Roper Technologies, Inc. — Q1 2023 Form 10-Q
Period: Three months ended March 31, 2023; unaudited. Unless stated otherwise, amounts are in millions. Results primarily reflect continuing operations; divested businesses are presented as discontinued operations.
Financial performance
| Metric | Q1 2023 | Q1 2022 | Change / context |
|---|---|---|---|
| Revenue | $1,469.7 | $1,279.8 | Up 14.8%; organic growth 7.9% |
| Gross profit / margin | $1,018.6 / 69.3% | $897.2 / 70.1% | Profit up 13.5%; margin down 0.8 percentage points |
| Income from operations / margin | $401.0 / 27.3% | $355.9 / 27.8% | Income up 12.7%; margin down 0.5 points |
| Continuing-operations net earnings | $284.3 | $236.4 | Up 20.3% |
| Diluted EPS from continuing operations | $2.66 | $2.22 | Up 19.8% |
| Operating cash flow from continuing operations | $464.9 | $441.3 | Up 5% |
Reported net earnings were $283.1, versus $2,020.5 in Q1 2022. The prior-year figure included $1,717.3 of after-tax gains on discontinued-operation divestitures, so total net earnings and total EPS are not directly comparable. Q1 2023 discontinued operations recorded a $1.2 loss.
Segments and revenue mix
- Application Software: Revenue $761.4, up 21.2% reported and 5.9% organically. Operating margin was 25.4%, down from 27.4%; the company cited acquisition-related amortization, growth-support headcount, and mix.
- Network Software: Revenue $354.5, up 4.7% reported and 6.0% organically. Operating margin improved to 41.6% from 40.4%, reflecting operating leverage and mix.
- Technology Enabled Products: Revenue $353.8, up 13.0% reported and 13.7% organically. Operating margin improved to 32.6% from 31.8%.
Recurring software revenue was $840.3, versus $701.3 a year earlier. Remaining performance obligations were $4,203.0; $2,872.5, or approximately 68%, were expected to be recognized in the next 12 months.
Cash, debt, and liquidity
- Cash and equivalents were $1,181.6 at March 31, up from $792.8 at year-end. Operating cash flow from continuing operations was $464.9; continuing investing activities used $23.6 and continuing financing activities used $52.5.
- Cash from continuing operations increased 5% year over year. The filing attributes partial offsets to working-capital timing, including Frontline SaaS renewals, and a $45.0 cash payment to settle Verathon patent litigation.
- Debt, net of deferred financing costs, was $6,663.9, little changed from $6,661.7 at year-end. Net debt was $5,482.3, down from $5,868.9; net debt to total net capital was 25.1%, versus 26.8%.
- No borrowings were outstanding on the $3.5 billion unsecured credit facility; letters of credit were $19.1. The company reported compliance with debt covenants and said cash, operating cash generation, and available credit should fund foreseeable requirements.
- Negative net working capital was $1,025.3. The filing describes this measure as current assets excluding cash less current liabilities excluding debt.
Changes, outlook, and risks
- Net interest expense declined to $37.4 from $52.6, attributed to higher interest income on cash and lower weighted-average debt balances.
- The company reported a $1.2 net expense for equity investment activity, related to noncash Indicor employee stock-compensation runoff that management said would not recur. Indicor’s investment fair value was unchanged during the quarter; its valuation involves significant management judgment.
- On April 26, 2023, Indicor announced a planned sale of its Compressor Controls business for approximately $670. Roper said it would consider the transaction in its Q2 valuation of its Indicor investment.
- No quantified earnings or revenue guidance was provided in the supplied filing text. Management expected positive operating cash flow and debt reduction, subject to operating results, acquisitions, and economic and market conditions. Capital expenditures and capitalized software spending for the rest of the year were expected to be comparable to prior years as a percentage of revenue.
- Risks cited include economic uncertainty, inflation, supply-chain disruption, labor shortages, rising interest rates, indebtedness, acquisition and integration risks, cybersecurity and privacy, litigation, competition, foreign exchange, and geopolitical events. Management said no material changes to previously disclosed risk factors occurred during the quarter.
- Legal matters included a $45.0 settlement of Verathon patent litigation, paid in Q1. The Vertafore driver-data class actions described in the filing had all been dismissed. Management considered provisions for other ordinary-course legal matters adequate, while noting outcomes cannot be assured.
Important facts for investors to verify
- How much of reported growth is sustainable organic growth versus acquisitions, particularly in Application Software.
- Whether segment and consolidated margins stabilize, given the overall gross- and operating-margin declines and pressure in Application Software.
- Cash conversion and working-capital trends, including the timing of Frontline renewals and deferred revenue.
- Debt repayment progress, interest-rate exposure, and the 2023 senior-note maturity shown in the filing.
- Key assumptions and subsequent developments affecting the fair value of Roper’s Indicor investment, including the announced Compressor Controls sale.