The Roper Technologies Conference Call has begun and is being recorded. All participants will be in listen-only mode. Zack Moxcey, Vice President of Investor Relations, is leading the call and is joined by other executives from the company. They have prepared slides to accompany the call and have issued a press release with financial results. The call will include forward-looking statements and will primarily focus on adjusted non-GAAP and continuing operations basis. The difference between GAAP and adjusted results will be discussed and reconciliations can be found in the press release and on the company's website. Neil Hunn, President and CEO, will be leading the prepared remarks, followed by a Q&A session.

Neil Hunn begins the call by thanking everyone for joining and outlines the topics that will be covered. He highlights the second quarter performance, with Jason providing more detailed financial results and discussing the balance sheet and cash flow. Neil then goes through segment highlights and discusses the guidance for the full year. He mentions that they saw good bookings momentum and increased free cash flow. The company is increasing their full year outlook and remains confident in their outlook despite production challenges. They are also active in the M&A market and have a strong pipeline of opportunities. Overall, they are optimistic about their ability to be active in M&A this year.

In the third paragraph, Jason Conley provides an update on the company's performance in Q2, highlighting a 12% increase in revenue compared to the previous year. He also discusses organic growth and the contribution of recent acquisitions to this growth. Jason mentions that EBITDA was $695 million, representing a 13% increase over the previous year, and that the company's debt was slightly above their guidance range. He also shares the company's performance over the past three years, with a 13% compounded annual growth rate in revenue and a 14% CAGR in EBITDA. Finally, he notes that free cash flow has grown by 35% in the past 12 months and has a current margin of 32%.

The company expects their cash flow to improve in the second half of the year and for their free cash flow margins to reach 30% or more in 2024. They have paid down their revolver by $300 million and their net debt-to-EBITDA ratio is now at 2.7x, giving them room to invest in their market-leading businesses. In the second quarter, they saw strong performance and growth in their Application Software segment, with revenue growing by 21% and EBITDA margins at 43.6%. Their Deltek and Aderant businesses had solid performances and they are excited about the integration of Deltek's new digital assistant, Dela, in their software applications.

The Aderant, Vertafore & Frontline, PowerPlan, and health care IT businesses all performed well in the quarter, with strong net dollar retention and bookings growth. The strategic reviews for each business were positive, and the PowerPlan team is making progress. The combination of Strata and Syntellis is going well, and the sales pipeline is filling with growth opportunities. Data innovations saw accelerated growth, and Procare, the most recent addition to the Roper family, had a strong start. For the second half of the year, mid-single-digit organic revenue growth is expected for this segment.

Organic revenue in the Network Software segment grew by 2% in the quarter, but was impacted by challenges in the freight matching businesses and recent strikes at Foundry. Excluding these factors, the segment showed mid-single digit growth. EBITDA margins remained strong at 54.8%. Despite the current market conditions, Roper continues to invest in long-term growth, such as implementing GenAI-enabled fraud detection tools at DAT and welcoming a new CEO. Foundry, a postproduction media and entertainment software business, also saw a decline due to the strikes, but is expected to return to normal growth next year as the production pipeline fills up.

In the quarter, the balance of this segment grew mid-singles organically with strong execution across a portfolio of businesses. The life insurance and annuities network software business had strong renewals and customer expansions, while ConstructConnect continued to lead the market with their GenAI power and other solutions. The alternate site health care businesses also performed well, with MHA benefiting from increased operational focus and SoftWriters showing solid execution. The TEP segment's revenue grew 5% organically and EBITDA margins remained strong. Verathon had exceptional growth and Neptune delivered another record quarter. Both businesses have strong leadership and a focus on sustainable long-term growth.

The paragraph discusses the performance of Neptune, NDI, and IPA Inovonics & rf IDEAS in the first half of the year. While Neptune had a successful commissioning of ultrasonic meter capacity, they struggled with manufacturing efficiency for mechanical meters. NDI declined due to customer program timing but is expected to return to their normal growth rate next year. IPA Inovonics & rf IDEAS also declined due to a difficult prior year comparison. The TEP segment is expected to grow in the mid to high single digits for the rest of the year, slightly lower than previous expectations due to Neptune's efficiency issues. The company is maintaining its 12% total revenue growth and 6% organic revenue growth outlook for the full year.

The company has delivered strong financial results and is raising its full year guidance. They have seen growth in total and organic revenue, EBITDA, and free cash flow. They are confident in their outlook and have a strong financial position for capital deployment. They plan to pursue acquisition opportunities and are focused on compounding cash flow over time.

The company operates in a decentralized environment to promote competition and customer relationships. They focus on improving long-term growth and business quality, while also seeking out new opportunities for growth. The production efficiency issues at Neptune were due to the team's attention being focused on other areas, but countermeasures are being implemented. Demand for the company's products remains strong.

The company is focused on getting back to prior levels of efficiency and resolving any issues with countermeasures. The recent CrowdStrike fiasco did not have any significant impact on the company. There has been discussion in the industry about customers delaying investments related to AI, but this has not been seen in Roper's portfolio companies. The company has not experienced any changes in IT spending due to customers' AI strategies.

The company's enterprise software bookings were up high single digits in the quarter, with strong performance across several businesses. Deltek was the only one that saw a decline. The CEO and CFO are optimistic about the opportunity for growth in the GenAI space and have mentioned it in previous calls. The Q3 EPS guidance is expected to be around $0.10 to $0.15, which is in line with previous years.

The company is experiencing a shift in revenue due to operational efficiencies and a decrease in AS margins. The freight market is following a normal cycle, with volumes stabilizing and some improvements in spot market volumes, carrier attrition, and freight rejection rates. However, the company is still at the bottom of the cycle.

The speaker discusses the performance of the Deltek business, noting that the GovCon side has been experiencing volatility and sluggishness due to government spending uncertainty. However, there has been some encouraging activity in the enterprise sector in the second quarter. The speaker also mentions that there is no election impact on this part of the business.

The government's spending is uncertain, but it doesn't really matter what it's spent on. The company, Aderant, is in the beginning stages of migrating to the cloud for their GovCon business, which is expected to unlock expansion sales opportunities. The company has a lot of market momentum and is leading the market in using generative AI tools and software applications. Aderant has gained significant market share over the past five to seven years, mostly through on-premise solutions, but the COVID-19 pandemic has prompted large law firms to start migrating to the cloud. This migration is expected to continue for several years, with only a few dozen conversions happening so far.

Scott Davis asks Neil Hunn if it has become more difficult to get price increases in the network and application software markets. Hunn responds that they have not received significant price increases in these areas and instead focus on cross-selling and upselling to drive growth. Davis also asks about the M&A market, and Hunn confirms that there is still a high level of enthusiasm for high-quality deals, with a large amount of pent-up demand for opportunities. However, in the first half of the year, deals were heavily impacted by asset quality, with A plus assets trading well and lower quality assets not receiving much interest. This has led sponsors to reassess the value and valuations of assets.

The speaker discusses the positive outlook for their company, citing the combination of pent-up demand, higher interest rates, and proactive pursuits as factors leading to better valuations and increased opportunities. They also mention the mix between ultrasonic and mechanical products at Neptune, but decline to provide specifics. They note that the market is shifting towards static meters and that the margin profile for both types of products is similar. The speaker also addresses the current state of construction starts and activity, stating that while things may be getting weaker, they are still at good levels. They mention that Deltek's construction vertical remains strong, with a strong pipeline and bookings activity, particularly among smaller customers.

The company's software business has shown strong performance, with double-digit bookings and good execution. The backlog for Neptune orders is still strong, with almost four quarters of backlog going into the year. The company expects high single-digit growth in software bookings, but this may not necessarily translate to revenue growth in the second half of the year.

In paragraph 19, the speaker discusses the strength of orders and bookings for the company in the fourth quarter and how it will impact future revenue. They clarify that enterprise bookings refer to software business outside of certain smaller businesses and that the majority of bookings are subscription or SaaS related. They also mention that the issue with Neptune production is expected to be resolved by the end of the third quarter, allowing for catch-up in the fourth quarter.

Neptune has two types of meters, a static and mechanical one. They had to add production capacity for the static meter, which was successfully commissioned in the first half. However, the mechanical meter production efficiency was below what was needed to meet demand and fulfill customer commitments. The company is working on countermeasures to improve efficiency and expects to resolve the issue in the third quarter. The root cause is believed to be a distracted factory management team. The company is open to discussing more details offline. The call concludes with thanks from the moderator.

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