Roper Technologies, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. Roper is a diversified technology company operating software and engineered-products businesses across four reportable segments. Unless otherwise noted, amounts are in millions of dollars.
Financial results
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Net revenue | $1,528.6 | $1,350.7 | +13.2% |
| Gross profit / margin | $993.8 / 65.0% | $856.8 / 63.4% | +16.0%; margin +1.6 points |
| Income from operations / margin | $400.5 / 26.2% | $349.2 / 25.9% | +14.7%; margin +0.3 points |
| Net earnings / margin | $289.0 / 18.9% | $240.3 / 17.8% | +20.3% |
| Diluted EPS | $2.73 | $2.28 | +19.7% |
| Net interest expense | $60.6 | $45.4 | Increased |
| Cash provided by operating activities | $559.6 | $363.9 | +54% |
Revenue growth comprised a 12% net acquisition/divestiture contribution and 1% foreign-exchange benefit, partly offset by a 1% organic decline. Other income was $27.0, primarily reflecting a $27.1 pretax gain from the March sale of a minority investment in Sedaru. The gain is an unusual item and contributed to reported earnings.
Segments and operating trends
- Application Software: Revenue $576.6, up 42.3%; acquisitions contributed 38%, organic growth 2%, and foreign exchange 1%. Operating margin rose to 26.7% from 24.1%.
- Network Software & Systems: Revenue $440.2, up 0.5%; organic revenue declined 2%. Operating margin fell to 30.8% from 31.7%, with project timing and lower toll-tag volumes among the cited factors.
- Measurement & Analytical Solutions: Revenue $381.0, up 4.3%; operating margin increased to 32.6% from 31.2%. Medical-products growth was partly offset by weakness in water-meter technology.
- Process Technologies: Revenue $130.8, down 8.0%; organic revenue declined 10%, including lower upstream oil-and-gas demand. Operating margin decreased to 29.3% from 30.5%.
Backlog expected to convert to revenue within 12 months was $2,578.7, up 25% year over year; acquisitions contributed 22% and organic growth 3%. Remaining performance obligations totaled $4,102.4, of which approximately 63% was expected to be recognized within 12 months.
Cash, debt and liquidity
- Cash and equivalents were $331.0 at March 31, versus $308.3 at December 31, 2020. Operating cash flow benefited from higher earnings, software-business working-capital generation, and approximately $36 of accelerated cash payments tied to wins at a UK laboratory software business.
- Investing activities provided $10.7, primarily from the Sedaru investment sale; financing activities used $545.2, largely for $495.0 of net revolver repayments and dividends.
- Total debt was $9,073.9, down from $9,566.5 at year-end; net debt was $8,742.9. Net debt to total net capital improved to 44.8% from 46.9%.
- Long-term debt included $1,125.0 outstanding under a $3,000.0 unsecured credit facility. The current portion of debt was $502.1. The filing reports $67.1 in outstanding letters of credit and compliance with credit-facility covenants.
- Net working capital, calculated excluding cash and current debt, was negative $552.4, compared with negative $498.4 at year-end. Management attributes persistent negative working capital to the company’s asset-light business model.
Outlook, risks and contingencies
No numerical earnings or revenue guidance was provided. Management expected positive operating cash flow to support debt reduction, while noting that the pace would depend on business performance, COVID-19 effects, financial-market conditions and acquisition needs. The company said it was focused on reducing debt, although it maintained an active acquisition program. It expected capital expenditures and capitalized software spending for the rest of 2021 to be comparable to prior years as a percentage of revenue.
Management described COVID-19 and its effects on demand, operations and markets as uncertain, specifically noting the severe outbreak in India. Other disclosed risks include economic and geopolitical disruption, acquisition integration, indebtedness and interest rates, cybersecurity and privacy, competition, supply costs, and litigation. Management reported no material change to the risk factors in its 2020 Form 10-K.
Vertafore faces three putative class actions concerning files containing personal information associated with approximately 27.7 million Texas driver-license holders; the files reportedly did not contain Social Security numbers or financial-account information. The Texas Attorney General is also investigating. Vertafore is defending the cases. Roper also disclosed asbestos-related claims and other ordinary-course litigation; management said it had provided for expected exposure where applicable, but the potential asbestos liability could not be determined. No events were identified requiring an interim goodwill or indefinite-lived intangible impairment review.
Important facts for investors to verify
- How much of reported earnings growth reflects ongoing operations versus the $27.1 Sedaru-related gain and acquisition contributions.
- Whether backlog converts on schedule, particularly given segment differences and the organic revenue decline overall.
- Progress on debt reduction, future interest expense and the $502.1 current debt portion, including scheduled maturities.
- Developments and potential financial exposure from the Vertafore data incident, related lawsuits and Texas Attorney General investigation.
- The evolution of COVID-19-related impacts, including conditions in India and any effects on customers, supply, demand or operations.