growth to 14% and organic revenue growth to 7%, and its debt guidance to $16.62 to $16.66 billion. Roper remains well-positioned for further capital deployment with over $4 billion in M&A firepower. In the third quarter, the company saw a 16% increase in revenue, with 6% organic growth and a 9% contribution from acquisitions. Organic software recurring revenue grew in the high single-digit range, driven by customer expansion and new logos.

In summary, the company's product businesses had a strong quarter with 10% organic growth and a 46% EBITDA operating leverage. The company's earnings per share exceeded expectations and their recent acquisitions had minimal impact on earnings. Free cash flow was also strong, with a 19% increase on a trailing 12-month basis. The company's focus on compounding cash flow is evident in their results and they are on track to deliver north of 30% free cash flow margins in 2023. They have a strong financial position with net debt of $6.6 billion and capacity to deploy $4 billion or more in the foreseeable future.

The company's strategic choices are guided by cash flow growth optimization, and they will be disciplined and patient with capital deployment. Private markets are slowly falling, but activity is picking up. The acquisition of Syntellis and combination with Strata will help the company address challenges faced by US hospitals and health systems. The combined business has relationships with 70% of the country's health systems and meets all acquisition criteria. This combination will result in a larger customer base, expanded product offering, and future development opportunities.

The Application Software segment had strong performance in the third quarter, with revenues of $803 million and a 5% increase on an organic basis. EBITDA margins also improved to 44.6%. Deltek, a part of this segment, saw sustained momentum in their SMB channel and private sector solutions, but slower activity in their GovCon Enterprise segment due to government spending uncertainty. They also released new AI-enabled capabilities and completed the acquisition of Replicon. Overall, the segment presents a compelling value creation opportunity for customers and shareholders.

The paragraph discusses the performance of Deltek's various software businesses, including Replicon, Aderant, Vertafore, Strata, and Frontline. These businesses have shown strong performance and growth, with Aderant achieving record bookings and success with their AI-enabler MADDI. The Network Software segment also saw growth, with revenues increasing by 5% and strong performance from their US and Canadian freight matching businesses. Overall, Deltek expects to see mid-single-digit organic revenue growth in the final quarter of the year.

Roper's businesses have successfully managed their costs while investing in new product development, resulting in strong margins. One example of this is DAT's launch of Gen AI-enabled solutions to combat freight industry fraud, which has been well-received by customers. iPipeline, a network software business, has also gained market share through their focus on their core customer base. Foundry, a media and entertainment postproduction software business, is ahead of plan in transitioning to a subscription model, despite temporary industry challenges.

The Foundry company is continuing to innovate and compete for customer business despite challenges such as the actor strike. Their alternate site healthcare businesses have seen growth due to improved occupancy levels and patient volumes. The TEP segment, which includes Neptune and Verathon, also had a strong quarter with double-digit order growth and strong operational execution. Smaller businesses within the segment also performed well, despite supply chain challenges.

The company has increased their 2023 guidance for total revenue, organic revenue, and adjusted DEPS due to their strong third quarter performance. They expect low double-digit organic growth in the final quarter of the year. They also successfully deployed $2 billion in capital through acquisitions, which are expected to bring in significant EBITDA next year. Overall, the company had a solid quarter with 16% revenue growth, 6% organic revenue growth, and strong EBITDA margins and cash flow.

Roper has had a strong quarter performance, leading to an increase in their full year revenue and DEPS outlook. They also have over $4 billion available for M&A activities and have added Janet Glazer to their executive team to lead acquisition and corporate development efforts. Roper's strategy is to compound cash flow over time by operating a portfolio of market-leading, application-specific, and vertically oriented businesses.

The company operates in a decentralized environment, but also has a centralized process for capital deployment. They aim to improve growth rates and business quality while compounding cash flow over time. The speaker thanks the audience for their interest and opens up the floor for questions. The first question is about the network software business, specifically the headwinds in Q4 due to softness in freight markets and a potential impact from the actor strike on Foundry. The high margins in Q3 were due to a successful cost structure alignment.

The pipelines for Foundry are expected to pick up in the second half of Q1 and Q2, with a potential impact in Q3 and Q4. DAT has seen abnormal growth in the past couple of years, but is expected to return to normal behavior once the industry freight volumes pick up. Foundry's gross retention has been strong, and the move to a subscription model has given customers pause. Syntellis is off to a strong start.

The speaker asks about the structure of Roper's minority interest approach in Certinia and the size of the business. The CEO explains that they were approached by Haveli partners and saw it as a valuable opportunity to learn and create value. They clarify that this is not the beginning of a large book of minority investments and the scale of the business will remain private. The next question asks about the growth in technology-enabled products, and the company mentions Neptune and Verathon as contributing to the outperformance in this sector.

The Neptune market is healthy and has consistent and robust ordering patterns, leading to market share gains and product advantage. The team has executed well, with a focus on go-to-market strategies and product vitality. The M&A market is starting to pick up, with investment bankers seeing a lot of activity and processes starting. The question remains whether the multiples will be as attractive as the previous quarter.

There is pressure for sponsors to provide liquidity to LPs, leading to a potential increase in transactions in the market. However, the bid-ask spread between buyers and sellers is still uncertain. The company remains patient and will only pursue opportunities that offer compelling value. There have been some changes in customer decision-making, but it has been a mixed bag overall.

The Deltek company is strong in the SMB market for both government contracting and private sector, but weaker in the enterprise level for government contracting. This is due to uncertainty around federal government budgets. Other Roper companies like iPipeline and Aderant have strong customer bases. The weakness at DAT is due to the current state of freight markets. Roper is playing offense with their Gen AI technology and sees it as a transformational and foundational technology that will change the way we live in the next 5-10 years. They are approaching it with a combination of top-down and bottom-up initiatives.

Roper has organized education sessions led by Satish Maripuri and Mike Corkery to teach employees about Gen AI and its potential impact on the company. These sessions will focus on methods of deployment and how to use Gen AI in both productivity and new product ideas. The company hopes that this will spark creative thinking among its 18,000 employees and generate new ideas for positive impact on customers and operations. Roper also plans to explore contracts with larger players and deployment models for cybersecurity and safety purposes. While organic software growth is already in the high single-digits, the reported organic growth is 5% due to professional services and license attrition. This spread is expected to continue in the foreseeable future.

The company experienced a more significant difference between perpetual and subscription deals this quarter due to some AS deals being delayed and the shift to subscription for Foundry. The company has seen success in their health care assets, with their laboratory business and power plan seeing strong services bookings. The company's exposure to the health care industry has increased through recent M&A, and the combined company is focused on developing new products to further monetize their customer base and persona.

Neil Hunn, the CEO of the company, discusses the recent acquisition of Syntellis and the competition faced in the current market. He mentions that they are still competing against private equity firms, although the number of competitors has decreased. The acquisition of Syntellis was a proprietary deal, which is uncommon in the current market. The company also discusses the impact of the foundry on their growth, stating that it had a single-digit revenue impact in the second half of the year.

The speaker discusses the performance of Frontline, a company that serves the education sector. He mentions that their renewals and cash flow were strong, with consistent rates of retention and cross-selling. The company has also seen good growth in new customers, although larger deals have been slower to materialize. Overall, the company's performance has been steady and there are no major concerns.

In a recent conference call, Terry Tillman asked Neil Hunn about the momentum of Neptune and its meter data management product. Hunn expects Neptune to have another good year due to its backlog, market positioning, and competitive advantage. He also mentioned the growing importance of Neptune's software group, which deals with processing large volumes of data. The press release included language stating that the guidance does not include future acquisitions or divestitures, which Hunn stated was standard language.

The speaker is answering a question about how the current uncertain macro environment may affect the company's M&A strategy. He explains that times of uncertainty can actually be great opportunities for the company, and that their history and pattern recognition has shown success in these times. He also mentions that they have built a strong ability to understand and pick successful businesses, and that they look for stability in their acquisitions.

The company is looking for stability in uncertain times and is considering both stable competitive forces and bolt-on activity for growth. The government shutdown and lack of a speaker of the house are factored into the current environment and the company is cautious about the spending of enterprise class government contractors. The company has hired Janet to lead their investment strategy and the analyst praises the hire.

Neil Hunn and Steve Tusa discuss Frontline's strong cash performance in the third quarter and their expectations for the fourth quarter. Hunn mentions that Q4 is usually their strongest quarter and they expect it to be strong again this year, with Frontline remaining steady on cash. Tusa asks about any other factors to consider, and Hunn says there are no major changes expected in cash tax timing or outside of working capital. They also touch on the current environment for enterprise software, with Hunn mentioning pockets of softening but overall holding up well.

Neil Hunn explains that the company's business model is built on durability and is highly incurring, as their software is mission-critical and essential to their customers. The impact of macroeconomic uncertainty is expected to be minimal, with slower software sales and lower growth with customers, but overall net retention should remain the same. There are pockets of strength and weakness within different sectors of the company.

Neil Hunn, CEO of Vista Equity Partners, discusses the company's approach to potential acquisitions and growth strategies for its portfolio companies. He emphasizes that they will not force any company to make a purchase, but rather encourage them to have both organic and inorganic growth strategies. The focus will initially be on larger businesses like Deltek, Frontline, and Vertafore, but smaller opportunities like Strata will also be considered. Hunn expects that around 20 of their 27 companies will have some form of inorganic growth strategy, but whether or not they execute on it remains to be seen.

The speaker discusses the strength of ConstructConnect, a leader in commercial construction informatics, and clarifies that the company's data is used in the planning stages of construction and does not compete in the actual construction process. They note that the company has seen an improvement in activity and that their data is used by contractors and building product manufacturers to respond to RFPs.

Brad Hewitt from Wolfe Research asked about the company's margin outlook for next year and if there was a framework to think about in terms of percent margin expansion and incremental margins. CEO Neil Hunn responded that it was too early to give specific guidance for next year, but that their long-term model is for 45% operating leverage. He also mentioned that network software may see slightly higher margins next year, but it was still too early to tell.

The speakers, Brad Hewitt, Neil Hunn, and Jason Conley, discuss the relationship between their company and Certinia, as well as their free cash flow conversion targets. They mention that Tim Haddock, their VP of Acquisitions, is on the board of Certinia but assure that it does not indicate any major changes in their relationship. They also mention that their target for free cash flow conversion is north of 30% of revenue. The conference call concludes with closing remarks from Zack Moxcey.

The speaker is looking forward to speaking with the audience during the next earnings call and the operator concludes the conference and thanks the attendees for attending.

This summary was generated with AI and may contain some inaccuracies.