Roper Technologies, Inc. (NYSE: NASDAQ:) has reported a 13% increase in total revenue, reaching $1.76 billion for the third quarter of 2024. The company also announced a record free cash flow of $719 million, up 15% year-over-year, and a 10% EBITDA growth, resulting in an EBITDA margin of 40.7%.
The acquisition of Transact Campus for $1.5 billion is expected to bolster future revenue and EBITDA. With strong enterprise software bookings and the resolution of production challenges at Neptune, Roper has raised its full-year 2024 guidance, forecasting total revenue growth of over 13% and an organic growth outlook of approximately 6%.
Key Takeaways
- Total revenue increased by 13% to $1.76 billion, with organic growth at 4%.
- Free cash flow reached a record $719 million, a 15% increase from the previous year.
- EBITDA grew by 10%, with an EBITDA margin of 40.7%.
- Transact Campus was acquired for $1.5 billion, anticipated to contribute $325 million in revenue and $105 million in EBITDA next year.
- Full-year 2024 guidance raised, expecting total revenue growth over 13% and organic growth around 6%.
- Strong enterprise software bookings with double-digit growth.
- Net debt at $8.1 billion, with a leverage ratio of 3 times trailing EBITDA.
Company Outlook
- Optimistic about continued growth and acquisition opportunities.
- Integration of CBORD with Transact aims to create a leading on-campus solutions provider.
- Raised full-year revenue growth outlook to over 13%, with organic growth expected to remain around 6%.
- Adjusted earnings per share (DEPS) guidance for Q4 is between $4.70 and $4.74.
- Over $4 billion available for acquisitions, indicating an active M&A strategy.
Bearish Highlights
- Freight matching businesses and Foundry software faced challenges due to industry strikes.
- Content production delays expected to extend into 2025.
- Foundry’s performance consistently declining with recovery expected in the latter half of the year.
- EBITDA margins at TEP declining year-on-year, with hopes for stabilization in Q4.
Bullish Highlights
- Application software segment revenue grew by 23%, with organic revenue up by 5.5%.
- EBITDA margins in application software at 43.6%.
- Strong performance from Aderant, Deltek, and PowerPlan.
- Positive outlook for enterprise software bookings and operational performance into 2024.
Misses
- Network software segment saw only a 1% organic revenue growth.
- Challenges in Neptune’s mechanical meter production, although these have been addressed.
Q&A Highlights
- Generative AI seen as a competitive advantage, raising barriers to entry for new competitors.
- Optimism for the NSS business next year, despite no specific guidance provided.
- Updates on Vertafore’s successful product release, BenefitPoint.
- Expectations of continued discussions in the next earnings call.
Roper Technologies continues to demonstrate robust financial performance and strategic growth through acquisitions and organic development. The integration of recent acquisitions and the company’s focus on enterprise software bookings suggest a positive trajectory for the future. Despite some segment challenges, the overall outlook remains optimistic, with Roper Technologies poised to capitalize on its strong M&A capacity and favorable market conditions.
InvestingPro Insights
Roper Technologies’ strong financial performance, as reported in the article, is further supported by data from InvestingPro. The company’s market capitalization stands at an impressive $57.9 billion, reflecting its significant presence in the software industry.
InvestingPro data shows that Roper’s revenue for the last twelve months as of Q2 2024 was $6.57 billion, with a robust revenue growth of 13.7% over the same period. This aligns well with the company’s reported 13% increase in total revenue for Q3 2024 and its raised full-year guidance expecting over 13% total revenue growth.
The company’s profitability is evident in its strong EBITDA of $2.67 billion for the last twelve months as of Q2 2024, with an EBITDA growth of 13.51%. This correlates with the 10% EBITDA growth and 40.7% EBITDA margin reported in the article for Q3 2024.
InvestingPro Tips highlight Roper’s financial strength and market position. One tip notes that Roper “Has raised its dividend for 11 consecutive years,” which speaks to the company’s consistent financial performance and shareholder value creation. Another tip indicates that “4 analysts have revised their earnings upwards for the upcoming period,” suggesting positive expectations for future financial results.
It’s worth noting that Roper is “Trading at a high earnings multiple” with a P/E ratio of 39.7, which could be justified by its strong growth and market position. The company’s ability to maintain high multiples while delivering consistent growth is a testament to its operational efficiency and market confidence.
For investors seeking a deeper understanding of Roper Technologies, InvestingPro offers 13 additional tips, providing a comprehensive analysis of the company’s financial health and market position.
Full transcript – Roper Technologies Inc (ROP) Q3 2024:
Operator: Good Morning. The Roper Technologies Conference Call will now begin. Today’s call is being recorded. All participants will be in listen-only mode. [Operator instructions] I would now like to turn the call over to Zack Moxcey, Vice President, and Investor Relations. Please go ahead.
Zack Moxcey: Good morning, and thank you all for joining us as we discuss the third quarter 2024 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 Finance. Earlier this morning, we issued a press release announcing our financial results. 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. And now if you please turn to Page 2. 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 in the context of that information. 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 third quarter, the difference between our GAAP results and adjusted results consists of the following items, amortization of acquisition-related intangible assets, the financial impacts associated with minority investments, and lastly, transaction and restructuring-related expenses associated with the completed acquisition of Transact Campus. Reconciliations can be found in our press release and the appendix of this presentation on our website. And now please turn to Page 4. I’ll hand the call over to Neil.
Following our prepared remarks, we will be opening the call for questions from our telephone participants. Neil will now provide an overview of our third quarter results and key highlights. Thank you for joining us this morning, and we are excited to share our performance with you. As we move forward with our presentation, we will cover our financial performance, including details on our recent acquisition of Transact Campus, segment highlights, and increased guidance for the full year. Following our closing remarks, we will open the call for questions. Let’s begin. Our strong Q3 results have brought our year-to-date cash flow to 31% of revenue. With the renewal season approaching for many of our software businesses in Q4, we anticipate that our free-cash flow margin will exceed 30% for the year. Moving on to our balance sheet, we currently have a net debt of $8.1 billion with a leverage ratio of 3 times trailing EBITDA at the end of the quarter. We recently issued $2 billion in bonds to fund the Transact deal and partially pay down our revolver. This has provided us with over $4 billion in capacity for high-quality acquisitions. Speaking of acquisitions, the recent addition of Transact Campus to our portfolio is a significant one. We paid $1.5 billion for the business, which is expected to contribute $325 million in revenue and $105 million in EBITDA next year. The integration of Transact with our CBORD business will create a leading provider of solutions for higher-education institutions. Overall, our application software segment saw a 23% growth in revenue, with organic revenue increasing by 5.5%. We are pleased with the performance of our various software businesses, including Aderant, Deltek, PowerPlan, Frontline, and our Healthcare IT businesses. We are confident in the future growth and success of these businesses under Roper’s leadership. As part of our ongoing efforts to enhance our go-to-market capabilities and leadership, Roper is focusing on improving lead generation, deal execution, and overall market strategy. While it is still early in the process, we are pleased with the progress we are making. For the final quarter of the year, we anticipate mid-single-digit organic revenue growth.
In the network software segment, organic revenue grew by 1% in the quarter, with some challenges in our freight matching businesses and the impact of recent industry strikes on Foundry. Excluding these factors, the segment showed mid-single-digit growth, demonstrating the strength of our businesses. EBITDA margins remained strong at 56.2%.
Our freight matching businesses, DAT and Loadlink, experienced a slight decline due to challenging market conditions. However, we are seeing signs of stabilization in the market. Foundry, our post-production software business, declined as expected due to the industry strikes but continued to innovate and enhance its products.
In the TEP segment, revenue grew by 4% organically, with solid performance from Neptune and Verathon. Northern Digital and Inovonics declined based on difficult comps, but we expect improvement in the fourth quarter.
Overall, we are increasing our full-year growth outlook to north of 13% and expect consistent organic growth in the 6% area. We are also raising our full-year guidance for adjusted DEPS and expect continued strong performance in the fourth quarter. With the acquisition of Transact Campus and strong financial results, we are well-positioned for future growth and success. The risk associated with executing cost synergies is low, with most actions already taken, resulting in attractive returns for shareholders. We are increasing our full-year revenue outlook to over 13% and maintaining a 6% organic revenue growth outlook. Our DEPS outlook is also increasing to the high end of our previous guidance. We have a strong financial position with over $4 billion for capital deployment. Our M&A pipeline is active, and we are excited about pursuing attractive opportunities with a disciplined approach. Our strategy focuses on compounding cash flow over time through market-leading businesses. We operate in a decentralized environment to promote customer intimacy and long-term growth. We are confident in our ability to execute this strategy. Thank you for your support and questions. I will address the first part, while Jason will handle the second part. Over the past few years, we have worked hard to minimize the impact of macroeconomic factors on our business. Our focus is on serving mission-critical software to industries like education, legal, government contracting, healthcare, and insurance, which helps to reduce the cyclicality in our end markets. Additionally, our pricing model is primarily subscription-based, which further mitigates the effects of macroeconomic fluctuations. While we are not completely immune to macroeconomic trends, we have been able to dampen their impact. We have seen positive trends in enterprise software bookings activity over the last few quarters, with strong pipelines heading into the end of the year. The transportation macro, particularly in our DAT and Loadlink businesses, has been a key factor affecting our business. However, we have seen a stabilization in the freight market in recent weeks, which is encouraging. Jason will now provide some insights on Neptune and how we are addressing production constraints to meet demand. On Foundry, there has been a consistent double-digit decline throughout the year, with expectations for a recovery in the second half taking longer than anticipated. Looking ahead to next year, steady growth is expected for the segment.
Regarding EBITDA margins at TEP, there have been challenges with production issues and supply chain efficiencies impacting margins. Despite these challenges, investments in growth are being made, with an expectation of flat EBITDA margin for the year and an inflection back up in the fourth quarter.
In terms of enterprise software bookings, there has been a positive trend with double-digit growth, driven by strong performance in various segments. The fourth quarter is anticipated to be important in determining the momentum for next year and how it will translate into revenue.
Changes in leadership at Procare and Frontline were driven by identified opportunities to improve go-to-market functions and drive growth. The leadership changes have been made with a focus on addressing underlying opportunities and value creation levers within the organizations. The early results are showing promise in terms of yielding positive outcomes. The recent leadership changes at Frontline have been positive, with a focus on growth and a shift towards a Roper-style management approach. The new CEO has been praised for his growth-oriented leadership style, and the promotion and rotation of leaders within Roper has been beneficial for enterprise risk management. Overall, these changes have been seen as a win-win for the organization and individuals involved. The focus is not on how to create a professional-based bill, but rather on how law firm A can create a compliant bill for Roper Technologies. The key lies in asking specific, tailored questions that leverage the data and expertise of the incumbent software businesses. While startups may develop software faster, the advantage lies in the verticalized approach and the ability to address nuanced questions effectively. The momentum in enterprise software bookings is promising, with expectations of reacceleration heading into Q4. However, guidance for the next year is not being issued at this time. The seasonality of cash behavior has shifted, with Q3 now being the strongest quarter. Updates on Vertafore include significant product releases and impactful wins, while Neptune’s order patterns remain stable with compressed lead times. Overall, the company remains apolitical and unaffected by potential election outcomes. Looking back, in the Bush era, the focus was on defense spending, while during Obama’s presidency, the emphasis shifted to education and healthcare. Government contractors adapt to the changing flow of federal spending by positioning their capabilities accordingly. The ’25 appropriations are already well understood and are unlikely to be impacted by the election. This stability is leading to a thaw in enterprise government contracting activities, with a clear understanding of the one-year target.
As Roper aims for faster portfolio growth in the long term, they believe there is room for improvement in every business within the company. While organic growth strategies take time to yield results, they are confident in their ability to enhance growth sustainably. The company is also focusing on acquiring higher growth businesses to diversify its portfolio over time.
With a net leverage of around 3 times, Roper is well-positioned to continue its active M&A strategy in the next 12 months. The market is attractive with many sellers looking to make deals, presenting multiple opportunities for the company to pursue acquisitions.
In terms of deal dynamics, Roper has been engaging in more proprietary or quasi-proprietary opportunities recently. With a large number of deals expected to come to market, buyers may be more selective early in the process, potentially reducing competitive intensity.
Regarding GovCon exposure, the sector has seen some improvement in enterprise-class customers showing interest in Deltek. The stimulus in mega projects and compliance hurdles are factors influencing this momentum, with potential implications for Deltek’s platforms in ’25. Thank you for attending today’s presentation. We appreciate your participation and look forward to speaking with you again during our next earnings call. Thank you for joining us.