Roper Technologies, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Amounts are in millions except per-share data. Comparisons are with the corresponding 2020 periods unless noted.
Business context and results
Roper is a diversified technology company with software and engineered-products businesses across four segments: Application Software; Network Software & Systems; Measurement & Analytical Solutions; and Process Technologies.
| Metric | Q2 2021 | Q2 2020 | H1 2021 | H1 2020 |
|---|---|---|---|---|
| Revenue | $1,587.6 | $1,305.0 | $3,116.2 | $2,655.7 |
| Gross profit | $1,034.1 | $843.7 | $2,027.9 | $1,700.5 |
| Income from operations | $418.0 | $333.6 | $818.5 | $682.8 |
| Net earnings | $286.3 | $219.2 | $575.3 | $459.5 |
| Diluted EPS | $2.69 | $2.08 | $5.42 | $4.36 |
| Gross margin | 65.1% | 64.7% | 65.1% | 64.0% |
| Operating margin | 26.3% | 25.6% | 26.3% | 25.7% |
Q2 revenue rose 21.7%; management attributed growth to acquisitions (12%), organic growth (7%) and foreign exchange (2%). H1 revenue increased 17.3%, with acquisition contributions of 12%, organic growth of 3% and foreign exchange of 2%. Q2 net earnings increased about 31%; diluted EPS rose to $2.69.
Segments and material changes
- Application Software: Q2 revenue grew 48.5% to $591.6, primarily reflecting acquisitions, including Vertafore, alongside 9% organic growth. Operating margin fell to 26.1% from 28.5%, in part due to acquired-intangible amortization.
- Network Software & Systems: Q2 revenue increased 8.7% to $458.7; operating margin rose to 32.8% from 30.9%. SaaS subscription growth was partly offset by lower toll-tag volumes.
- Measurement & Analytical Solutions: Q2 revenue increased 9.1% to $397.0, while operating margin declined to 31.2% from 33.8%, primarily due to gross-margin mix. Certain Verathon products saw lower demand versus unusually high COVID-19-related demand in 2020.
- Process Technologies: Q2 revenue rose 16.2% to $140.3 and operating margin increased to 31.3% from 14.0%. The comparison benefited from a $13.6 restructuring charge recorded in Q2 2020.
Acquisitions contributed substantially to Application Software growth. Roper completed two small acquisitions in June for an aggregate purchase price of $15.7, integrated into Deltek. It also sold its minority investment in Sedaru in March, recording a $27.1 pretax gain.
Cash flow, debt and liquidity
- H1 operating cash flow was $985.1, up from $813.0; investing cash outflow was $22.2 versus $177.5; financing cash outflow was $934.6 versus $532.9.
- Cash and equivalents were $337.8 at June 30, 2021, compared with $308.3 at year-end 2020. H1 financing cash use primarily reflected $870.0 of net revolving-credit repayments and $117.8 of dividends paid.
- Total debt was $8,701.9, down from $9,566.5 at December 31, 2020; net debt was $8,364.1. Net debt to total net capital declined to 43.0% from 46.9%. The company reported compliance with credit-facility covenants.
- Net interest expense increased to $59.5 in Q2 and $120.1 in H1, primarily due to higher average debt balances, partly offset by lower average interest rates.
- Management said cash, operating cash generation and available credit were expected to be sufficient for foreseeable operating needs. Net working capital remained negative at $541.8, which management described as consistent with its asset-light model.
Outlook, risks and contingencies
The filing provides no specific numerical earnings or revenue guidance. Management said it expected positive operating cash flow to support debt reduction and was focused on reducing debt, while maintaining an active acquisition program. The pace of debt reduction depends on business performance, acquisitions, COVID-19 impacts and financial-market conditions. Expected capital expenditures and capitalized software spending for the rest of 2021 were described as comparable to prior years as a percentage of revenue.
Management cautioned that COVID-19 and variants, geopolitical and economic uncertainty, supply and input-cost changes, interest rates, competition, acquisition integration, indebtedness, cybersecurity and data privacy risks, and litigation could affect results. A Vertafore data incident involving Texas driver-license files led to a remaining putative class action and a Texas Attorney General investigation; two other related cases were dismissed or voluntarily dismissed in July 2021. Roper said ordinary-course legal matters were not expected to have a material adverse effect, while asbestos-claim exposure could not be determined. No material changes to reported risk factors or market-risk disclosures were noted.
Important facts for investors to verify
- How much future growth is organic versus acquisition-driven, especially in Application Software.
- Whether backlog converts to revenue as expected: remaining performance obligations were $4,574.5, with approximately 58% expected to be recognized within 12 months; reported 12-month backlog was $2,647.6.
- Debt repayment progress, interest expense and cash-flow durability, including the effects of acquisition spending and tax payments.
- Margin trends in Application Software and Measurement & Analytical Solutions, and whether Process Technologies’ improvement persists after the prior-year restructuring comparison.
- Developments in the Vertafore privacy litigation and regulatory investigation, and any continuing COVID-19, supply-chain or market effects.
- The $27.1 Sedaru gain and tax benefits affected period comparisons; H1 cash taxes were also higher partly because $137.5 of taxes had been deferred into Q2 2020 under the CARES Act.