Roper Technologies, inc (ROP) Q3 2021 Earnings Call Transcript | The Motley Fool

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Roper Technologies, inc (NYSE:ROP)
Q3 2021 Earnings Call
Oct 22, 2021, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning. The Roper Technologies Conference Call will now begin. [Operator Instructions]

I would now like to turn the call over to Zack Moxcey, Vice President, Investor Relations. Please go ahead.

Zack MoxceyVice President, Investor Relations

Good morning, and thank you all for joining us as we discuss the third quarter financial results for Roper Technologies. Joining me on the call this morning are Neil Hunn, President and Chief Executive Officer; Rob Crisci, Executive Vice President and Chief Financial Officer; Jason Conley, Vice President and Chief Accounting Officer; and Shannon O’Callaghan, 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 webcast and are also available on our website.

Now, if you’ll please turn to Slide two. 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 Slide three. Today, we will discuss our results for the quarter primarily on an adjusted non-GAAP basis. During and subsequent to the third quarter Roper signed definitive agreements to divest it’s TransCore, Zetec, and CIVCO radiotherapy businesses, results for these businesses are reported as discontinued operations for all periods presented. Unless otherwise noted, the numbers shown in this presentation are on a 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; purchase accounting adjustments to commission expense; and lastly, income tax restructuring associated with our pending divestitures. 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 Slide four, I’ll hand the call over to Neil. After our prepared remarks, we will take questions from our telephone participants, Neil?

Neil HunnPresident and Chief Executive Officer

Thanks, Zach and good morning everyone, thanks for joining us. We’re looking forward to sharing with you the details of our solid quarter performance, as well as summarizing the acceleration of our portfolio transformation. As we look at the sequence of our call this morning we’ll start with our quarterly highlights and our recent divestiture activity. I’ll then turn the call over to Rob, who will share the details of our financial performance and our bridge to continued operations. I’ll then walk everyone through our segment by segment performance and our outlook for the balance of the year. As usual, we’ll leave plenty of time to talk to you all of your questions toward the end.

Next slide please. As we turn to Page five, this is another quarter of solid operational and excellent financial performance. On a continuing ops basis we grew revenue, EBITDA and DEPS north of 20% in the quarter. It is important to highlight and characterize the underlying strength of these results. Revenue on an organic basis grew 12% in the quarter, end market and customer demand was very strong across our portfolio within both our software and product businesses.

Importantly, our software segments were strong operationally with 10% growth in one segment and 17% in the other. Our software businesses recurring revenue grew low double-digits in the quarter, highlighting the underlying strength, stability and increasing quality of our revenue base. To remind everyone about 80% our software revenues are recurring in nature.

It’s also worth noting that our 2020 acquisition cohort, led by Vertafore, continues to perform very well. As it relates to our product businesses like most other companies we are experiencing supply chain and logistical challenges, but the businesses nevertheless, performed very well during the third quarter. As mentioned customer demand was very strong throughout the quarter and backlogs are up over 50% versus last year. Given the strong operational performance we continue our disciplined deleveraging of our balance sheet with net debt at 3.5 times trailing EBITDA. Also, we are improving the outlook for the year, which we will detail later in the call.

Earlier this morning we announced two new additions to our Board of Directors, Irene Esteves and Tom Joyce. The addition of Irene and Tom to our Board is part of our long-term Board refreshment process both are tremendous additions to our Board. Finally, we’ve been active over the last few months working to accelerate the transformation of our portfolio through the announced divestiture of three businesses.

Let’s turn to the next slide, Page six, to walk through those details and highlights. Next slide please. During the last several weeks, we entered into definitive agreements to divest three of our businesses, TransCore, Zetec, and CIVCO radiotherapy, the last of which we announced this morning. We agreed to divest TransCore to ST Engineering for $2.68 billion.

In our view, this is the right time and the right buyer for TransCore given their forward strategy and growth outlook. Taken together we are divesting these three businesses for $3.15 billion or about 20 times this year’s EBITDA. Following the completion of these deals Roper will be improved. We will have a higher quality portfolio characterized by having higher proportions of recurring revenue, a higher organic growth profile and be significantly more asset light.

Finally, we are and will be very active in deploying these after-tax proceeds. Together with our internally generated cash flow we will have about $5 billion of available M&A firepower to deploy between now and the end of 2022. None of which is included in our current financial outlook. Our enterprise will be even further enhanced once we complete this activity.

Before I turn it over to Rob, I wanted to take a moment and highlight Roper’s ability to govern, build and improve businesses over the long-term. As part of these transactions, we are retaining our DAT and Loadlink network software businesses, which are purchased together with TransCore in 2004 and we are retaining our CIVCO Medical Solutions business. Given we do not usually get clean book-ins to transaction activity, this provides a unique opportunity to talk about the business buildings that occurs within Roper.

Specifically just after the acquisition of TransCore we established DAT and Loadlink as stand-alone businesses with independent strategies and management teams, who operate within Roper’s governance and incentive system. Over the course of the last 15 years, these businesses have consolidated freight networks, continuously innovate their product solutions, built go-to-market capability and grown revenues high single-digits on a compounded organic basis. Similarly, the retained CIVCO Medical Solutions business has grown high single-digits on an organic basis over the last 15 years as well.

During this period of time CIVCO Medical Solutions has continually innovated their product solutions, including the recent gel free ultrasound products and fundamentally restructured their go-to-market strategy. Net [Phonetic] Roper we buy great businesses and provide an environment and incentive system where they get even better over a long arc of time.

Now let me turn it over to Rob to walk through the details of our financial performance.

Robert CrisciExecutive Vice President and Chief Financial Officer

Thanks, Neil. Good morning, everyone. Turning to Page seven, on this page we will review some Q3 financial metrics on a basis that includes the discontinued operations in order to compare our Q3 results to our previous guidance on an apples-to-apples basis. Including, the business is now classified as discontinued operations, we generated $1.621 billion of revenue and $602 million of EBITDA. Total DEPS was $3.91, which exceeded our Q3 DEPS guidance of $3.80 to $3.84. Free…



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