Roper Technologies, Inc.

Good morning. The Roper Technologies conference call will now begin. Today's call is being recorded. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad. I would like now to turn the call over to Zach Moxie, Vice President of Investor Relations. Please go ahead.

Good morning, and thank you all for joining us as we discuss the third quarter financial results for Roper Technologies. We hope everyone's 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 third 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 and related commission expense, transaction-related expenses for completed acquisitions, and lastly, we've adjusted our cash flow results to exclude income tax payments deferred from Q2 to Q3 due to COVID-19 and cash taxes paid for the Catan divestiture. As a reminder, GAAP requires tax payments for a gain on sale to be classified as an operating cash flow item, even though it is related to a divestiture. And now, if you please turn to slide four, I'll hand the call over to Neil. After our prepared remarks, we'll take questions from our telephone participants.

Neil? Thanks, Zach, and good morning, everyone. Thanks for joining us. Let's go ahead and get into this morning's content, and as we always do, we'll start by reviewing our agenda. I'll begin discussing our enterprise highlights for the quarter, which was a very busy and very productive quarter for us. To that end, I'll briefly review our acquisition activity. Rob will then discuss our financial performance and capital market activity. Afterwards, I'll walk through our detailed segment review and associate outlook, followed by our enterprise fourth quarter and raised full-year guidance. We will then look forward to your questions. Now, with that, let's turn to a brief run-through of our Q3 enterprise highlights. Next slide, please. Third quarter demonstrated the strength of our execution capabilities, first on an operating basis, second on a capital deployment basis, and finally, from a capital markets perspective. Operationally, our revenues need to continue to grow, albeit modestly, despite the well-documented economic challenges resulting from the pandemic situation we're all facing. At a summary level, our software recurring revenues continue to grow. Recurring revenue growth is very important for us. This indicates high levels of retention, demonstrates our ongoing and increasing relevance we have with our customers, and provides for a more stable and predictable forward financial model. However, as anticipated, We experienced modest declines in our perpetual license revenue tied to lower levels of market activity across a few of our softer end markets and a difficult comp from a year ago. We discussed this on each of our last two calls. COVID is absolutely driving faster adoption of our SaaS or cloud-based recurring revenue solutions. This is a very healthy and positive trend. Separately, we continue to see very nice momentum for our products and software used in the fight against COVID. Most notably, our laboratory software businesses continue to see strong demand as we're helping stand up and maintain health system and country-level COVID testing capability. In addition, Verathon, our largest medical product business, continues to drive meaningful market adoption across their video intubation product line. The final operating item I'll point out here is at the onset is the fact that Neptune and our short cycle industrial businesses started to rebound in the quarter from which we draw encouragement. From a financial point of view, our organic revenues declined 3%. Our gross margin were 64% and our operating profitability remained very strong with 37% EBITDA margins. Most importantly, we grew our cashflow double digits again. Turning to our acquisition activities, we completed four acquisitions for a total of $5.8 billion of capital deployment, certainly led by our $5.35 billion acquisition of Vertifor. More on these when we turn to our next slide. Finally, the team was successful in the debt capital markets, completing a $2.7 billion bond offering with a blended rate of 1.3% and increasing our revolver capacity to $3 billion that has an extended maturity date. I'm super proud of our execution in this quarter with all three phases of our offense on full display. Solid operating performance across the enterprise, 5.8 billion of CRI accrued of capital deployment, and successfully executing a capital market transaction at extremely favorable interest rates. Now, let's turn to our next slide and talk to our recent acquisitions. Okay, this was a very strong quarter for us relative to our capital deployment strategy. As we have mentioned for several calls, the quality and quantity of ideas in our M&A pipeline has been robust for quite some time. We were very selective in our approach before landing on these acquisitions highlighted on this page. First, we completed the acquisition of Vertifor for $5.35 billion. I refer you to the call we did just after announcing this transaction for all the relevant details. But to highlight, VertiFOR is a business that delivers cloud-based software to the property and casualty insurance industry, principally in the United States. VertiFOR's focus is straightforward, to simplify, automate, and drive productivity across the complex and highly regulated processes in the PNC space. Today, the business serves over 20,000 independent agencies. 1,000 insurance carriers, and touches over $140 billion of premiums per year. And high-quality management teams motivated to build their businesses are super important for us. And to that end, Amy and her team have done a tremendous job building this business over the last several years. We expect Vertifor will deliver about $590 million of revenue and $290 million of EBITDA next year. Separately, we announced and closed three strategic add-ons, one for Strata and two for iPipeline. Relative to Strata, we acquired EPSI. As a reminder, both Strata and EPSI deliver decision support, financial planning, and analytic software solutions that help hospitals manage their cost structure and identify opportunities for operational improvements. Strata, when combined with EPSI, will serve over 400 health systems and 2,000 hospitals. The aggregate spending power of this combined customer base is approximately $1 trillion, or about 25% of the total healthcare spend in the U.S. The combination of STRAT and EPSI will be a powerful one for the market and our customers. Relative to iPipeline, we acquired both Wellis and IFS. Wellis is a nice product token that enhances iPipeline's life insurance and annuity illustration capability. For those who do not know, the illustration is the modeled value calculation that permanent insurance carriers are required to provide to their insured. IFS enhances iPipeline's capabilities to better serve the financial planning channel relative to life insurance account management. We expect these three bolt-ons will deliver about $75 million of revenue and $30 million of EBITDA next year. When looking at each of these deals, either individually or together, they are right down the middle for us. Each business has very strong cash flow capability, which is punctuated by being super asset light. Also, these businesses are, as are most roper businesses, market leaders in their niche. Over the years, when we refer to niche, we mean smaller markets. We like small markets. Small TAMs provide deterrence for new potential entrants. On top of this, these and other Roper businesses provide deeply verticalized solutions. By this, we mean solutions that are specifically developed to address unique industry workflows or challenges. It is at the cross-section of one, being the market leader, two, operating in smaller markets, and three, delivering vertical solutions that enable our businesses to have intense customer intimacy. This intimacy enables our businesses to invest at the pace our customers require. Importantly, these four businesses have very high levels of recurring revenue. For instance, Vertifor has over 90% returns. Finally, these businesses grow nicely on an organic basis. Their growth drivers are diversified and are multiple. We expect these businesses to grow mid-single digits over a long arc of time. Taken together, the $5.8 billion in capital deployment should deliver about $665 million in revenue and $320 million that you've got to your enterprise in 2021. In a few pages, Rob will discuss our financing package for these deals, which, as you likely know by now, was quite good. So now I'm going to hand it over to Rob, but look forward to discussing your activities here more during your Q&A. Rob, your ball.