Roper Technologies, Inc.

Good morning. The Roper Technology second quarter 2020 financial results conference call will now begin. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. Please note this conference is being recorded. I would now like to turn the conference over to Zach Moxie, Vice President, Investor Relations.

Please go ahead. Good morning, and thank you all for joining us as we discuss the second quarter financial results for Roper Technologies. We hope everyone is doing well. Joining me on the call this morning are Neil Hunn, President and Chief Executive Officer, Rob Cresci, Executive Vice President and Chief Financial Officer, Jason Conley, Vice President and Controller, and Shannon O'Callaghan, Vice President of Finance. Earlier this morning, we issued a press release announcing our financial results. The press release also includes replay information for today's call. We have prepared slides to accompany today's call, which are available through the webcast and are also available on our website. Now, if you'll please turn to slide two. We begin with our safe harbor statement. During the course of today's call, we will make forward-looking statements, which are subject to risks and uncertainties, as described on this page, in our press release, and in our SEC filings. You should listen to today's call in the context of that information. And now, please turn to slide three. Today, we will discuss our results for the quarter, primarily on an adjusted, non-GAAP basis. Reconciliations between GAAP and adjusted measures can be found in our press release and in the appendix of this presentation on our website. For the second quarter, the difference between our GAAP results and adjusted results consists of the following items. Amortization of acquisition-related intangible assets, purchase accounting adjustments to acquire deferred revenue, a restructuring charge associated with certain businesses in our process technology segment. These were additional structural actions not contemplated in our prior guidance. transaction-related expenses for completed acquisitions, and lastly, we have adjusted our cash flow results to exclude income tax payments deferred from Q2 to Q3 due to COVID-19. And now, if you'll please turn to slide four, I will hand the call over to Neil. After our prepared remarks, we will take questions from our telephone participants. Neil?

Good morning, everyone, and thanks for joining us. We hope that everybody listening or reading are doing well and enjoying the summer. With that, let's go ahead and start with our agenda. As usual, we'll start with the enterprise highlights from the quarter, which are quite good given the health and economic challenges associated with the current pandemic. I'll then walk through our key financial and operational levers on a segment basis and compare how we did versus what we thought heading into the quarter. Rob will then discuss our P&L, our balance sheet, our cash position. We find ourselves in the very fortunate position to have well over a billion and a half of cash on the balance sheet. and a completely undrawn $2.5 billion revolver. Following Rob's remarks, I'll walk through our detailed segment review and outlook, followed by our Q3 and FOIA guidance. And finally, I'll conclude with the highlights for the quarter and discuss our outlook for continued capital deployment. We'll then look forward to your questions. Now let's turn to a brief run-through of our Q2 results. Next slide, please. To start, I'm very proud of how Roper performed in the quarter, both on an operating basis and a balance sheet basis. On an operational basis, our revenues declined 2% in the quarter and 3% on an organic basis. We saw organic growth in each of our two software segments. In addition, and as we foreshadowed last quarter, we saw very strong demand for our medical product businesses and laboratory software, mostly used in a global fight against COVID-19. Worth noting, and broadly, our businesses did not experience much, if any, supply chain disruption in the quarter, which contributed to our revenue performance. We also saw gross margins increase 70 basis points to 64.7%. EBITDA margins were impressively flat versus a year ago at 35.3%, and depths was strong and came in at $2.94%. Most importantly, free cash flow increased 10% to $315 million. Specific to our balance sheet, two items of importance. First, we successfully completed a $600 million, 10-year, 2% bond offering in the quarter. Also, we were able to deploy $150 million for two bolt-ons, indicating the window for capital deployment is reopening. More on these deals as we turn to the segment pages. So, while 3% organic revenue declines are certainly below normal, given the macroeconomic backdrop heading into the quarter, I'm very pleased with this performance, especially as it relates to our margin performance and cash flow. To this end, this quarter's performance serves as a great example that illustrates the intimate knowledge each of our teams have with their business, their customers, their supply chains, and their employees. As we've said for many years, nimble execution yields great results, and that is certainly the case for this quarter and so far this year. As we'll discuss later in the call, we are maintaining our full-year organic revenue outlook to be plus or minus flat, which we believe is a testament to our decade-long business model transformation. In addition, our greater than $1.5 billion cash position and our undrawn $2.5 billion revolver allows us to be offensive relative to capital deployments. Our M&A pipeline remains full of high-quality opportunities. And prior to turning to the next slide, I want to thank our entire leadership team and our 16,000 employees for your tremendous work this quarter. Thank you. Next slide, please. Turning to the second quarter segment results summary, this page summarizes our key business model levers and how they performed in the quarter. Starting with application software, we expected revenues to be down mid single digits in the quarter, but actually grew 1%. As we did expect, renewal rates remained high and recurring revenues remained strong. Also, we did see strong demand across our laboratory software businesses as they worked aggressively to enable scores of COVID-19 related testing capability on a global basis. A good guy for the quarter was our software license sales. We saw, across the segment, better than expected conversion of perpetual ILF sales pipelines. A further positive variance was the success our teams had in implementing our software remotely, which led to higher service utilization rates and revenues. So, this segment performed better than expected based on these two factors, better license sales and higher service utilization rates. For a network segment, we expected to grow low single digits and did, coming in at 2%. For the software businesses in this segment, just about what we expected. High levels of recurring revenues and renewal rates and decent network expansions at ConstructConnect and DAT. More on this later, but the TransCore New York City Congestion Pricing Infrastructure Project continues to push to the right, impacting more the second half versus this quarter. As for the MAS segment, we expected to decline mid-single digits, but did modestly better, only declining 1% in the quarter. Verathon and IPA outperformed our expectations and was driven by exceptional demand for their products and solutions throughout the quarter. As expected, our other medical product businesses were negatively impacted and continue to be negatively impacted by reduced elective hospital procedures. Neptune performed in line with expectations and was down given they had limited access to meters, especially in Canada and the Northeast United States, where meters are installed inside residences. Finally, in this segment, we saw sharp declines as expected in our industrial businesses. Turning to our process tech segment, we were down 26% in the quarter versus an expectation of being down 30-plus percent. The businesses in this segment performed generally as expected, slightly better than we thought at PAC and AMOC. Finally, the better-than-expected revenues levered very well to EPS, with depths coming in at 294 versus our guidance range of 250 to 270. After Rob's comments, I'll come back and discuss in more detail our segment-by-segment performance. Rob, I'll turn it over to you.