Roper Technologies, Inc. (NYSE:ROP) Q3 2023 Earnings Call Transcript

I mean, it’s a stand-alone high single-digit growth business. Our Strata business was a little bit better than that over our ownership period. And the companies — the combined company, now they’ve got the most of the cost synergy work is super excited about the new product development ideas they have to further monetize both the customer base and persona. I mean, we have 70% of the health systems as customers with the persona of the CFO, which is — it’s not just the same customer, but the same persona between the two companies, and we’re very excited about what that can do.

Joe Vruwink: That’s, great. Thank you very much.

Neil Hunn: You’re welcome.

Operator: The next question comes from Scott Davis from Melius Research. Please go ahead.

Scott Davis: Good morning, everybody.

Neil Hunn: Hey, Scott. Good morning.

Scott Davis: Yeah. Good morning. Guys, when you compete — when you’re doing a more bolt-on-ish deal in this kind of rate environment, are you competing against a different type of competitor in these things versus maybe a year or two ago? Sort of less PE shop showing up? And you’re just kind of trying to get a sense of sort of just less competition overall for those types of transactions.

Neil Hunn: So what I would say is — as a general matter, we’re still competing against the sponsor community, though the depth of the field is a little thinner. In the case of Syntellis, it was really a proprietary deal. And we haven’t seen many proprietary deals in a long time, right? I mean, in a more frothy market, even if you were the most likely owner of an asset, the seller would run a market check. And in this case, we’re able to just sort of cut through all that and reach a deal that made sense to both parties. So maybe in that regard, I mean, the competition is a little thinner, but it’s the same set of characters.

Scott Davis: Okay. Make sense. Not much to pick on a very solid quarter overall. But can you give us a sense of materiality of kind of the foundry, you know, just the strike impact and everything? If foundry wasn’t in the mix, would growth have been higher than the 5% segment growth?

Jason Conley: Yeah, I’d say a little bit. I mean, it’s — you know, for the second half, it’s like single-digit revenue impact relative to our last guide.

Scott Davis: Okay.

Jason Conley: Mid-singles.

Scott Davis: Okay. All right. Good. All right. Thank you. I’ll pass it on. Appreciate it.

Neil Hunn: Yeah. Good to hear from you.

Operator: The next question comes from Terry Tillman with Truist. Please go ahead.

Terry Tillman: Yes, thanks for taking my questions, and good morning, gentlemen. The first question is on Frontline. If I’m not mistaken, you know, you have this important renewal season. We saw the strong cash flow in the quarter. I’m curious, those are important kind of milestones when they’re renewing and you get the cash flow. But what happens and what did you see with expansion or interest in expanding products or modules, adding more seats, taking pricing? And then the second part of my first question is just how is new business growth going in Frontline?

Neil Hunn: Okay. So Frontline, as we mentioned, I mean, it was just a good first year. The renewals and we’re right on plan. Consistent with last year, gross retention was in line with historical and net retention. So relative to the upsell, cross-selling was in line with historical rates, sort of 103, 104 is very consistent in the quarter for Frontline for net retention. So steady as she goes. It just goes to the criticality of what Frontline does for the customers in which they serve. Again, they empower the Frontline of education. So it’s good. In terms of the new cross-selling or excuse me, net new customers, it’s been very good on the sort of the run rate business at Frontline. Actually a little bit better than prior years.

And then as it goes with the lot of small numbers, there’s a handful of large deals that Frontline normally gets in any given year. The larger deals have been a little slower to show up this year. They’re still in the pipeline. They’re just starting to push into the right, but we’re talking about three to five deals in the course of a year. It — it’s just a lot of small numbers. So we’re not reading too much into that. Hard to recall a macro or a lack of execution. It’s just a small number of deals.

Terry Tillman: Okay, thanks for that, Neil. And I guess, just my follow-up is on Neptune. You know, do you foresee this momentum continuing into ’24? And how much should we hang our hat on this meter data management product? I mean, does that move to the needle? Does it have a good attach rate? Thanks.

Neil Hunn: Yeah. So Neptune has got a lot of backlog carrying next year. Obviously, we’ve got to go through our planning process for all of our companies and understand the puts and takes. But we expect Neptune to have another good year as a general matter, just given the momentum in the backlog, the market positioning, the capacity they have, the competitive advantage they have. Relative to master — data management and the software, it’s been an important part of this business, you know, as we have more technology on the meter to get more data off the meters and do and push more capability to the theaters, you have to be able to start process a gigantic volume of data to be able to put it into a billing system or cash collection system.

And so we have a pretty decent size and highly capable software group at Neptune that didn’t exist 10 years ago that deals with this and it’s a growing part of the business. It’s always — it’s a smaller part of the business, but it’s a fast-growing part of the business. One worthy to call out in the quarter. So I appreciate the question.

Terry Tillman: Thanks.

Operator: The next question comes from Christopher Glynn with Oppenheimer. Please go ahead.

Christopher Glynn: Thanks. Good morning, all. So a lot has been asked. I was curious about some language in the press release that guidance doesn’t include, obviously, future acquisitions or divestitures. You’ve had a pretty broad stroke of divestiture over a couple of year period recently passed by. So curious if that — the intent on putting that word in the press release.

Neil Hunn: I think it’s just standard language, Christopher. And so nothing to read into that.

Christopher Glynn: Okay, great. Thank you. That’s all I got.

Operator: The next question comes from Joe Giordano with TD Cowen. Please go ahead.