Roper Technologies, Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. This annual filing also reports unaudited fourth-quarter results. Unless noted otherwise, dollar amounts are in millions.
Business context
Roper is a diversified technology company spanning application software, network software and systems, measurement and analytical solutions, and process technologies. Its strategy emphasizes recurring software revenue, operating improvement, and acquisitions. In 2020, Roper completed six acquisitions and spent $6,018.1 net of cash acquired; the largest was Vertafore, acquired for $5,398.6.
Financial performance and liquidity
| Metric | FY2020 | FY2019 | Change / context |
|---|---|---|---|
| Revenue | $5,527.1 | $5,366.8 | Up 3.0%; acquisitions contributed 3.9%, foreign exchange 0.1%, and organic revenue declined 1.0%. |
| Gross profit / margin | $3,543.0 / 64.1% | $3,427.1 / 63.9% | Margin expanded 0.2 percentage points. |
| Operating income / margin | $1,431.1 / 25.9% | $1,498.4 / 27.9% | Operating income fell 4.5%; margin declined 2.0 points. |
| Net earnings | $949.7 | $1,767.9 | Down 46.3%; FY2019 included a $920.7 pretax disposal gain ($687.3 after tax). |
| Diluted EPS | $8.98 | $16.82 | Prior-year comparison includes disposal gains. |
| Operating cash flow | $1,525.1 | $1,461.8 | Up 4.3%. |
| Cash and cash equivalents | $308.3 | $709.7 | Down $401.4, following acquisition spending and financing activity. |
| Debt | $9,566.5 net carrying amount | $5,275.3 | Gross debt for scheduled maturities was $9,626.2; debt rose principally to finance Vertafore. |
Operating cash flow less capital expenditures and capitalized software expenditures was $1,476.2 in 2020, versus $1,398.9 in 2019 (calculated from reported figures). Net working capital remained negative at $498.4. Roper reported $1,351.0 of undrawn availability under its credit facility and stated that operating cash flows and available credit should fund normal operating needs. It was in compliance with debt covenants at year-end.
Segments and material changes
- Application Software: Revenue $1,799.9, up 13%; organic growth was 1%. Operating margin rose to 26.0% from 25.5%.
- Network Software & Systems: Revenue $1,738.6, up 14%; organic growth was 4%. Operating margin declined to 31.6% from 35.2%, reflecting mix and higher acquired-intangible amortization.
- Measurement & Analytical Solutions: Revenue $1,469.9, down 8%, primarily reflecting the 2019 disposals of Imaging and Gatan; organic revenue grew 1%. Operating margin increased to 32.2% from 31.4%.
- Process Technologies: Revenue $518.7, down 21%, entirely organic. Lower energy-market demand and COVID-19 contributed; operating margin fell to 25.4% from 34.6%, including $13.6 of restructuring charges.
Software and related services revenue rose to $2,871.1 from $2,477.7; engineered products and related services revenue declined to $2,656.0 from $2,889.1. Backlog increased 27% to $2,516.1, with 3% organic growth and 24% from acquisitions. Total remaining performance obligations were $4,298.0; about 59% was expected to be recognized over the next 12 months.
Fourth quarter: Revenue was $1,505.3 versus $1,394.8 in Q4 2019; operating income was $380.7 versus $398.4; net earnings were $255.8 versus $871.1; diluted EPS was $2.41 versus $8.28. The prior-year quarter included the disposal gains noted above.
Outlook, risks, and unusual items
- Roper did not provide specific revenue or earnings guidance in the filing. It expected a 2021 effective tax rate of approximately 21%–22% and capital expenditures plus capitalized software spending of 1.0%–1.5% of annual revenue.
- Management expected positive operating cash flow to support scheduled debt reduction, but noted that acquisition requirements, operating performance, COVID-19, and financial-market conditions could affect the pace of deleveraging.
- COVID-19 effects varied by market: restrictions hurt some medical and water-meter activities, while industrial and energy demand weakened; video-assisted intubation products saw accelerated adoption. Management reported no significant COVID-related customer payment delays to date.
- Vertafore disclosed that three files containing Texas driver-license information were inadvertently left in an unsecured external storage service and appeared to have been accessed without authorization. The files did not contain Social Security numbers or financial-account information. Vertafore faced three putative class actions and a Texas Attorney General investigation.
- Other principal risks include acquisition integration and leverage, cybersecurity and privacy compliance, cyclical industrial and energy markets, customer concentration within some businesses, foreign exchange, supply constraints, and possible impairment of substantial goodwill and intangible assets. No goodwill or indefinite-lived trade-name impairment was recorded in 2020.
- Roper reported effective financial-reporting and disclosure controls; the 2020 acquisitions were excluded from management’s internal-control assessment. The auditor issued an unqualified opinion on the financial statements and internal controls. Management said no contingency had a reasonable possibility of material loss, while noting asbestos claims for which potential liability could not be determined.
Most important facts for investors to verify
- Whether Vertafore and the other 2020 acquisitions deliver expected growth, cash generation, and integration benefits.
- Debt repayment progress, interest expense, and available liquidity following the acquisition-related increase in borrowings.
- Whether organic revenue growth recovers and the weak Process Technologies performance stabilizes.
- Developments in Vertafore’s data-incident litigation and investigation, including any material financial or reputational consequences.
- Whether backlog and remaining performance obligations convert to revenue as expected, and whether impairment assumptions for goodwill and acquired intangibles remain supportable.