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On Monday, 11 August 2025, Roper Technologies (NASDAQ:ROP) presented its strategic vision at the Oppenheimer 28th Annual Technology, Internet & Communications Conference. The company emphasized its goal of sustainable mid-teens cash flow growth, balancing organic growth with strategic acquisitions. While Roper is optimistic about AI’s potential, it also acknowledged challenges, such as macroeconomic pressures and sector-specific impacts.
Key Takeaways
- Roper aims for mid-teens cash flow growth through organic growth and acquisitions.
- The company is integrating AI to enhance productivity and margins.
- Recent acquisitions target niche markets and include companies like Convoy and Central Reach.
- Roper has $5 billion in M&A capacity, focusing on smaller companies.
- Macroeconomic factors like the freight recession and writers’ strike impact specific sectors.
Company Overview and Strategy
- Roper is a vertical market software and technology compounder.
- The company focuses on organic growth and acquiring leaders in niche markets.
- Targeting a 7% to 7.5% organic growth rate to achieve high single-digit cash flow.
- Emphasizes decentralized operations and strong company culture.
Organic Growth Initiatives
- Roper is improving talent selection and development.
- Equity grants are offered for businesses exceeding normal growth rates.
- Central resources support continuous improvement and pricing optimization.
- Aims for high single-digit organic growth from its pre-2023 portfolio.
Acquisition Strategy and Recent Acquisitions
- Targets companies early in their lifecycle, not fully optimized.
- Recent acquisitions: Central Reach, Subsplash, Convoy, Trucker Tools, Algo.
- Central Reach serves 200,000 autism services professionals.
- Subsplash serves 20,000 faith-based organizations.
- Convoy enhances DAT’s marketplace capabilities.
Risk Management and Execution
- Enhanced market diligence through investment partners.
- Forecasting tied to a value creation thesis with multiple levers.
- Focus on people and processes in diligence.
- Leveraging PMO capabilities and functional expertise in the first 100 days.
- ProCare issues highlighted the need for faster integration.
Macroeconomic Environment
- Deltek’s government contracting space is lagging, but OBB is expected to boost.
- Freight market recession impacts DAT.
- Foundry business rebounding from writers’ strike.
- Healthcare remains strong; higher education is positive, K-12 softer.
M&A Outlook and Pipeline
- $5 billion capacity for M&A with opportunities for proprietary portfolio looks.
- Disciplined valuation approach, considering growth potential.
- AI is crucial in evaluating opportunities and risks.
- Indifferent to IPO window status, focusing on smaller acquisitions.
AI Strategy
- Evaluating AI’s impact on business value chains.
- AI seen as a TAM expander through labor replacement or augmentation.
- Providing resources and thought leadership to business units.
- Some businesses using AI to sell products separately.
- Aiming for productivity gains and potential margin expansion.
Near-Term Growth Factors
- Expecting an uptick in the second half due to tech and network segment setups.
- Strong second-quarter bookings support the second half.
- Improved performance expected from DAT and foundry.
Q&A Highlights
- Standard incremental margins are 40-45%, with potential for higher with AI.
- Focus on optimizing value within the portfolio.
- The opportunity set is abundant, with new deals emerging.
Roper Technologies invites readers to refer to the full transcript for a detailed understanding of their strategic outlook and operational updates.
Full transcript - Oppenheimer 28th Annual Technology, Internet & Communications Conference:
Ken Wong, Software Analyst, Oppenheimer: Hi. Good afternoon, everyone. Welcome to the twenty twenty five Oppenheimer Virtual Tech Conference. I’m Ken Wong, software analyst. Very happy to have with us Jason Conley, EVP and CFO of Roper.
Also, Zach Moxey, VP of IR at Roper. Welcome, guys. Thank you for joining.
Jason Conley, EVP and CFO, Roper: Thanks, Ken. Thanks for having us. Good to see you.
Ken Wong, Software Analyst, Oppenheimer: Great to see you too. Jason, Zach, maybe maybe first off, I got well, I think some are familiar with Roper. There probably is a fresh set of eyes, especially from our tech software audience. Perhaps just give a quick overview of of kind of what Roper does, and, and then we can move on from there.
Jason Conley, EVP and CFO, Roper: Sure. I’ll I’ll try to make it brief. But, you know, so Roper’s a vertical, you know, market software and technology compounder. And what I mean by that is we compound cash flow in the mid teens sustainably over a long period of time. So we’re kind of n of one in the software space.
We sometimes get compared to Constellation, but they have a completely different motion in terms of their decentralized capital deployment and low organic growth. And so speaking of that, we get to growth in two ways. One is through organic growth of our existing portfolio. So we own 29 businesses today that are leaders in their niche vertical markets. We choose small TAMs because of their protective nature.
With market leadership that provides like multiple paths to grow and a high right to win in terms of new solutions that we can cross sell to our customers. So today, we’re sort of in the 6% to 7% range. We think our normal range or kind of if you adjust for some items this year, we’re sort of in the 7% to 7.5% organic growth and that converts to around high single digit cash flow. And really the second part of that is we take all that cash flow and we invest that into acquisitions, same sort of profile that we just talked about leaders in their niches and we find that with our like I said, with our cash flow and a little bit of investment grade leverage, and we do that to buy the next vertical leader. So you get this continuous growth flywheel from there.
And then, you know, I think it’s just a unique opportunity for investors to own businesses that they couldn’t otherwise own in the public markets, right? These are sort of great businesses that were in private equity, and we create value based on our long term investment horizon. And so we have this proven track record of making businesses buying at a reasonable price and then making them better over a long period of time. And I think the punch line today that we want to talk about today is we think we can do even better. We’re at the early innings of improving our organic growth of the portfolio and capturing more value out of M and A.
Ken Wong, Software Analyst, Oppenheimer: Got it. Perfect. And Jason, I want to maybe touch on two of the things that you called out. So focus on on vertical software. I guess, one, kinda why did you choose that particular pocket of software?
There’s obviously a lot of great opportunities in the in the software ecosystem, something like 200 plus public companies and a thousand privates. And then what’s Roper’s special sauce to managing this portfolio? Why why do you feel you guys can extract this excess value that perhaps wasn’t being recognized either in a private setting or or or in PE?
Jason Conley, EVP and CFO, Roper: Yeah. Yeah. Thanks. I mean, the reality is Roper’s been focused on, you know, niche markets and kind of verticalized special specialized solutions way back twenty, twenty five years ago. Got but we got into vertical market software back in 2004 with our DAT acquisition.
So I mean, what we love about is that we’re staying close to our customer. We have customer intimacies or really sticky long term relationships that gives you the high gross retention. And then obviously just really great business fundamentals that you can the go to market is a little bit lower because you’re sort of it’s a lot of its cross sell. You can continue to invest in product innovation today like our application software businesses are in the sort of mid teens as a percent of revenues. So you’re still investing back in the business, you can still continue to grow.
They have wonderful cash flow characteristics. So we love that. A lot of our businesses pay annually in advance, so that helps perpetuate the the growth flywheel. So I think it’s just that we and there’s a longer reason we got into software that has to do with, you know, but just buying businesses that were better than what we own, but we sort of got into it that that long ago. But it it’s helped us get pattern recognition on what defines a niche market, how it can’t be disintermediated and disrupted, and just how protected it is.
So we we love all the things about vertical market software because of that. I mean, I think the secret sauce, it’s, it’s like a little hokey, but I think it’s a lot about structure and culture. And, you know, on structure, it’s we have these decentralized the decentralized operations we think helps us. Like, our speed co efficiency is very, very, is a competitive advantage. You know, we’re typically competing with other small companies.
So being able to be nimble and having that high accountability at the at the business unit level, we think really is powerful. And then when you complement that with the resources we bring to bear with the the businesses and to sort of this, we’re here to support you. We pay you based on growth. So there’s no, like, there’s no shenanigans in terms of them doing things that are sort of incentive based. And so we have this sort of culture of high trust and mutual respect.
So I know that sounds hokey, but it really does work. And then like I said, we bring a lot of resources to bear. We’re continuing to bring new resources around generative AI. We’re doing a lot around that to help our businesses win in that in that area. We help them with strategy, just best practice sharing around pricing or continuous improvement of product velocity.
So this has been and this has been like a a real pivot for us probably, I don’t know, three, four, five years ago. It was really started with getting better talent in place in our in our businesses and then enabling that talent to succeed as as presidents and then as as their direct reports. So and then I think the other thing is that, like, it’s just all harnessed through our group executive roles. So these are seasoned operators that, you know you know, maybe they would go be an operating partner in a private equity firm, but they don’t wanna sit there and just try to optimize for the exit. They don’t wanna just beat the you know, put the hammer down on the presidents on OpEx spend and just grind on them.
They really wanna think, we’re gonna own this thing forever. I wanna create value. How can I help my presidents and their direct reports be the best that they can be? So that that that’s sort of the punch line, I think, on our culture and and secret sauce.
Ken Wong, Software Analyst, Oppenheimer: Got it. So so it does sound like it’s still enabling may maybe a start up culture is is maybe too, you know, too too aggressively worded, but allow them to to still be what made them successful, but just with the resources of a large corporation such as Roper.
Jason Conley, EVP and CFO, Roper: Yeah. And I think our, you know, our maturing leader businesses that we’ve acquired, we bring a ton of sort of maturity and, again, doing it not in a sort of standard way, but just like, what are the areas where that that’s got them to this point, but can make them successful in going from like, SuccessFlash going from, you know, 50 to a 100 is different than going from a 100 to 200. So bringing just some disciplines around that, where it makes sense, I think is, like, really powerful.
Ken Wong, Software Analyst, Oppenheimer: Got it. Got it. And earlier you touched on this transition from your current organic growth rate, say mid singles plus to something more aspirational. Can you give us a sense of kind of where you hope organic growth can settle? What are some changes both operationally and just how you go to go about your acquisition strategy that you think will help facilitate this this move?
Jason Conley, EVP and CFO, Roper: Yeah. So I mean and just to just to ground everybody on why we’re doing this. I think, you know, historically, Roper, you know, was able to they they basically get four or 500 basis points of TSR through multiple rerate, And we’re not we clearly think current environment, we’re maybe underrallied a bit, but we’re not ever going to bank on as a strategy that we’re going to compound through multiple appreciation. So as we looked at how we’re going to accomplish and just through cash flow growth, sort of mid to high teens free cash flow compounding, we said, really we never really even asked our businesses to be ambitious. And these are very successful businesses, but we said, just don’t go backwards, send us your cash and we’ll keep the flywheel going.
So that was really the reason. And then like as I mentioned before, it really started with just improving the talent. So around selection, engagement and development, we’ve been really focused on that for half a decade now. We also align compensation. We’ve always been paid based on growth, but we now have instruments that allow the business if they grow up above and beyond their kind of normal run rate and that and you have to do that over a three year period to basically have a three year CAGR of organic EBITDA above and beyond their normal growth rate.
They can have significant equity grants. We granted a day one and then they vest in the third year. And so that gets us like that can be like private equity type returns for these for these folks. And now really, it’s about like how do we make so now they’ve got you know, we got the right people. We got the right incentives.
How do we make them successful? And so that’s where you’ll start to see we have resources at the center now to help with, continuous improvements. We have a a roper enablement system that we’re building out. One of our leaders at our Verathon business, is now, leading that that function. We’ve hired a couple of people, and we’re really trying to be, like, super pragmatic about which businesses, are they ready for it?
Do they need it? Are there other competing priorities? We don’t wanna, like, get in their way too much. So we’ve got, like, two or three businesses that are going really deep on everything and continuous improvement. I mentioned before, we’re doing a lot around pricing.
So we’ve got a couple of businesses that are going through an engagement around pricing that we ultimately want to harness and expose that across portfolio, seeing a lot of just really interesting opportunities there. We we just finished one with Deltek, and it’s super encouraging in terms of what that could mean for their for their forward growth algorithm. And then just, you know, just I think that that so that’s kind of where we’re at in this. And so the the point is, like, when we buy a company, we’re trying to sustain build sustainable processes and capabilities that compound over time. This isn’t like PE where it’s just like a one time surge.
And so having our home our, you know, forever home ownership as a competitive advantage is how we think about, that. And that ultimately will be going from set, you know, seven to 7.5. We think there’s an opportunity to go, you know, to high single digits, to higher end of high single digits with the portfolio prior to 2023. And then of course, we’re buying businesses that are growing a bit faster. So that will just be additive to that.
Ken Wong, Software Analyst, Oppenheimer: Got it. Getting to that high single digits, I guess, there a way to think about how far you can get to that goal with the existing portfolio versus how much will have to be supplemented by things that you guys bring on to the platform?
Jason Conley, EVP and CFO, Roper: Yeah. I mean, I think that’s what we really are, you know, aspiring to have the sort of pre 2023, you know, 2023 and before portfolio get to that high single digits. And then, you know, the ProCares, the SubSplash, Transact, Central Reach, those would all all be additive to that number.
Ken Wong, Software Analyst, Oppenheimer: Got it. Got it. Okay. That very impressive. So now you touched you touched on Central Reach, SubSplash.
You know, with just love some kind of initial feedback, what what drew you to those businesses? You know, what have you seen so far in the early days of having those under your wing?
Jason Conley, EVP and CFO, Roper: Yeah. And just I mean, I think our observation over the last ten years is, you know, we got the question from from investors, and it was it was a I think it was a very astute question is why aren’t you buying some of these businesses that are private equity firms? And I think we we just we had this sort of we were in this period of of, you know you know, buying stable businesses, but, you know, with you know, the the math doesn’t pencil out that you’re not buying as much cash flow if you don’t take a little bit of sort of measured risk. And these businesses all have great gross retention just like the other businesses we own. They’re just a little early in their life cycle.
So it’s like, you know, first turn PE, you know, it’s not fully optimized from a variety of of aspects. And so we just think it’s an opportunity for investors to realize more organic growth and and really outstanding conversion to cash as we drive, you know, that higher margin and higher EBITDA. You know, we think it’s gonna be 30% or more versus like the 2018 to twenty two twenty twenty two era. That’s what we’ve underwritten and that’s how we’re sort of tracking. And then just like on on central reach, it kind of clicks all those you know, checks all those things off in addition to being a great vertical market software business that we you know, we have pattern recognition around that.
It’s just a little bit earlier, but we understood the competitive landscape and sort of how it’s being formed and how their position was in that. So it’s just a great business that has a lot of market tailwinds. So just to ground level set, it’s a leader in the autism services space. So it enables workflow and administration of what they call ABA therapy. So we got 200,000 professionals already using the solution, and it provides the care to individuals with on the spectrum or related disabilities.
And so just from a market perspective, there’s a lot of tailwinds there. There’s a persistent gap in care between the demand and the supply side. And so we see that being playing out for at least the next five to ten years. The ABA is a standard of care across autism space. So that’s super helpful.
There’s reimbursement coverage has been established reimbursement coverage states and on the commercial side for some period of time. Not a lot of by the way, not a lot of impact on O BBB in terms of what that does. Medicaid more addresses more adults than children. And obviously, children are the biggest learner population as that’s where you can have the most impact on individuals. And and I think just lastly, what we’ve seen, and it’s been phenomenal, is as as the clinics get bigger and get more successful, they end up coming on to our solutions.
That’s one way. And then also, if our customers are buying others, then we’re we’re tending to win with the winners. So just a great business, and I can I can continue to go on about that? Subsplash too, it’s just know, I think it’s it’s another example of buying first term private equity. We’ve had a relationship with k one now for probably two years, and they’re definitely mid market, you know, and they they go and they buy from founders.
So we are able to buy this business that’s an emerging leader, but certainly a proven leader within the church management software space, sort of leading with digital and giving and then and then pulling the church management software through with that. And, you so today, they’re serving 20,000 faith based organizations. There’s a ton of tailwinds in terms of how engagement and giving are more value drivers within that space, higher growing than other parts of the space. This is again another example where we’ve we established good relationships with K1, but more importantly, really won the heart over of Tim Turner, who’s the founder there. And so he’s staying on with the business.
And that was certainly helpful to get that process through. We did that on a proprietary basis, feel really good about what they’re doing there. And then they have a, you know, an AI it’s kind of first strategy that will permeate through all of their solutions too. They bought a a company called Pulpit AI about a year ago, and they’re using that to then cascade to the rest of their portfolio.
Ken Wong, Software Analyst, Oppenheimer: Perfect. Maybe circling back on the the organic growth, the acceleration. Like, I think one of the the biggest questions we get would be with this change in strategy, kinda what what are what are the downside risks? I think recently you guys called out maybe some early execution dynamics with ProCare, which you have quickly course corrected. But would love to kinda hear from you guys, maybe what what are some of the potential hiccups?
What are you guys maybe changing or adapting to make sure that you guys minimize the those risks?
Jason Conley, EVP and CFO, Roper: Yeah. Yeah. Thanks for for the question. I’ll kinda start with what we’re doing, and then we can touch on ProCare. Think, yes, as I mentioned a little earlier, what the diligence around the the market, how the market behaves, I think, is largely the same.
You know, we we we’ve had pattern pattern recognition around the niche and the vertical and the size of the market, whether it’s gonna be interesting enough for a major player to come in and spend the capital to get in there to build develop product and get distribution. So I think that’s pretty much all the same. The only thing I would say is we’re a lot better on market diligence now because we have these investment partners we brought in who came from the buy side and they really just help challenge our outside advisors. They’re very highly complementary and I would just say have made us a lot smarter on thinking about markets. And then I’d say also dialed in more is the forecasting, much more sophisticated around tying our forecast to a value creation thesis that’s going to have multiple levers to realize the growth potential.
So we’re not like single threaded on one thing. And we do a lot of stress testing in these levers and we bounce it against what we’d have to believe to, you know, if one of these doesn’t work, what else has to index to offset that to mitigate that risk. So it’s not complete risk mitigation, but it certainly limits the range of outcomes a lot more. And I would just say lastly, we’re much more aggressive now on people and process. Sometimes it’s hard and diligence to get in there, but we’re really making a point to to get in and and have we have some diagnostics.
Again, we have pattern recognition around just how management’s responding to certain questions or how we perceive some of their systems and processes, how quickly they can get information back to us. To know that, hey. When we we kinda risk score that and we have countermeasures, like, on day one so that we can help supplement those resources where there may be, some gaps. And so that’s in on on on diligence. I think on execution, you know, we built up functional expertise over the last year across PMO.
I talked about that Roper enablement system. There’s PMO capabilities in there. We’ve added some really strong folks on finance and accounting and cyber. So really, the goal is to do like a full full court press in the first hundred days to assure the teams are focused on the most important value drivers, and we provide the resources where needed. And I’d say just on ProCare, we did not get into the people and process fast enough.
I mean, you have to remember this is our first maturing leader. And so I think we got the strategy real we got it right a 100%. Like, we feel I feel better about that business, today than I did a year ago in terms of, like, their their right to win in that market is really strong. There’s, like, one competitor that’s it’s okay, but they’ve had they’ve actually had a third of their workforce laid off. So they’ve they tried to do this, like, you know, just, crazy go to market motion, but they’ve had a lot of, folk you know, folks churn out because the product just isn’t as good.
So I think just in that time too, we were like straddling the old and new way of governance around being deferential to our company CEO, and she was a little unwilling to help, and that put us behind a little bit. So I think the good news is we’ve applied those those, processes now that we have for Transact and Central Reach and now SubSplash. And so, you know, they’re all tracking Transact and and Central Reach. And obviously, Central Reach is early, but they’re off to a great start. We feel good about their performance and trajectory.
Ken Wong, Software Analyst, Oppenheimer: Got it. Okay. Perfect. And it took probably took me longer to get here than expected, but one one one common question across every company that’s presented today is obviously macro. You guys are both extremely diverse, so arguably, you know, a little more resilient, but then also, you know, all sorts of potential macro risk that could surface across ’29 businesses.
So Yeah. Like, would love would love to just hear what you’re seeing macro wise in terms of impacts on your businesses, things that maybe are a little more urgent that you’re focusing on and and maybe where where where maybe things are overblown.
Jason Conley, EVP and CFO, Roper: Yeah. I mean, I think we’ve tried to highlight in our calls, like, the big sort of, lagging from an end market perspective has been our Deltek government, you know, contracting space. Having said that in the last call, I’d you know, I think we’re really excited about what the o triple b can do for the business because, first of all, we’ve had two years of somewhat malaise, so we know there’s there’s some pent up demand. And the second, the the mix the most of both the volume that o triple b provides and then the mix of of where it’s gonna go plays right into the strengths of of Deltek, GovCon because it’s more cost plus contracts. It’s going to defense where, like, tracking project accounting is, like, super important.
It gets audited. It’s, you know, it’s it’s it’s not just for profitability tracking. It’s for actual compliance reasons. So just feel good about that. It’s just been like a, you know, the question is like kind of when that’s gonna free up, but we know it’s there.
We know it’s it’s gonna happen. DAT, the freight market has a very, very long freight recession. And we’re obviously not we’re not one to one with that business, but it’s and we’re still we’re tracking sort of mid singles right now, but that business is a double digit grower. So that’s just been we’re waning we’ve been bouncing all the bottom from a carrier perspective. Brokers have been fine too.
So we’ve been kind of realizing more on price to get us to that mid singles. We think that we’ll exit the year a little bit higher than that. And then if we get any cooperation from that market in terms of freight, then that’ll do better. And then our foundry business is starting to rebound from a exceptional situation with the writers and actors strike. So that’s been just challenged, but certainly trending in the right direction.
We think it’s gonna have positive growth in the second half, and so that’ll be good. And then I think just like health care generally has been strong. You know, our solutions are kind of on the right side of the equation, especially when you think about Strata, you know, managing costs in the hospital, super important. Has been great. So, you know, that’s a very, fairly insensitive business to the macro overall, both at Vertiv, Fortnite Pipeline.
I’d say education has been pretty it’s been very good on the higher ed side. I think K through 12 has been a little softer with some of the just the noise going on where the money is going to actually ultimately transfer from the DOE to other avenues. But but the those yeah. So those are probably the two areas, Dell Delta, GovCon, a little bit of k two k through 12, and then, you know, nothing worse at DAT, just nothing nothing great right now.
Ken Wong, Software Analyst, Oppenheimer: Got it. And and I guess on the freight market, looks like you guys at least are somewhat validating comfort there. I saw a recent acquisition of Convoy. Not not sure to what extent you can comment on that, but would would love any early early feedback in terms of the maybe the the intent, what you guys see as as synergistic there.
Jason Conley, EVP and CFO, Roper: Yeah. I mean, we’re really excited about DAT. We talked about this a couple years ago in terms of, like, that’s a great platform for us to do, more value added acquisitions. We hadn’t done we’d only done one in the in the first twenty years of ownership. And so we bought Trucker Tools about, you know, whatever it is, nine months ago, and then we, acquired Algo last last quarter, first quarter, and now Convoy.
So it’s basically taking DAT that used to be a hitching post, a Craigslist, literally, like, no transactions. It’s just a way for parties to get together and figure out what they’re gonna do off off the load board. Right? It’s just a way for them to it’s information sharing. They pay a subscription.
It’s super you know, it’s a super great business. But how do we essentially turn this into a marketplace where transactions can happen? You know, a carrier can get its financing that it needs, for a load through Algo. It can you know, brokers can now track carriers in the marketplace via the Trucker Tools solution. And now brokers because, I mean, they this is like a really good time for us to do this convoy acquisition because the brokers are really trying to figure out how to save, you know, cut costs.
And so you can do that through certain loads or they can automatically match them for more simplistic loads, and that’s convoy brings that capability to a broker that they didn’t have before. And just for background, Convoy was owned it was a it was its own brokerage, and that failed because you need neutrality in that. If they’re how could they sell a a brokerage solutions to another broker? Like, that doesn’t work. And DAT is the ultimate Switzerland.
So we just we’re really excited about, what this is gonna mean for the business long term. There’s obviously quite a bit of integration work that’s gonna go on and, but this just leaves us forward a lot. And it doesn’t it doesn’t come at the expense of a load board. There’s always gonna be a need for both, of those solutions within within the spot, marketplace.
Ken Wong, Software Analyst, Oppenheimer: Got it. Okay. Perfect. Sounds sounds super exciting. More to look forward to there.
And then on on the topic of of of m and a, you guys have consistently called out the the 5,000,000,000 of capacity. Maybe just refresh us on kind of how how ambitious you guys are looking to approach the the market, kind of why you feel comfortable with the with the pipeline. Obviously, lots of puts and takes in the markets right now, but would would love your view on on how attractive the environment is.
Jason Conley, EVP and CFO, Roper: Yeah. I mean, it’s, it’s been a just a kind of a weird environment for the last couple of years, as as you know. And so I think it’s been interesting for us because we’ve had the opportunity to have proprietary looks in portfolios that others PE sponsors wouldn’t have. And the reason for that is that we we’re not really like, if we end up look taking a peek at a deal and doing a, you know, a few weeks of work and then saying no, it’s not it’s not looked at as a failed process. Whereas if another sponsor does that, it kinda gets out into the market, and then that can kind of, like, junk the you know, it makes the it’s sour.
It makes the asset sour in in the minds of so then it’s like they can never sell it. So for us, it’s like it’s there’s quite a bit of abundance. You know, there’s been a log jam for three years. It’s we think it’s gonna emerge in at the end of this year and maybe early next year. But right now, it’s it’s really it’s really interesting, for us because we’re getting some unique looks.
We have a couple of big ones right now that that could that could you know, it might happen, it might not. But it comes down to price too, of course, just being super disciplined around valuation and, paying relative on a sliding scale of growth. That’s always an important part of this. We also think that some interesting deals where a great business, but the AI opportunity is actually not as interesting. So it’s not necessarily they’re gonna go out of there’s one business we look at is just super, super sticky, and I don’t see them getting displaced by AI.
But we also know that they don’t have rights to any rights at all to even use the customer’s data, even improve the product because the nature of the end market is so risk averse. And so we said, well, that’s that’s not interesting at all. So, like, that’s not gonna be a growth catalyst. So we walked away from it. So it’s just an interesting time as we look at deals where certainly our AI lens on both the opportunity and the risk is is much higher than it used to be.
Ken Wong, Software Analyst, Oppenheimer: Got it. Would you say that that AI lens has has intensified over the last year, year and a half, or that that could arguably be a deal breaker in in some of these transactions now?
Jason Conley, EVP and CFO, Roper: Yeah. I mean, I it’s intensified in the right I think we’ve always we’ve always been looking for ways that a business can be disintermediated, and I think we’ve been obviously in the AI Gen AI flow of not in knowledge flow and where it’s gonna be going for the last year and a half. So I wouldn’t say it’s it’s intensified. We’d candidly, there’s as you know, there just hasn’t been many assets that have transacted. So it’s like like, we but we quickly can understand that maybe something’s not gonna be as as attractive and sort of because everybody puts GenAI in their in their sales slides now, and then you gotta you gotta click down.
You gotta pierce through, like, what the real substance of that is. But, yeah, it’s I’d say it’s been it’s been on our been on our radar for a year and a half to two years. I I wouldn’t say it’s intensified, but we’re probably getting smarter, if anything. Yep.
Ken Wong, Software Analyst, Oppenheimer: Got it. Under understood. And another question that comes up a lot on this particular topic, and it and it’s obviously a very fluid market, but is a open IPO window, closed IPO window? I mean, should we view that as good, bad for Roper?
Jason Conley, EVP and CFO, Roper: I’d say just sort of indifferent because most of what we’re acquiring probably is too small to to go public. I mean, especially if it’s owned by PE. I mean, we’ve seen how that doesn’t really work You know, they they don’t they have that overhang, and it’s got a dead money. So MeridianLink finally got, bought today.
So that was, you know, a ton of Bravo business had been out sort of languishing for a couple of years in the public market. So I just don’t think it’s, especially in the sponsor world, like, doing an IPO is very attractive, especially for the types of things that we would be interested in.
Ken Wong, Software Analyst, Oppenheimer: Got it. Okay. Perfect. And this is, you kind of building on that that prior topic, but I guess what what is your, you know, kind of the roper view on on AI on AI? How are you guys rolling that out across your various business units?
And then, obviously, from your seat, any any thoughts on internal use cases? Like, how does that potentially translate to leverage for for some of these businesses that you guys are looking at?
Jason Conley, EVP and CFO, Roper: Yeah. I mean, I know it’s it’s like every company says this. So it’s like you have to take everybody goes, yeah. Sure. You’re you know, I don’t believe you.
But
Ken Wong, Software Analyst, Oppenheimer: We’re all AI winners and
Jason Conley, EVP and CFO, Roper: We’re all we’re all gonna be winners. Right? So and and then certainly, obviously, across our portfolio, there’s some that are more at risk. We’ve talked about foundry than others that have a tremendous opportunity like Deltek. Luckily, foundry is like, you know, orders of magnitude smaller than Deltek, so we feel good about that.
But we we do think I mean, we we have all of our businesses right now going and looking through their value chain and how the value chain is gonna change over time. And really, it just points to this, like, massive TAM expander for us if we can replace or or augment labor with with agents. So I think we’re, you know, we’re excited about the the pace of innovation is picking up, The pace of learning is picking up across the organization. The AI mindset shift is happening. I mean, you know, we’re we’re quite decentralized in our operations that we provide I talked about all these resources.
But on this one, you know, Neil is is definitely leaning in much more, and I don’t think the presidents are getting annoyed with it. Like, he’s sending stuff every Monday. I’m like, here’s here’s here’s some thought leadership. Here’s how you have to think about things. So we’re be we’re not being prescriptive, but we’re certainly providing a wealth of information that that we get the benefit of sitting in our seat.
You know, we’re spending a lot of time with venture capital. Like, we went out to, meet with Andres and Horowitz, I don’t know, a few weeks ago. We have a constant dialogue with them. We’ve had an MIT learning day for all of our presidents who went out to MIT and did a whole day through that. So we’re just I think it’s, we we see a lot of opportunity of of selling products separately, be it like a you know, Central Reach does that today.
Adderance has their own solutions that are separate. ConstructConnect has its own takeoff solution or separate or, like, this halo effect monetization in other places like, you know, now we’ll put all only AI features in the Dell Tech cloud. So these stubborn, you know, government contractors are gonna have to finally get on off, you know, on on off the on prem solution and get to the cloud. So we’ll have sort of like an accelerated lift there or, you know, even Adderant’s, you know, being able to cross sell things that aren’t AI today, but are gonna be AI faster. So they’re sort of tracking that.
So and then internally, I think when we’re we’re doing more of these, like, learning seminars, you know, Deltek the CTO of Deltek did one, a few weeks ago on productivity and and some specific use cases using Cloud Code. And, you know, like, they’re gonna have a product they were gonna release in a year and a half that now looks like it’s gonna be first half next year just because they’ve been able to, you know, get the get the MVP out, iterate on it, like, just continue to use, the modern, you know, kind of code, development. I think the one area that we’re still we really are trying to figure out is how to re refactor code and rewrite it. Like, we’ve been using quite a few experiment with quite quite a few solutions out there. And I think we’re we’re we’re positive that it’s gonna happen, but it take that’s taking more time than we would like.
So that’d be that’s a real important part is getting everything into a modern code base and refactored. But, yeah, we think I mean, the way we’re thinking about it right now, I think it’s probably gonna be a little bit half and half how this plays out. But, you know, Neil’s instruction of business is like, take this take those productivity gains and devour it right back into the road map or wherever you think the investment needs to be to help accelerate growth. I think realistically, we’ll probably see a little bit of margin expansion as well because it’ll be hard to do that all at once. But that’s certainly what we’re telling our businesses is to the extent you, you know, you are seeing productivity, like, after that road map, faster than you normally would be able to.
Ken Wong, Software Analyst, Oppenheimer: Got it. And I realized I was negligent on on seeing if there’s questions from the audience. If anyone has a question, feel free to send it through the, the portal or shoot me an email, ken.wong@opco.com. And I’m not sure if there is a raise hand function, but if there is, feel free to to go about that route as well. And then while while while that gets sorted, I guess, one more thing I’ll I’ll, you know, kinda ask you guys more on a on a near term basis.
As you kind of forge your path towards accelerating organic growth and you talked about seeing and projecting an uptick in the second half. What are some of the other factors that are going into that math? How much of that is mechanical? How much of that is execution on your end?
Jason Conley, EVP and CFO, Roper: Yeah. I’d I’d say most of it is mechanical. We have a little bit set up a bet better set up for a comp in both our tech segment to a lesser extent in our network segment, and the network’s more for the second half, q three more for TEP. So it’s I’d say it’s mostly mechanical. We had good second quarter bookings that help support, I’d say, our second half versus anything else, when you take the first half in general and our first half bookings that supports the second half.
So, yeah, it’s mostly it’s mostly mechanical. I mean, the DT and and Foundry will continue to get better. Some of that’s mechanical. Some of it’s just getting, like, better growth too.
Ken Wong, Software Analyst, Oppenheimer: Got it. Perfect. And just a do have one quick question that popped in as a clarification. I guess, as you think about growth coming in to the extent that you end up on, kind of above expectations, is is there a situation where that upside trickles down to margins, or is that something better better suited for reinvestment?
Jason Conley, EVP and CFO, Roper: Well, I would say it’s if we end up having higher growth, you know, our standard sort of framework on incrementals is 45%. It’s probably gonna be more like 40 to 45%. I say that sort of in a pre AI lens. Yeah. With AI, it could be it could be back 45%.
You know? I’m not a perfect forecaster for 29 businesses, but that’s sort of I think that’s how we thematically think about it.
Ken Wong, Software Analyst, Oppenheimer: Yeah. Got it. One other question here. If you guys have you guys typically have again, you you talk about it in forever home terms, but, again, lots of unknowns with AI. I guess, to the extent you guys determine something might be a little more at risk than than maybe initially anticipated, Is what what what any any thoughts on is there gonna be a quicker hook for you know, do you guys approach it with divestitures in mind?
Like, how how do how do you think you go about troubleshooting one of those type of scenarios?
Jason Conley, EVP and CFO, Roper: Yeah. I mean, it’s a good question. I think we because it then you get to this is there even a market for kind of any kind of dilemma? The only thing I could say is that our businesses in in these niches can be really, creative on ways to continue to capture value and not have, like, something go out overnight. And I’ll give you just a this is like a prior portfolio example, but we used to own a business called Transcores in the toll and traffic space.
And they the the the cost of a of a RFID tag was going down with ASICs. You know, Moore’s Law was definitely taking over that space. And we were able to sort of manage that that cost decrease in a way that we still were able to eke out sort of low to mid single organic just on pricing, packaging, optimization, contract negotiation. So I and then then that that we did that for twelve years. And so I think, you know, it’s like you can you can be industrious around this.
You can continue to to innovate in other ways. You know, I think like a a foundry has got multiple products. Like, a foundry just comes to mind, like, we’re still gonna be indispensable for a long period of time. So my my preference would probably yeah. It’s so small.
Would be to ride that out and optimize value versus trying to do some sort of exit. And, you know, obviously, it’s it’s decretive growth, but it’s the right sort of I think about it just from a pure NPV standpoint at that at that point.
Ken Wong, Software Analyst, Oppenheimer: Got it. Perfect. And then last question for me. Look. I think the maybe the biggest concern for constant kind of free cash flow comb outers is maybe you kind of run out of runway in terms of stuff to buy.
I guess what’s your view on that opportunity set? I think one of your you mentioned Constellation earlier. Granted, they were talking about it from a longer term time frame, but, you know, maybe that they were kind of exhausting some of the the opportunity on the software side out there. Yeah. We’d love just your quick view on on how that could play out.
Jason Conley, EVP and CFO, Roper: Yeah. Well, the one thing one thing that’s true is that the market of opportunities is never constant. Like, there’s always new things coming in. I mean, there was a a business that just got acquired a couple weeks ago that we looked at, and a public company acquired it. And we’d never I mean, this thing got to a 100,000,000 of EBITDA, and we didn’t even know about it until by six six months ago.
So and it was a founder run business and everything. So I just I always see this this thing as being as long as there’s entrepreneurs out there and then there’s capitalism that will continue to see new deals, I just don’t think it’s never that has never been I’ve never lost an a minute of sleep over that in in the last, say, the last ten years. There was a point in time where I was a little I was a I was a little concerned about it because our some of this was, like, our filter was so narrow, like, management had to convey and all these other things. But we’ve we’ve opened the TAM up, but but also opened the opportunity up. So I I just see we just have more opportunities than we can we can ever execute on.
Ken Wong, Software Analyst, Oppenheimer: Got it. Perfect. I and with that, I think we’re right up on time, Jason. Again, thank you for participating, Zach. Really appreciate you taking the time out of your day as well.
Hopefully, you guys have another kind of set of meetings that’ll keep you busy, but best best of luck to you, and appreciate the audience for for dialing in.
Jason Conley, EVP and CFO, Roper: Yes. Thanks, everyone, and and thank you, Jake.
Ken Wong, Software Analyst, Oppenheimer: Bye, guys.
Jason Conley, EVP and CFO, Roper: Bye bye.
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