Business context and reporting period
Roper Technologies, Inc. filed this Form 10-K for the fiscal year ended December 31, 2021. It is a diversified technology company spanning application software, network software and systems, measurement and analytical solutions, and process technologies. Results below are for continuing operations unless noted; the filing also presents fourth-quarter data.
In 2021, Roper agreed to divest TransCore, Zetec and CIVCO Radiotherapy. CIVCO was sold in November 2021; Zetec was sold on January 5, 2022; and the TransCore sale, for approximately $2.68 billion, was expected to close in the first quarter of 2022, subject to customary conditions and regulatory approvals. These businesses are presented as discontinued operations.
Financial performance and key metrics
| Metric | 2021 | 2020 |
|---|---|---|
| Revenue | $5,777.8 million | $4,854.2 million |
| Organic revenue growth | 8.9% | (1.8%) |
| Gross margin | 67.8% | 67.4% |
| Income from operations | $1,480.2 million | $1,273.5 million |
| Net earnings from continuing operations | $982.6 million | $825.5 million |
| Diluted EPS from continuing operations | $9.23 | $7.81 |
| Operating cash flow | $2,011.9 million | $1,525.1 million |
| Cash and cash equivalents at year-end | $351.5 million | $308.3 million |
Revenue increased 19.0%; acquisitions and divestitures contributed 9.0 percentage points and foreign exchange 1.1 points. Segment organic growth was 8.2% in Application Software, 11.2% in Network Software & Systems, 8.2% in Measurement & Analytical Solutions, and 8.3% in Process Technologies. Software and related services generated $3,604.3 million of revenue; engineered products and related services generated $2,173.5 million.
Reported operating margin was 25.6%, compared with 26.2% in 2020, and includes a $99.5 million non-cash intangible-asset impairment. Segment operating margins were 26.7% for Application Software, 38.2% for Network Software & Systems, 30.9% for Measurement & Analytical Solutions, and 30.6% for Process Technologies. Net earnings from discontinued operations were $170.0 million, including a $55.9 million after-tax disposal gain; total net earnings were $1,152.6 million.
For the fourth quarter, revenue was $1,512.3 million versus $1,335.6 million a year earlier. Continuing-operations net earnings were $199.9 million versus $225.0 million, and diluted continuing-operations EPS was $1.87 versus $2.12.
Debt, liquidity and cash flow
Gross debt principal was $7,970.3 million at year-end, down from $9,620.5 million in 2020; reported debt carrying value, net of issuance costs, was $7,921.8 million. Roper had $470.0 million drawn on its $3.0 billion revolving facility and approximately $2.5 billion of undrawn availability. The company was in compliance with its debt covenants. Cash flow from continuing operations was $1,866.2 million; total operating cash flow included $145.7 million from discontinued operations. Cash used in investing was $142.9 million and cash used in financing was $1,813.5 million. Financing uses included $1,150.0 million of revolver repayments, $500.0 million of senior-note repayments and dividends.
Backlog expected to be recognized within 12 months rose 24.2% to $2,560.8 million; total remaining performance obligations were $3,790.4 million. Net working capital, as defined by Roper and excluding cash, debt and held-for-sale items, was negative $882.5 million. The company characterizes this as consistent with its asset-light model.
Material changes, outlook and risks
- Application Software and Network Software & Systems delivered broad-based organic growth and improved segment margins. Measurement & Analytical Solutions’ margin declined to 30.9% from 32.5%, reflecting mix, normalization of Verathon demand and supply-chain costs. Process Technologies’ margin improved to 30.6% from 25.4%, partly because 2020 included restructuring costs and lower operating leverage.
- The $99.5 million impairment was primarily associated with the planned merger of Sunquest into CliniSys: $94.4 million related to the Sunquest trade name and $5.1 million to software and other intangible assets. Management also reported a $27.1 million gain on sale of a minority investment, included in other income.
- The effective tax rate was 22.7%, versus 21.5%, including a $21.7 million unfavorable effect from a UK tax-rate change. Management estimated a 2022 effective tax rate of approximately 21%–22% and expected capital expenditures plus capitalized software spending to be 1.0%–1.5% of annual revenue.
- Management expected operating cash flows to remain positive and support scheduled debt reduction, while noting the pace would depend on acquisitions, business performance and financial markets. No specific 2022 revenue or earnings guidance is provided in the filing.
- Key risks include continuing COVID-19 effects, inflation and supply-chain constraints, cybersecurity and data privacy exposure, acquisition integration and divestiture execution, indebtedness and interest rates, foreign exchange, cyclicality in energy and industrial markets, and potential goodwill or intangible-asset impairments. Roper disclosed Vertafore data-privacy litigation and an investigation by the Texas Attorney General, a patent case involving Verathon, and asbestos-related claims; management stated it did not expect pending matters to have a material adverse effect, but gave no assurance.
Important facts for investors to verify
- Whether the TransCore transaction closed on the expected terms and timing, and the final proceeds, tax effects and use of divestiture cash.
- How continuing-operations organic growth, margins and cash conversion develop after the reported 2021 growth, including the effects of supply constraints, inflation and the normalization of pandemic-related product demand.
- Debt repayment progress, refinancing needs and covenant headroom, particularly against the disclosed maturity schedule and interest-rate exposure.
- Whether the Sunquest/CliniSys integration achieves expected benefits and whether further impairment charges or changes in intangible amortization arise.
- Developments in Vertafore privacy litigation and the Texas investigation, the Verathon patent litigation, and any changes to the company’s assessment of legal contingencies.