ROPER TECHNOLOGIES INC Q2 2026 earnings call

Good morning, and thank you all for joining us as we discuss the second quarter 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 Chief 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 prepared slides to accompany today's call, which are available through the webcast and are also available on our website. Now, if you'll please turn to page 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. Now please turn to page three. Today, we will discuss our results primarily on an adjusted non-GAAP basis. For the second quarter, the difference between our GAAP results and adjusted results consists of the following items: amortization of acquisition-related intangible assets, financial impacts associated with our minority investment in Indicor, and lastly, cash collected on Outgo's beneficial interest, which is the residual amount owed to Outgo after it sells receivables to a third party and is classified within cash flows from investing activities. Reconciliations can be found in our press release and in the appendix of our presentation on our website. Now, if you please turn to page four, I'll hand the call over to Neil. After our prepared remarks, we will take questions from our telephone participants. Neil?

Thank you, Zack, and thanks to everyone for joining us this morning. You can see our agenda on page four, so let's get right into it. Next slide, please. As we turn to page five, I want to highlight three takeaways for today's call. First, we delivered solid results and are raising our outlook for the year. Second, AI momentum continues to build across the enterprise at an accelerating pace. Third, we continue to execute our capital allocation opportunities with our long-standing discipline. Let me double-click each point. First, second quarter results were solid and ahead of expectations. Total revenue grew 9%, organic revenue grew 5%, EBITDA grew 5%, and free cash flow grew 11%. Importantly, enterprise gross retention remained strong, consistently in the mid-90s. On that foundation, enterprise software bookings remained solid with core bookings up mid-single digit plus on a TTM basis.

At a high level and across the portfolio, Deltek had an encouraging second quarter, but we're not ready to call a turn in the GovCon market. Relative to Neptune, they had better first half performance than originally expected. Finally, at DAT, we're seeing improving freight market conditions for the first time in many years. On the back of this quarter's performance, we're raising our full-year DEPS guidance for the second time this year to a range of $22.15-$22.30. That is up $0.30 at the midpoint and up $0.80 our original guide in January. In addition, we're raising our full-year revenue growth outlook, with total revenue now expected to be north of 8% and organic growth expected to be in the 6% range. Second, we continue to build momentum around AI and the automation of tasks and workflows within our end markets.

During the quarter, our product release cadence accelerated, and I'd like to highlight both the breadth of what we're doing and the vertical market depth of what each of our businesses is delivering on the AI and agentic product front. Since we last spoke, Deltek released agentic capabilities across both its GovCon and private sector solutions, including RFP development and month-end financial close. Vertafore released its AI Velocity platform with six agentic SKUs, which I'll get into more depth into later. Strata released in beta its AI-enabled financial decision intelligence product. Aderant shipped its first generation of agents across collections, billing appeals, talent, and time capture. Procare shipped its first of many agentic features, RoomRunner, which helps daycare operators optimize enrollment strategies. CentralReach deployed its next generation of AI solutions focused on clinical documentation quality and audit readiness.

DAT continued the evolution of its ML-based freight match automation capabilities, including its first proactive AI recommendation engine, which services load opportunities to carriers who would have not otherwise come across them. SoftWriters, iTrade, Foundry, and ConstructConnect rounded out this quarter's AI and agentic product releases. I know this was a long list, but that's precisely the point. We continue to see very positive signals from our businesses and their ability to build and ship agentic features and products. Our right to win is grounded in the same advantages that have always made our vertical software businesses strong: deep domain expertise, embedded customer workflows, unique data assets, high-trust customer relationships, and scale distribution. Product velocity is also increasing within our businesses. Each company develops AI capabilities close to their customers and their workflows, while our AI accelerator team further increases velocity and scales reusable patterns across the portfolio.

This model is working very well. Demand is strong, but these products are interactive, and in many cases, they change how customers do their work, so the pace of adoption is still developing. What is powerful, though, is that these products will improve with use. As adoption expands, the products get better, knowledge graphs compound, and the value to customers increase. That creates a flywheel. More value drives more adoption, more adoption improves the product, and the cycle accelerates. While we're still early in the commercialization curve, we like the progress we're seeing. Third, we continue to execute with the same consistent, disciplined capital allocation approach that has defined Roper for years. During the quarter, we repurchased another 3.6 million shares, and we expect to soon receive proceeds from Indicor's divestment of its instrumentation businesses to AMETEK.

Let me turn the call over to Jason so he can walk you through the details of both of these and our financials and balance sheet position. Jason?

Thanks, Neil, and good morning, everyone. I'll first take you through our second quarter financial performance beginning on slide six. At a high level, this was a solid second quarter. We finished above the high end of our DEPS guidance range, and organic growth was slightly above expectations. Revenue of $2.1 billion was up 9%, with organic growth of 5% and acquisitions contributing three points. Organic recurring revenue across our software segments grew 7% in the quarter, consistent with our Q1 performance. Further, we expect organic recurring revenue growth to inflect higher as we move into the second half. EBITDA was $815 million, with EBITDA margin of 38.6%. Core EBITDA margin was down 70 basis points.

The reduction was mainly driven by lower margins in our TEP segment, given similar dynamics to Q1, which are: we had higher input costs at Neptune and a mix of more reoccurring consumables at NDI and Verathon. As we move into the second half, we expect margin improvement at Neptune and easy comparisons in the segment. Importantly, in the quarter, core margins across our software segments were down a modest 10 basis points, which includes investment in our AI team. Diluted earnings per share of $5.38 was above our guided range of $5.25 to $5.30, and up 10% over prior year. This outperformance was driven by the combination of solid organic growth and additional buyback activity, which generated $0.03 of accretion in the quarter relative to our guidance. Free cash flow was $447 million, up 11% over prior year.

On a trailing 12-month basis, free cash flow is now at $2.6 billion and has compounded at 18% over the past three years or 15% adjusted for Section 174. Growth in free cash flow coupled with share repurchase activity resulted in free cash flow per share growth of 19% in the quarter. If you turn with me to slide seven, I'll walk you through our financial position and capital deployment. We exited the second quarter at 3.4x net debt to EBITDA, up from 3.1x at the end of Q1, reflecting the capital deployed towards share repurchases in the quarter. We finished with $365 million of cash and $2.9 billion drawn on our $3.5 billion revolver. As Neil mentioned, during the quarter, we repurchased $3.6 million of shares for $1.2 billion, at an average price of approximately $341 per share.

That brings our cumulative repurchases to 9 million shares, spending $3.2 billion since this program began. Said differently, we have repurchased over 8% of our shares in eight months, which gets us back to our 2013 share count position. Also, Indicor announced an agreement to sell its instrumentation businesses to AMETEK, which is expected to close in the second half of this year. As a minority holder in Indicor, we expect gross proceeds of approximately $1.4 billion or an estimated $1.2 billion after tax, which further strengthens our balance sheet and deployment capacity. Of note, the flow control businesses remain in the Indicor portfolio and will provide additional liquidity following a competitive sale process, which is not yet factored into our capacity framework. With good visibility into forward free cash flow and the expected Indicor instrumentation proceeds, we retain more than $5 billion of annualized capacity for capital deployment.

We expect M&A activity to break loose later this year and into 2027, plan to prepare our balance sheet to take advantage of these opportunities. That said, we will remain patient and disciplined and deploy capital to the highest risk-adjusted return investments. With that, I'll turn it back over to Neil to discuss segment performance and our outlook. Neil?

Thanks, Jason. As we turn to page nine, let's review our application software segment. Revenue grew 8% in total, with organic revenue growth of 5%, slightly better than our expectations. EBITDA margins were 42.8%, and core margins declined 20 basis points year-over-year. Organic recurring and reoccurring revenue, which represents about 85% of the segment, continued to grow in the mid-single digit plus range, while non-recurring revenue was down low single digits. Looking across the segment, a couple themes spike out. First, our SaaS transitions continued to advance meaningfully. Several of our larger businesses made real progress on ground to cloud conversions and on bringing new cloud-native products to the market. Over time, this should continue to be a positive trend for the segment. Second, as discussed earlier, AI momentum continues to build across the portfolio. Turning to the business highlights.

Aderant was once again excellent in the quarter. The business continues to win in the market, drive accelerating adoption of its cloud offerings, and build momentum with its agentic AI solutions. Deltek was solid in the quarter, driven by strength in its private sector solutions. GovCon was decent, and we saw some encouraging signs. That said, it is still too early to call it a trend. Before upgrading our GovCon outlook, we'd like to see the sales pipeline convert consistently over the next few quarters. We do expect improvement over time, supported by the market tailwinds from the OBBB, but we're not ready to call that inflection just yet. Vertafore delivered another solid quarter with continued ARR growth. More importantly, faster product delivery is turning its AI strategy into tangible customer solutions.

Its agentic AI strategy targets five areas of insurance distribution: digital servicing, smart submissions, accounting automation, producer workflows, and business intelligence. It starts with high-volume, labor-intensive work where customer value is immediate, then expands into more complex, higher-value workflows. Velocity, Vertafore's purpose-built AI platform, enables rapid agent development directly within systems customers already use. Recently launched with six initial agentic SKUs, it establishes the foundation for continued innovation. Vertafore's high right to win comes from applications that define and run their customers' core workflows. Thousands of customer environments are configured around specific data, products, rules, permissions, and processes. This allows agents to operate inside live environments with unique customer-by-customer context to perform real work accurately and securely. Three products demonstrate the strategy's breadth and value. The reconciliation agent ingests carrier statements, matches transactions, and directs employees only to exceptions, reducing up to an hour of work to minutes.

The submission processing agent converts unstructured emails and documents into underwriting-ready data, reducing processing time from roughly an hour to about two minutes. The portal launcher agent converts static PDF applications into digital submission experiences, enabling MGAs to launch new programs dramatically faster and compete more effectively. These are not features that merely make work faster. They automate meaningful portions of the workflow, improving speed and accuracy, increasing capacity, enabling growth without proportional headcount. That deepens Vertafore's customer value and expands its opportunity beyond software spend into the much larger pool of labor spend. ILumed delivered a strong second quarter, with revenue ahead of expectations as it wins share and cross-sells into the combined CBORD and Transact customer base. Strata also performed well, with its AI strategy accelerating faster than anticipated. Procare remains a work in progress.

The team is advancing a broader product strategy, with RoomRunner released, strong early usage, and more innovation in the pipeline. At the same time, Joe and the team are shoring up the core product, go-to-market execution, and implementation capability. Finally, CentralReach continues to execute at a high level, delivering very strong growth and meaningful margin improvement. As a reminder, CentralReach turns organic next quarter, and after one year, the business is ahead of our deal model. As we turn to our outlook for application software, we expect organic growth for the second half of the year to be in the mid-single-digit plus range. Please turn us to page 10. Total revenue in our network software segment grew 12%, Organic revenue grew 4% in the quarter. Organic recurring growth was strong, growing high singles, was offset by weaker reoccurring and non-recurring revenue at MHA and iPipeline.

EBITDA margins were 50.9%, down 370 basis points year-over-year, while core margins improved slightly, up 30 basis points. The gap reflects two dynamics: the acquisition of Subsplash, a faster growth business with a lower but steadily improving margin profile, and our ongoing investment at DAT, particularly Convoy. Turning to the business level highlights. DAT grew nicely in the quarter and continues to execute at high fidelity. We're also seeing encouraging growth in our digital freight marketplace solutions, with increasing adoption and engagement. Broader market indicators are improving as well. Carrier additions have increased steadily throughout the year, spot pricing is strengthening relative to contract rates, carrier rejection rates are rising. We still need to see load volumes improve before becoming fully bullish on the recovery. The 2026 benefit is tracking modestly ahead of our prior expectations, The indicators remain encouraging as we look towards 2027.

ConstructConnect had another solid quarter, with continued growth of its AI-based takeoff solution. The business is expanding AI deeper into pre-construction workflow, helping customers reduce manual effort, move faster through project documents, and improve decision speed. Foundry continued to deliver year-over-year ARR growth with meaningful AI innovation across SmartRoto and Griptape. SmartRoto automates a historically manual part of the visual effects workflow, while Griptape extends Foundry's position in AI orchestration across production and post-production environments. Subsplash delivered another strong quarter with double-digit software growth, even faster payments growth, and meaningful margin expansion. The business also continued to extend AI across its church engagement and giving platform, taking its AI assistant live to all customers. Finally, I joined our SoftWriters team, which provides the core operating system for long-term care pharmacies for a site visit at LI Script Pharmacy.

I spent time understanding LI Script's strategic and operational priorities and where SoftWriters can help accelerate the business. LI Script serves more than 32,000 beds across 150 facilities, so small workflow improvements create significant value. I sat alongside pharmacists processing prescription orders with and without SoftWriters' AI-powered order entry and review solution. Without automation, a new order can require up to 90 seconds of manual entry and review. Our solution reads the prescription, populates information in the existing workflow, and lets the pharmacist focus on validation rather than transcription. Processing time falls to about 18 seconds per order, an 80% reduction. The benefit extends beyond lower labor costs. It gives pharmacists and technicians more capacity for quality assurance, clinical review, answering nurses' questions, supporting customers, and absorbing volume without proportional headcount. That means better patient care, better customer service, and a more scalable path to growth.

Equally important, the automation is delivered in context at the precise point of work with extremely low latency. SoftWriters derive proprietary data, domain-specific models, dense workflow integration, customer trust, and distribution were evident. It showed how our vertical market modes enable differentiated AI that automates meaningful customer work. Order entry is just the beginning of SoftWriters' workflow automation opportunity. Finally, the monetization model is also attractive and in addition to the existing software spend. SoftWriters prices the solution transactionally, directly aligning revenue with orders automated and labor savings delivered. Customers achieve a clear return while SoftWriters participates in the value created with revenue scaling as adoption and transaction volumes grow. Thank you to the LI Script team for hosting me and for the partnership. Now let me turn to our outlook for network software.

We expect organic growth for the second half of the year to increase versus the first half and be in the mid-single digit plus range. Please turn to page 11 and let's review our TEP segment. Total revenue and organic revenues grew 7%. Results were better than anticipated Neptune, NDI, and Verathon. EBITDA margins were 34.5% down 220 basis points year-over-year, reflecting the same dynamics discussed last quarter. Input cost pressure at Neptune, principally bronze ingot inflation, and a mix shift at both NDI and Verathon towards faster-growing consumables, which carry lower gross margins, though notably more durable and reoccurring revenue profiles. Starting with NDI, the business had another very strong quarter, driven by sustained demand for its electromagnetic tracking solutions across cardiac, neurological, and orthopedic applications.

EP remains a compelling multi-year growth opportunity, with procedure volumes increasing, leading OEMs launching new tracking-enabled catheter platforms, and NDI uniquely positioned at the sensor layer. Neptune had an encouraging quarter. Revenue declined modestly year-over-year, but came in ahead of our expectations as strong mechanical meter volumes and continued growth at Muni-Link helped offset the anticipated decline in market unit volumes. Muni-Link also continues to strengthen Neptune's position across the broader meter to cash workflow through its cloud-based utility billing and customer communication capabilities. The metering business remains on track to return to growth in the second half. Verathon delivered solid growth driven by strong demand for B-Flex and GlideScope single-use offerings. We're also encouraged by the launch of the C-Flex single-use cystoscope and B-Flex specimen collection system, which further expands Verathon's single-use portfolio.

I want to recognize the teams at CIVCO, FMI, and IPA for their excellent work in the second quarter. Each team executed well and contributed to the segment's performance. Turning to our TEP outlook, we expect organic growth for the second half of the year to be in the high singles range and be a bit stronger in Q3. With that, please turn us to page 13. On this page, let's walk through our increased full-year revenue and DEPS guidance, as well as our Q3 outlook. For the full year, we're raising adjusted DEPS guidance to a range of $22.15-$22.30. That represents a $0.30 increase in the midpoint from our prior guide and a $0.80 increase from our original guide. We're also increasing our full-year total revenue growth guidance to north of 8%, with organic revenue growth expected to be in the 6% area.