The Roper Technologies Conference Call has begun and is being recorded. Zack Moxcey, Vice President of Investor Relations, is leading the call with other executives from the company. A press release has been issued with financial results and replay information for the call. The call will primarily discuss adjusted non-GAAP and continuing operations results, with a reconciliation of GAAP results provided. The call will also include a Safe-Harbor statement and will be conducted in the context of risks and uncertainties.

The speaker, Neil Hunn, begins by thanking everyone for joining the call and expressing excitement to share the company's 2023 fourth quarter and full-year results. He outlines the agenda for the call, which includes discussing the company's recent acquisition of Procare Solutions. He then highlights the key takeaways of the call, including the company's strong financial performance and positive momentum going into 2024. He also mentions the company's successful deployment of $2.1 billion in acquisitions and acknowledges the challenging market conditions of the past year. Overall, he expresses pride in the company's accomplishments and positive outlook for the future.

The company is experiencing strong demand for their mission-critical solutions and has made recent acquisitions that have improved their recurring revenue mix and organic growth profile. They are expecting a strong 2023 and have a solid momentum going into 2024. The most recent acquisition, Procare Solutions, is expected to contribute $260 million in revenue and $95 million in EBITDA for the 12 months ended Q1 '25. The acquisition meets all the company's acquisition criteria and is expected to close in the current quarter.

The company's corporate strategy focuses on improving sustainable organic growth and capturing more value from capital deployment. They are prioritizing bolt-on activities and adding higher-growth businesses, such as Procare, to their enterprise. Procare is a leading provider of software for early childhood education centers, and the market is growing due to an increase in dual-income families and tech-enablement. Procare has a strong market share and high retention rates due to their integrated payment capabilities.

The speaker concludes by stating that after thorough research, they are confident in the potential for Procare to deliver growth and margin expansion. They welcome the Procare team to Roper and hand the call over to Jason to discuss the fourth quarter and full-year results. In the fourth quarter, revenue was over $1.6 billion, with 8% organic growth and acquisitions adding four points. Gross margin was down slightly due to the higher mix of the TEP segment. EBITDA and DEPS both grew 11%, exceeding expectations. Free cash flow also saw a significant increase. Application Software saw 15% revenue growth, with seven points from organic growth and the rest from acquisitions.

The company's EBITDA margin was slightly lower in the current quarter compared to the previous year due to decreased incentive-based compensation. However, the Network Software and TEP segments still showed growth, with solid EBITDA performance. Overall, the company's revenue for the full year of 2023 increased by 15%, with a three-year CAGR of 15%. EBITDA also increased by 16% for the year, resulting in a consistent trend of growth for the company.

In summary, the company owns a portfolio of high gross margin businesses and has a strong focus on converting EBITDA growth to cash flow. They had a free cash flow margin of 32% for the year and expect it to be at least 30% in 2024. They have a strong financial position with $3.14 billion available on their revolver and a net-debt to EBITDA ratio of 2.4. They plan to close on a new acquisition in Q1 and have the capacity to deploy $4 billion or more in capital while maintaining their investment-grade rating. They have seen an increase in deal activity but remain disciplined and patient in their approach.

Neil Hunn discusses the full-year performance of the Application Software segment, which saw a 21% increase in total revenues and a 6% increase in organic revenues. Deltek, Aderant, Vertafore, Strata, and Frontline all showed strength, with Deltek seeing strong growth in SaaS solutions and Aderant achieving record bookings. Roper's strategy of innovation and strategic acquisitions was highlighted by the addition of Replicon and ProPricer to Deltek's product family. Aderant also stands out for its use of generative AI solutions. Vertafore showed solid gains in ARR and the MGA systems bolt-on is exceeding expectations. Strata also performed well, both in organic ARR gains and integration of the acquired Syntellis.

Frontline had a successful year with strong retention and cash flow. The Procare solutions deal is expected to close this quarter. The Network segment saw 5% organic revenue growth and strong margins. The freight matching businesses, DAT and Loadlink, grew despite muted market conditions and continued to innovate. Pipeline had record bookings and strong ARR growth. Foundry made progress in transitioning to a subscription revenue model. The alternate site healthcare businesses, MHA, SoftWriters, and SHP, were strong due to improved census levels. The TEPs segment saw 15% organic revenue growth and consistent EBITDA margins. The supply-chain uncertainties at the beginning of the year were resolved and the business captured opportunities.

The company does not anticipate any significant supply chain issues as they look to the upcoming year. They are optimistic about the performance of their water meter and technology business, as well as their other product lines. The company expects high single-digit organic revenue growth for the year and has set their 2024 full-year and first quarter guidance, which includes the impact of a recent acquisition. They also mention their long-term strategy and execution model.

The company has historically operated at a 5% to 6% organic growth rate, but aims to improve it to 8% to 9%. In the last three years, they have achieved 8%, 9%, and 8% organic growth. However, they expect the current organic growth rate to be around 7% to 7.5%, due to subdued customer activity in the Application Software segment and muted freight market conditions. The company expects adjusted DEPS to be between $4.30 and $4.34 for the first quarter. They conclude with key takeaways of delivering strong performance in 2023 and positive momentum heading into 2024, with 15% revenue growth, 16% EBITDA growth, and 32% free cash flow growth. They also achieved their first-ever quarter of $1 billion in software recurring and reoccurring revenues.

In 2023, Roper deployed $2.1 billion towards high-quality vertical software acquisitions, leading to strong value creation for shareholders. As they enter 2024, they have strong momentum and anticipate robust demand for their solutions. They also plan to improve business quality and continue their capital deployment strategy. Roper operates a decentralized environment and focuses on compounding cash flow over a long period of time. They compound cash flow in the mid-teens area and are actively seeking new business opportunities.

During the Q&A portion of a conference call, Deane Dray asks about the recent acquisition of Procare and its potential for growth. He mentions that the private equity sellers may be more inclined to sell to a public company at a higher price due to the company's potential for growth. However, Neil Hunn, the CEO, explains that the market for early childhood education centers is too small for an IPO and therefore, the company is not likely to face competition from IPOs.

The market for Procare is growing at a low-double digit rate, which supports the mid-teens growth rate that the company is aiming for. Private equity sellers are looking for liquidity due to constraints from their LPs, making valuations more favorable for the company. In the current environment, liquidity is key, which is why an IPO may not be the best option. The company is open to acquiring businesses at an earlier stage of development, like Procare, as long as they meet their criteria of being a maturing leader in a small market with a relative market share advantage. The market for Procare is growing faster than average and the company's business model allows for margins to scale as the business grows.

Procare is a recent transaction that the company has made, and it is expected to have a positive impact on shareholders in the long term. The company has noticed a significant increase in market activity since their last call, with a focus on bolt-ons and emerging leader profiles. The financial impact of the Procare transaction is estimated to be around $0.10 to $0.15 for the year, with $0.02 in the first quarter. The company expects to close the transaction in March and will reload on their revolver with an interest rate of 6%.

The speaker discusses the financial outlook for the company, stating that they expect to reach $0.10 to $0.15 for the year. They also mention that there is not much seasonality in the business and it is growing well. They then focus on the Network Software sector, acknowledging that there has been softness in freight markets and Foundry had a tough year due to external factors. They expect a muted growth rate for Foundry in 2024, but the main driver of the overall growth rate will be DAT and Link businesses. The speaker states that they have not assumed a second-half pickup in the market and are waiting to see it before factoring it into their model. The next question is from an analyst asking for clarification on the growth rate for Network Software.

Neil Hunn discusses the company's organic growth in 2024, stating that their long-term aspiration is to grow at 8-9%. However, due to market tailwinds and pandemic-related factors, their current course and speed is in the 7-7.5% range. The slow freight market and less enterprise customer activity are the two main factors impacting their growth in 2024. However, Deltek ended Q4 with momentum.

The company's Application Software segment had a good step up at the end of the year, but the overall outlook is for mid-single digit growth due to subdued activity with large accounts. The Enterprise bookings were up low single digits for the year, which is consistent with the lower activity at the Enterprise level mentioned throughout the year. The pipeline for both Enterprise and SMB looks attractive, but the company is not underwriting that in their guidance at the moment.

The speaker is discussing the impact of exogenous events on the company's model in 2024. They mention that nonrecurring revenue will be flattish and recurring revenue will be strong in the Application Software segment. They also mention that there could be upside in the year if Deltek picks up in the large GovCon Enterprise. In the Network segment, recurring revenue will be down and nonrecurring revenue will be muted due to the conversion of Foundry to subscription. The speaker also mentions that the SaaS migration will have a longer-term impact on the company's growth.

The company has over $900 million in on-premise maintenance and expects to see growth as it converts to SaaS and cloud. Foundry is making a day-one pivot while other companies are undergoing a migratory approach. Neptune and Verathon are expected to continue driving growth, with Verathon potentially seeing higher growth due to its R&D productivity.

The company is encouraged by the strong pipeline of research and development and the momentum in the market for their products. They expect long-term growth rates to be strong in all three product categories. In terms of M&A, the company's policy is to maintain a leverage ratio between 3 to 3.5 times, but they will consider going above this range for the right opportunities. The supply chain issues in the TEP segment have been resolved, which should lead to improved margins and productivity in 2024.

The company has added supplier capacity at the RF products businesses and is shifting towards a more balanced approach between resiliency and just-in-time inventory management. This will help improve inventory turns and asset velocity, potentially resulting in a working capital advantage. The company's margins are expected to improve due to scaling of infrastructure and the growth of single-use products and Neptune. The company aspires to achieve 8% to 9% organic growth and has made progress towards this goal over the past few years.

The company's focus is on the process and discipline across all of its businesses, rather than any specific company. This involves designing strategies for long-term growth, executing them effectively, and utilizing talent as a competitive advantage. The goal is for each business to improve consistently, leading to overall growth. The relationship between DAT and weak markets may actually benefit the company.

The dynamic of DAT is different from what was described, as it tends to grow in strong freight markets and slow down in weaker markets. This is similar to the construction analytics business, where demand is countercyclical and increases when the market slows. The product strategy is aimed at balancing this out. There have been many layoff announcements across different industries, including tech and UPS.

Neil Hunn explains that their company operates in relatively insulated end-markets, such as government contractors and insurance, where employment is higher and the macro swings don't have a significant impact. He also mentions that the loosening labor market has been advantageous for their business, allowing them to upgrade talent. In response to a question about the impact of modern architecture on add-on module sales, Neil shares that they have seen improving growth in businesses like Deltek, but does not provide specific information on net revenue retention from customers who move to the cloud.

The speaker confirms that there is a tendency for customers to purchase additional modules when transitioning to the current cloud-delivered product, resulting in a significant increase in total ARR. This is seen across the portfolio and is expected to continue in the future. The speaker also mentions the potential for M&A opportunities in both vertical and niche horizontal SaaS solutions, as well as software companies with a strong payments business.

Neil Hunn explains that the company is attracted to small market verticalized software businesses because they can compete based on value proposition and customer relationships. They are open to different business models as long as they are durable. Alexander Blanton asks about Broker and Hunn mentions that it is not accretive to adjusted EPS this year.

Jason Conley, speaking to Alexander Blanton, confirms that there will be some dilution in the company's earnings due to interest on their revolver and predicts a $0.10 to $0.15 decrease in EPS. However, he also mentions that the company is expecting double-digit growth and good cash conversion dynamics, which will lead to accretion in 2025. The total available market for the company's business is currently $750 million and growing at 10% annually. The company's market share is about 1.5 times that of their next largest competitor and they are currently re-platforming to stay ahead of legacy technology players.

Neil Hunn discusses the market for their technology, which is segmented into enterprise, mid, and single operator groups. Their company has a strong market share in the enterprise and mid segments, and they also compete effectively in the single operator segment. They currently do not have a significant presence in international markets, but may consider it in the future.

Zack Moxcey thanks everyone for attending the morning conference and looks forward to speaking with them during the next earnings call. The operator then concludes the conference and thanks everyone for attending.

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