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Aug. 3, 2022, 4:46 p.m. EDT

10-Q: ROPER TECHNOLOGIES INC

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(EDGAR Online via COMTEX) -- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on form 10-K for the year ended December 31, 2021 ("Annual Report") as filed on February 22, 2022 with the U.S. Securities and Exchange Commission ("SEC") and the Notes to Condensed Consolidated Financial Statements included elsewhere in this report.

Information About Forward-Looking Statements

This report includes "forward-looking statements" within the meaning of the federal securities laws. In addition, we, or our executive officers on our behalf, may from time to time make forward-looking statements in reports and other documents we file with the SEC or in connection with oral statements made to the press, potential investors or others. All statements that are not historical facts are "forward-looking statements." Forward-looking statements may be indicated by words or phrases such as "anticipate," "estimate," "plans," "expects," "projects," "should," "will," "believes" or "intends" and similar words and phrases. These statements reflect management's current beliefs and are not guarantees of future performance. They involve risks and uncertainties that could cause actual results to differ materially from those expressed or implied in any forward-looking statement. Such risks and uncertainties include any ongoing impacts of the COVID-19 pandemic on our business, operations, financial results and liquidity, which will depend on numerous evolving factors that we cannot accurately predict or assess, including: the duration and scope of the pandemic, new variants of the virus and the distribution and efficacy of vaccines; the impact of vaccine mandates on our workforce in certain jurisdictions; any negative impact on global and regional markets, economies and economic activity; actions governments, businesses and individuals take in response to the pandemic; the effects of the pandemic, including all of the foregoing, on our employees, customers, suppliers, and business partners, and how quickly economies and demand for our products and services recover following the pandemic.

Examples of forward-looking statements in this report include but are not limited to statements regarding operating results, the success of our operating plans, our expectations regarding our ability to generate cash and reduce debt and associated interest expense, profit and cash flow expectations, the prospects for newly acquired businesses to be integrated and contribute to future growth and our expectations regarding growth through acquisitions and the ability to complete announced divestitures. Important assumptions relating to the forward-looking statements include, among others, demand for our products, the cost, timing and success of product upgrades and new product introductions, raw material costs, expected pricing levels, expected outcomes of pending litigation, competitive conditions and general economic conditions. These assumptions could prove inaccurate. Although we believe that the estimates and projections reflected in the forward-looking statements are reasonable, our expectations may prove to be incorrect. Important factors that could cause actual results to differ materially from estimates or projections contained in the forward-looking statements include but are not limited to:

general economic conditions;

the effect of, or change in, government regulations (including tax);

You should not place undue reliance on any forward-looking statements, which are based on current expectations. Further, forward-looking statements speak only as of the date they are made, and we undertake no obligation to publicly update any of these statements in light of new information or future events.

Overview

Roper is a diversified technology company. We operate market leading businesses that design and develop vertical software and technology enabled products for a variety of defensible niche markets.

We pursue consistent and sustainable growth in revenue, earnings and cash flow by emphasizing continuous improvement in the operating performance of our businesses. In addition, we utilize a disciplined, analytical and process-driven approach to redeploy our excess free cash flow toward high-quality acquisitions.

Discontinued Operations

During the second quarter of 2022, the Company entered into a definitive agreement to sell a majority equity stake in our industrial businesses, including its entire historical Process Technologies reportable segment and the industrial businesses within its historical Measurement & Analytical Solutions reportable segment, to affiliates of Clayton, Dubilier & Rice, LLC. The businesses included in this transaction are Alpha, AMOT, CCC, Cornell, Dynisco, FTI, Hansen, Hardy, Logitech, Metrix, PAC, Roper Pump, Struers, Technolog, Uson, and Viatran (collectively the "Industrial Businesses").

During 2021, the Company signed definitive agreements to divest our TransCore, Zetec and CIVCO Radiotherapy businesses ("2021 Divestitures"). As of March 31, 2022, Roper had completed the 2021 Divestitures.

The financial results of these businesses are presented as discontinued operations and certain prior period amounts have been reclassified to conform to current period presentation. Information regarding discontinued operations is included in Note 5 of the Notes to Condensed Consolidated Financial Statements.

Update to Segment Reporting Structure

During the second quarter of 2022, we updated our reportable segment structure following the announcement of the transaction to sell a majority stake in our Industrial Businesses. The Company's new reporting segment structure is classified based on business model and delivery of performance obligations. The three updated reportable segments (and businesses within each) are as follows:

-Application Software - Aderant, CBORD, CliniSys, Data Innovations, Deltek, IntelliTrans, PowerPlan, Strata, Vertafore

-Network Software - ConstructConnect, DAT, Foundry, iPipeline, iTradeNetwork, Loadlink, MHA, SHP, SoftWriters

-Technology Enabled Products - CIVCO Medical Solutions, FMI, Inovonics, IPA, Neptune, Northern Digital, rf IDEAS, Verathon

The day-to-day operations of our businesses, our organizational structure, and our strategy remain unchanged. All prior periods have been recast to reflect the changes noted above.

Critical Accounting Policies

There were no material changes during the six months ended June 30, 2022 to the items that we disclosed as our critical accounting policies and estimates in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report.

Recently Issued Accounting Standards

Information regarding new accounting pronouncements is included in Note 2 of the Notes to Condensed Consolidated Financial Statements.

Impact of COVID-19 on our Business

The extent to which the COVID-19 pandemic impacts our business, results of operations and financial condition will depend on future developments, which are highly uncertain and are difficult to predict, including, but not limited to, the duration and spread of the outbreak and its severity, the actions to contain the virus and its variants including the distribution, administration and efficacy of available vaccines, the impact of vaccine mandates on our workforce, and how quickly and to what extent normal economic and operating conditions can resume. As a result of the effects of the COVID-19 global pandemic our ability to obtain products or services from certain suppliers and to operate at certain locations have been and may continue to be impacted. If COVID-19 and its variants continue to spread, particularly in countries with low vaccination rates, certain countries may experience more severe and lasting impacts from the pandemic. To the extent we have operations and/or customers in these countries, we may experience adverse impacts on our businesses located in such countries.







        Results of Continuing Operations
        All currency amounts are in millions, percentages are of net revenues
        Percentages may not sum due to rounding.
        The following table sets forth selected information for the periods indicated.
                                                       Three months ended June 30,                   Six months ended June 30,
                                                         2022                  2021                 2022                     2021
        Net revenues:
        Application Software                       $       627.5           $   587.9          $    1,255.7               $ 1,161.0
        Network Software                                   342.9               297.8                 681.4                   585.3
        Technology Enabled Products                        340.4               304.1                 653.5                   598.8
        Total                                      $     1,310.8           $ 1,189.8          $    2,590.6               $ 2,345.1
        Gross margin:
        Application Software                                68.7   %            69.3  %               69.0   %                69.3  %
        Network Software                                    84.3                84.0                  84.2                    83.6
        Technology Enabled Products                         56.3                59.8                  56.4                    60.4
        Total                                               69.5                70.5                  69.8                    70.6
        Selling, general and administrative
        expenses:
        Application Software                                42.3   %            43.2  %               42.1   %                42.9  %
        Network Software                                    44.3                46.6                  44.0                    46.6
        Technology Enabled Products                         23.5                26.1                  24.1                    25.6
        Total                                               38.0                39.7                  38.1                    39.4
        Segment operating margin:
        Application Software                                26.3   %            26.1  %               26.9   %                26.4  %
        Network Software                                    40.0                37.3                  40.2                    37.0
        Technology Enabled Products                         32.7                33.6                  32.3                    34.7
        Total                                               31.6                30.8                  31.8                    31.2
        Corporate administrative expenses                   (3.9)               (4.3)                 (4.0)                   (4.2)
        Income from operations                              27.7                26.6                  27.7                    27.0
        Interest expense, net                               (3.4)               (5.0)                 (3.8)                   (5.1)
        Other income (expense), net                         (0.1)                  -                  (0.1)                    1.2
        Earnings before income taxes                        24.2                21.6                  23.9                    23.1
        Income taxes                                        (7.0)               (4.4)                 (6.0)                   (4.8)
        Net earnings from continuing operations             17.2   %            17.2  %               17.8   %                18.2  %
        


Three months ended June 30, 2022 compared to three months ended June 30, 2021

Net revenues for the three months ended June 30, 2022 increased by 10.2% as compared to the three months ended June 30, 2021. The components of revenue growth for the three months ended June 30, 2022 were as follows:







                                                                                                                 Technology Enabled
                                                         Application Software         Network Software                Products                          Roper
        Total Revenue Growth                                            6.7  %                   15.1  %                      11.9  %                       10.2  %
        Less Impact of:
        Acquisitions/Divestitures                                       1.0                       1.1                            -                           0.9
        Foreign Exchange                                               (1.3)                     (1.3)                        (1.0)                         (1.2)
        Organic Revenue Growth                                          7.0  %                   15.3  %                      12.9  %                       10.5  %
        


In our Application Software segment, revenues were $627.5 in the second quarter of 2022 as compared to $587.9 in the second quarter of 2021. The growth of 7.0% in organic revenues was broad-based across the segment led by our businesses serving the government contracting, property and casualty insurance and acute healthcare markets. Gross margin decreased to 68.7% in the second quarter of 2022 as compared to 69.3% in the second quarter of 2021 due primarily to increased headcount to support expected revenue growth. Selling, general and administrative ("SG&A") expenses as a percentage of revenues decreased to 42.3% in the second quarter of 2022 as compared to 43.2% in the second quarter of 2021 due primarily to operating leverage on higher organic revenues. The resulting operating margin was 26.3% in the second quarter of 2022 as compared to 26.1% in the second quarter of 2021.

In our Network Software segment, revenues were $342.9 in the second quarter of 2022 as compared to $297.8 in the second quarter of 2021. The growth of 15.3% in organic revenues was broad-based across the segment led by our network software businesses serving the freight match, life insurance and media and entertainment markets. Gross margin increased to 84.3% in the second quarter of 2022 as compared to 84.0% in the second quarter of 2021 due primarily to favorable revenue mix. SG&A expenses as a percentage of revenues decreased to 44.3% in the second quarter of 2022 as compared to 46.6% in the second quarter of 2021 due primarily to operating leverage on higher organic revenues combined with revenue

In our Technology Enabled Products segment, revenues were $340.4 in the second quarter of 2022 as compared to $304.1 in the second quarter of 2021. The growth of 12.9% in organic revenues was primarily due to our water meter technology business and medical products businesses. Gross margin decreased to 56.3% in the second quarter of 2022 as compared to 59.8% in the second quarter of 2021 due primarily to higher material, component and freight costs as our businesses navigate the widespread global supply chain challenges. SG&A expenses as a percentage of revenues decreased to 23.5% in the second quarter of 2022 as compared to 26.1% in the second quarter of 2021 due to revenue mix and operating leverage on higher organic revenues. The resulting operating margin was 32.7% in the second quarter of 2022 as compared to 33.6% in the second quarter of 2021.

Corporate expenses were relatively flat at $50.9, or 3.9% of revenues, in the second quarter of 2022 as compared to $50.8, or 4.3% of revenues, in the second quarter of 2021. During the second quarter of 2022 there were offsetting impacts of higher professional service expense offset by lower compensation expense.

Net interest expense decreased to $44.7 for the second quarter of 2022 as compared to $59.5 for the second quarter of 2021 due to lower weighted average debt balances and higher interest income earned on our cash equivalents.

Other expense, net, of $1.3 and $0.2 for both the second quarter of 2022 and 2021 were composed primarily of foreign exchange losses at our non-U.S. based subsidiaries.

Income taxes as a percent of pretax earnings increased to 29.0% in the second quarter of 2022 as compared to 20.3% in the second quarter of 2021. The rate was unfavorably impacted by the recognition of a net tax expense associated with an internal restructuring plan related to the pending sale of the Industrial Businesses.

Backlog is equal to our remaining performance obligations expected to be recognized within the next 12 months as discussed in Note 13 of the Notes to Condensed Consolidated Financial Statements. Backlog increased 22% to $2,467.7 at June 30, 2022 as compared to $2,027.0 at June 30, 2021. Organic growth in backlog was 21% and acquisitions contributed 1%.







                                            Backlog as of
                                               June 30,
                                         2022           2021
        Application Software          $ 1,505.1      $ 1,392.6
        Network Software                  449.5          401.3
        Technology Enabled Products       513.1          233.1
        Total                         $ 2,467.7      $ 2,027.0
        


Six months ended June 30, 2022 compared to six months ended June 30, 2021

Net revenues for the six months ended June 30, 2022 increased by 10.5% as compared to the six months ended June 30, 2021. The components of revenue growth for the six months ended June 30, 2022 were as follows:







                                                                                                                 Technology Enabled
                                                         Application Software         Network Software                Products                          Roper
        Total Revenue Growth                                            8.2  %                   16.4  %                       9.1  %                       10.5  %
        Less Impact of:
        Acquisitions/Divestitures                                       1.1                       1.4                            -                           1.0
        Foreign Exchange                                               (1.0)                     (0.8)                        (0.7)                         (0.9)
        Organic Revenue Growth                                          8.1  %                   15.8  %                       9.8  %                       10.4  %
        


In our Application Software segment, revenues were $1,255.7 in the six months ended June 30, 2022 as compared to $1,161.0 in the six months ended June 30, 2021. The growth of 8.1% in organic revenues was broad-based across the segment led by our businesses serving property and casualty insurance, government contracting, and acute healthcare markets. Gross margin decreased to 69.0% in the six months ended June 30, 2022 as compared to 69.3% in the six months ended June 30, 2021 due primarily to increased headcount to support expected revenue growth partially offset by favorable revenue mix. SG&A expenses decreased as a percentage of revenue to 42.1% in the six months ended June 30, 2022 as compared to 42.9% in the six months ended June 30, 2021 due to operating leverage on higher organic revenues. The resulting operating margin was 26.9% in the six months ended June 30, 2022 as compared to 26.4% in the six months ended June 30, 2021.

In our Network Software segment, revenues were $681.4 in the six months ended June 30, 2022 as compared to $585.3 in the six months ended June 30, 2021. The growth of 15.8% in organic revenues was broad-based across the segment led by our network software businesses serving the freight match, life insurance and media and entertainment markets. Gross margin increased to 84.2% in the six months ended June 30, 2022 as compared to 83.6% in the six months ended June 30, 2021 due primarily to favorable revenue mix. SG&A expenses decreased as a percentage of revenues at 44.0% in the six months ended June 30, 2022 as compared to 46.6% in the six months ended June 30, 2021 due primarily to operating leverage on higher organic revenues combined with revenue mix. As a result, operating margin was 40.2% in the six months ended June 30, 2022 as compared to 37.0% in the six months ended June 30, 2021.

In our Technology Enabled Products segment, revenues were $653.5 in the six months ended June 30, 2022 as compared to $598.8 in the six months ended June 30, 2021. The growth of 9.8% in organic revenues was primarily due to our water meter technology business. Gross margin decreased to 56.4% in the six months ended June 30, 2022 as compared to 60.4% in the six months ended June 30, 2021 due primarily to higher material, component and freight costs as our businesses navigate the widespread global supply chain challenges. SG&A expenses as a percentage of revenues decreased to 24.1% in the six months ended June 30, 2022 as compared to 25.6% in the six months ended June 30, 2021 due to revenue mix and operating leverage on higher organic revenues. The resulting operating margin was 32.3% in the six months ended June 30, 2022 as compared to 34.7% in the six months ended June 30, 2021.

Corporate expenses increased to $103.8, or 4.0% of revenues, in the six months ended June 30, 2022 as compared to $97.9, or 4.2% of revenues, in the six months ended June 30, 2021. The dollar increase was due primarily to higher professional service and acquisition related expenses partially offset by lower compensation expense.

Net interest expense decreased to $97.3 for the six months ended June 30, 2022 as compared to $120.0 for the six months ended June 30, 2021 due to lower weighted average debt balances and higher interest income earned on our cash equivalents.

Other expense, net, of $3.4 for the six months ended June 30, 2022 was composed primarily of a one-time charge associated with a transaction to transfer the remainder of our exposure related to asbestos claims to a third party and foreign exchange losses at our non-U.S. based subsidiaries. Other income, net, of $27.1 for the six months ended June 30, 2021 was composed primarily of a gain on sale of minority investment.

Income taxes as a percent of pretax earnings were 25.4% for the six months ended June 30, 2022 as compared to 21.0% for the six months ended June 30, 2021. The rate was unfavorably impacted by the recognition of a net tax expense associated with an internal restructuring plan related to the pending sale of the Industrial Businesses.

Financial Condition, Liquidity and Capital Resources All currency amounts are in millions

Selected cash flows for the six months ended June 30, 2022 and 2021 were as follows:







                                                                  Six months ended June 30,
        Cash provided by/(used in):                                   2022                 2021
        Continuing operations:
        Cash provided by operating activities              $       331.0                 $ 805.5
        Cash used in investing activities                         (287.6)                  (18.1)
        Cash used in financing activities                         (551.5)                 (934.5)
        Cash flows provided by discontinued operations           3,061.3                   175.4
        


Operating activities - Net cash provided by operating activities from continuing operations decreased by 59% to $331.0 in the six months ended June 30, 2022 as compared to $805.5 in the six months ended June 30, 2021, due primarily to (i) the timing of cash taxes paid in connection with the 2021 Divestitures, (ii) higher cash taxes associated with changes to Internal Revenue Code Section 174 and (iii) less cash provided by working capital primarily associated with higher incentive compensation payments in the first quarter of 2022 associated with 2021 performance. These cash outflows were partially offset by higher net income from continuing operations net of non-cash expenses.

Investing activities - Cash used in investing activities from continuing operations during the six months ended June 30, 2022 is due to business acquisitions and capital expenditures. Cash used in investing activities from continuing operations during the six months ended June 30, 2021 was due primarily to capital expenditures and business acquisitions, partially offset by proceeds from the sale of a minority investment.

Financing activities - Cash used in financing activities from continuing operations for the both the six months ended June 30, 2022 and 2021 was primarily due to repayments on our unsecured credit facility and dividend payments, partially offset by net proceeds from stock based compensation.

Discontinued operations - Cash provided by discontinued operations for the six months ended June 30, 2022 was primarily due to proceeds from the sale of TransCore and Zetec slightly offset by less cash provided by discontinued operations which was impacted by the timing of our divestiture activity. Cash provided by discontinued operations during the six months ended June 30, 2021 was primarily due to net income net of non-cash expenses partially offset by cash used in working capital primarily associated with the build-up of inventory in response to the wide-spread global supply chain challenges.

Effect of foreign currency exchange rate changes on cash - Cash and cash equivalents decreased during the six months ended June 30, 2022 by $25.6 due primarily to the strengthening of the U.S. dollar against the functional currencies of our European and United Kingdom subsidiaries. Cash and cash equivalents increased during the six months ended June 30, 2021 by $1.2 due primarily to the weakening of the U.S. dollar against the functional currency of our Canadian subsidiaries.

Total debt at June 30, 2022 consisted of the following:







        $500 3.125% senior notes due 2022               $   500.0
        . . .
        


Aug 03, 2022

COMTEX_411522480/2041/2022-08-03T16:46:13

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