ROPER TECHNOLOGIES INC Q1 FY2025 earnings call

Management Statement and Operational Highlights

• Q1 Highlights: Quarterly financial results were solid with total revenue growing 12%, organic revenue up 5%, and cash flow growing 12% over the last 12 months. Successfully completed the acquisition of CentralReach. Raised full-year total revenue guidance and slightly increased the full-year debt outlook, with over $5 billion available for capital deployment.
• CentralReach Acquisition: CentralReach is a market-leading cloud-native software for ABA therapy providers, purchased for $1.65 billion net of a $200 million tax benefit. Expected to deliver $175 million revenue and $75 million EBITDA TTM ending June 2026, with 20%+ revenue and EBITDA growth expected once organic.
• Financials: Q1 revenue was $1.9 billion, up 12%; EBITDA was $740 million, up over 9%; diluted EPS was $4.78, above guidance; free cash flow was $507 million, down 1% but not unexpected given prior year strong working capital performance.

Segment Performance

• Application Software (AS): Revenue grew 19% total, with organic revenue up 6%. Deltek grew in the mid-singles range, Aderant had record first quarter bookings and strong cloud migration, PowerPlan saw strong SaaS migration and revenue stream becoming more recurring, Vertafore was steady, ProCare is gaining market share, and the integration of TransAct and CBORD is proceeding as planned.
• Network Software (NS): Organic revenue grew 1% as expected, with DAT growing due to increased ARPU from carrier and broker price actions, product packaging, and cross-sell activity. MHA and Foundry faced challenges, but Foundry saw green shoots. ConstructConnect was strong, and alternate site healthcare businesses continued to grow.
• TEP Segment: Revenue grew 6% total and organic. Verathon was rock solid, Neptune completed a strategic acquisition to enhance its meter to cash cycle strategy, CIVCO declined, and NDI performed strongly.

Guidance

• Increased full-year total revenue growth outlook from 10% to the 12% range. Organic growth rate remains unchanged at 6%-7%. Increased the full-year debt outlook by $0.01 to $0.1980-$0.2005, including $0.15 CentralReach dilution. Q2 adjusted debt is expected to be between $480 million and $484 million, absorbing $0.05 of CentralReach dilution.

Risks

• Macro-economic, trade, and policy uncertainties. Deltek is exposed to federal government contractor uncertainty due to budget and shutdown concerns. Tariff impacts in the TEP segment, though most cross-border flows are USMCA compliant.

Question and Answer

Q: Perspective on PE behavior and Deltek Fed exposure A: Neil Hunn noted the pipeline is robust, and Deltek's growth slowed due to federal budget uncertainty but is seen as a short-term issue.

Q: Free cash flow and CentralReach gross retention A: Jason Conley said free cash flow is more back-end weighted, and CentralReach's gross retention is in the mid-90s on a logo basis, with net retention at 115-120.

Q: Stress test on nonrecurring elements and margin implications A: Jason Conley said there is no meaningful margin impact from nonrecurring elements, and businesses are prudent with investments to manage any potential weakness.

Q: CentralReach AI revenue and AI attach rate A: Neil Hunn stated CentralReach's AI revenue is not material yet, but Roper's portfolio is leveraging AI in workflows.

Q: Deltek shift to right and countermeasures A: Neil Hunn and Jason Conley said Deltek's shift to the right is seen, and businesses have natural incentives to be prudent with investments, with incentives tied to growth.

Q: CentralReach availability and funnel growth profile A: Neil Hunn said CentralReach came about through a traditional process, and the pipeline has a mix of maturing leader businesses with growth rates ranging 10%-25%.

Q: Organic growth in 2Q and education sector impact A: Jason Conley said 2Q organic growth is expected to step up, and the education sector's funding is not cut, with bespoke issues being the main concern.

Q: Organic sales acceleration and bookings activity A: Jason Conley said bookings activity is up low double digits and takes time to convert to revenue.

Q: AS EBITDA margin headwind and CentralReach impact A: Jason Conley said core EBITDA margin is expected to expand, acquisition margins will improve, and CentralReach will benefit margins.