Business context and reporting period
Roper Technologies, Inc. is a diversified technology company operating software and SaaS businesses alongside engineered-products businesses in niche markets. This Form 10-K covers the fiscal year ended December 31, 2019; it is an annual report, not a standalone fourth-quarter filing. Prior segment results were recast after a 2019 realignment to report by business model.
Financial performance and position
| Metric | 2019 | 2018 |
|---|---|---|
| Net revenue | $5.367 billion | $5.191 billion |
| Gross profit / margin | $3.427 billion / 63.9% | $3.280 billion / 63.2% |
| Operating income / margin | $1.498 billion / 27.9% | $1.396 billion / 26.9% |
| Net earnings | $1.768 billion | $944.4 million |
| Diluted EPS | $16.82 | $9.05 |
| Operating cash flow | $1.462 billion | $1.430 billion |
| Cash and cash equivalents at year-end | $709.7 million | $364.4 million |
| Total debt, excluding unamortized issuance costs | $5.308 billion | $4.968 billion |
Revenue grew 3.4%, reflecting 2.8% organic growth and a 1.4% net contribution from acquisitions and divestitures, partly offset by 0.8% foreign-exchange headwinds. Operating cash flow less capital expenditures and capitalized software expenditures was approximately $1.399 billion, calculated from the filing’s figures.
Revenue by segment: Application Software $1.588 billion (+9%); Network Software & Systems $1.530 billion (+14%); Measurement & Analytical Solutions $1.596 billion (-6%); and Process Technologies $652.9 million (-5%). Segment operating margins were 25.5%, 35.2%, 31.4%, and 34.6%, respectively. Backlog was $1.985 billion, up 17.3% year over year.
At year-end, working capital as defined by the company was negative $505.4 million, versus negative $200.4 million a year earlier. The company had no revolver borrowings and reported $2.5 billion of revolving credit capacity, subject to facility terms and outstanding letters of credit. About $603 million of debt maturities were scheduled for 2020.
Material changes versus the prior comparable period
- Reported net earnings rose substantially, primarily because of $920.7 million in pretax gains from selling the Imaging businesses and Gatan. The combined after-tax gain was $687.3 million; therefore, the increase in reported profit does not represent comparable underlying operating growth.
- Organic revenue growth was slower than in 2018: 2.8% in 2019 versus 9.4% in 2018. Operating margin nevertheless improved to 27.9% from 26.9%.
- Application Software and Network Software & Systems grew, aided by organic gains and acquisitions. Measurement & Analytical Solutions revenue declined mainly because of the divestitures, while Process Technologies declined with weaker upstream oil and gas demand.
- Cash from operations increased modestly. Investing cash outflow remained high as acquisition spending of $2.387 billion was partly offset by $1.157 billion of divestiture proceeds.
- Debt increased, principally due to $1.2 billion of 2019 senior-note issuance used in part to fund iPipeline, partly offset by repayment of $865 million of revolving debt. The company reported compliance with debt covenants.
Outlook, commentary, risks and unusual items
- Management expected a 2020 effective tax rate of 21%–23% and capital expenditures plus capitalized software spending of 1.0%–1.5% of annual revenue. It anticipated positive operating cash flow and debt reduction, while noting that acquisitions and operating performance could affect the pace. The filing provides no explicit 2020 revenue or EPS guidance.
- Management reported no goodwill impairment in 2019. Goodwill was $10.8 billion, about 60% of total assets; one tested indefinite-lived trade name had fair value close to carrying value, making its valuation assumptions worth monitoring.
- Principal risks include acquisition execution and integration, indebtedness and covenant restrictions, economic and cyclical demand (including energy markets), foreign exchange, cybersecurity and data privacy, competition, supply constraints, environmental liabilities, product liability, and goodwill or intangible-asset impairment. The filing specifically cited possible disruption from a Coronavirus-related public-health crisis.
- There were no matters for which management assessed a material loss as reasonably possible at year-end. Asbestos claims remain difficult to quantify; the company said it could not determine potential liability. A stockholder derivative matter was settled in 2019, including expanded compensation disclosures and a new director compensation plan to be submitted to shareholders in 2020.
- The company adopted lease accounting standard ASC 842 in 2019, recognizing operating lease assets and liabilities; adoption did not affect earnings or cash flows. The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- Separate recurring operating performance from the $687.3 million after-tax divestiture gain when assessing earnings growth and EPS.
- Review acquisition contributions, purchase-price allocations, and integration performance for Foundry, ComputerEase, iPipeline, and Bellefield; 2019 acquisitions totaled $2.388 billion net of cash acquired.
- Assess debt repayment capacity against the 2020 maturity schedule, negative working capital, acquisition strategy, and covenant limits.
- Track organic growth and margins by segment, especially energy-related demand in Process Technologies and post-divestiture comparability in Measurement & Analytical Solutions.
- Monitor assumptions supporting goodwill and trade-name valuations, as well as the tax payments related to divestitures and the stated 2020 tax-rate outlook.