QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2019.
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission File Number 1-12273
ROPER TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
6901 Professional Pkwy. East, Suite 200
(Address of principal executive offices)
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of Each Class
Name of Each Exchange On Which Registered
Common Stock, $0.01 Par Value
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒Yes☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer (Do not check if a smaller reporting company)
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
The number of shares outstanding of the registrant’s common stock as of October 25, 2019 was 104,057,938.
ROPER TECHNOLOGIES, INC.
REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2019
Notes to Condensed Consolidated Financial Statements (unaudited)
All currency and share amounts are in millions, except per share data
1. Basis of Presentation
The accompanying Condensed Consolidated Financial Statements for the three and nine months ended September 30, 2019 and 2018 are unaudited. In the opinion of management, the accompanying unaudited Condensed Consolidated Financial Statements reflect all adjustments, which include only normal recurring adjustments, necessary to state fairly the financial position, results of operations, comprehensive income and cash flows of Roper Technologies, Inc. and its subsidiaries (“Roper,” the “Company,” “we,” “our” or “us”) for all periods presented. The December 31, 2018 financial position data included herein was derived from the audited consolidated financial statements included in the Company’s 2018 Annual Report on Form 10-K (“Annual Report”) filed on February 25, 2019 with the Securities and Exchange Commission (“SEC”) but does not include all disclosures required by U.S. generally accepted accounting principles (“GAAP”).
Roper’s management has made estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these Condensed Consolidated Financial Statements in conformity with GAAP. Actual results could differ from those estimates.
The results of operations for the three and nine months ended September 30, 2019 are not necessarily indicative of the results to be expected for the full year. You should read these unaudited Condensed Consolidated Financial Statements in conjunction with Roper’s audited consolidated financial statements and the notes thereto included in its Annual Report. Certain prior period amounts have been reclassified to conform to current period presentation.
Changes in Segment Reporting Structure
During the first quarter of 2019, we implemented a realignment of our reportable segment structure. The new reportable segments continue to provide a transparent view into Roper’s operations and capital deployment objectives. The Company’s new reporting segment structure reinforces Roper’s diversified, niche market strategy by reporting based upon business models instead of end markets. The four new reportable segments (and businesses within each - including acquisitions since the realignment) are as follows:
The day-to-day operations of our businesses, our organizational structure, and our strategy remain unchanged. All prior periods have been recast to reflect the changes noted above.
Accounting Policies Update
The Company adopted the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 842, Leases (“ASC 842”), as of January 1, 2019 using the cumulative effect transition method for leases in existence as of the date of adoption.
Our accounting policies are detailed in Note 1 of the Notes to Consolidated Financial Statements of our Annual Report. Changes to our accounting policies as a result of adopting ASC 842 are as follows:
Leases -The Company adopted ASC 842 on January 1, 2019 using the cumulative effect transition method for leases in existence as of the date of adoption. The reported results for 2019 reflect the application of ASC 842 guidance while the reported results for 2018 were prepared under the previous guidance of ASC 840, Leases (“ASC 840”). The adoption of ASC 842 represents a change in accounting principle that recognizes right-of-use (“ROU”) assets and lease liabilities arising from all leases based on the present value of future minimum lease payments over the lease term. Consistent with ASC 840, lease expense for minimum lease payments
is recognized on a straight-line basis over the lease term. The Company’s adoption of ASC 842 had no impact on our Condensed Consolidated Statement of Earnings or our Condensed Consolidated Statement of Cash Flows.
We elected the package of practical expedients permitted under the transition guidance within ASC 842, which allowed us: (i) to carry forward the historical lease classification, (ii) not to reassess whether any existing contract contains a lease, and (iii) not to reassess initial direct costs for existing leases.
Operating leases are classified as non-current operating lease ROU assets and current and non-current operating lease liabilities on our Condensed Consolidated Balance Sheet. Finance leases are not material.
Adoption of ASC 842 resulted in the recognition of operating lease ROU assets and total operating lease liabilities of $274.0 and $282.7, respectively, as of January 1, 2019. Certain of the ROU assets and total operating lease liabilities have been reclassified within the held for sale line items on the Condensed Consolidated Balance Sheet related to the classification of the Gatan business as held for sale. The difference between the operating lease ROU assets and total operating lease liabilities is the reclassification of previously recognized deferred rent liabilities against operating lease ROU assets. The adoption of ASC 842 did not result in an adjustment to retained earnings and it did not impact our deferred tax assets or liabilities.
The Company’s operating leases are primarily for real property in support of our business operations. Although many of our leases contain renewal options, we generally are not reasonably certain to exercise these options at the commencement date. Accordingly, renewal options are generally not included in the lease term for determining the ROU asset and lease liability at commencement.
Variable lease payments generally depend on an inflation-based index and such payments are not included in the original estimate of the lease liability. These variable lease payments are not material.
Discount rates are determined based on Roper’s incremental borrowing rate as our leases generally do not provide an implicit rate.
2. Recent Accounting Pronouncements
The FASB establishes changes to accounting principles under GAAP in the form of accounting standards updates (“ASUs”) to the ASC. The Company considers the applicability and impact of all ASUs. Any recent ASUs not listed below were assessed and determined to be either not applicable or are expected to have an immaterial impact on the Company’s results of operations, financial position or cash flows.
Recently Adopted Accounting Pronouncements
In February 2016, the FASB issued ASC 842, which included the recognition of right-of-use lease assets and lease liabilities on the balance sheet and the disclosure of other key information about leasing arrangements. The Company adopted ASC 842 on January 1, 2019 using the cumulative effect transition method for leases in existence as of the date of adoption. See Note 1 of the Condensed Consolidated Financial Statements for details.
In May 2014, the FASB issued ASC 606, which created a single, comprehensive revenue recognition model for all contracts with customers. The Company adopted ASC 606 as of January 1, 2018 using the modified retrospective transition method resulting in a $14.3 increase to beginning retained earnings.
Recently Released Accounting Pronouncements
In June 2016, the FASB issued an update which amends the measurement of credit losses on financial instruments by requiring entities to use a forward-looking approach based on expected losses rather than incurred losses to estimate credit losses on certain types of financial instruments, including trade receivables. This update is effective for public entities for fiscal years beginning after December 15, 2019. We are currently designing and implementing processes, policies, and controls to comply with the update on the measurement of credit losses. While we have not yet completed our assessment, we currently believe the primary impact of adoption will relate to our processes associated with assessing the adequacy of our allowance for doubtful accounts on trade receivables which may result in earlier recognition of credit losses. We intend to adopt this standard as of January 1, 2020 using the modified retrospective transition approach with a cumulative effect adjustment to the opening balance of retained earnings as of the date of adoption.
Basic earnings per share were calculated using net earnings and the weighted average number of shares of common stock outstanding during the respective period. Diluted earnings per share were calculated using net earnings and the weighted average number of shares of common stock and potential common stock outstanding during the respective period. Potentially dilutive common stock consisted of stock options based upon the trading price of Roper’s common stock. The effects of potential common stock were determined using the treasury stock method. Weighted average shares outstanding are shown below:
Three months ended September 30,
Nine months ended September 30,
Basic shares outstanding
Effect of potential common stock:
Common stock awards
Diluted shares outstanding
For the three and nine months ended September 30, 2019, there were 0.605 and 0.622 outstanding stock options, that were not included in the determination of diluted earnings per share because doing so would have been antidilutive, as compared to 0.689 and 0.697 outstanding stock options that would have been antidilutive in the respective 2018 periods.
4. Business Acquisitions and Assets and Liabilities Held for Sale
Roper completed three business acquisitions in the nine months ended September 30, 2019, with an aggregate purchase price of$2,352.5, net of cash acquired. The results of operations of the acquired businesses are included in Roper’s Condensed Consolidated Financial Statements since the date of each acquisition. Supplemental pro forma information has not been provided as the acquisitions did not have a material impact on Roper’s Condensed Consolidated Results of Operations individually or in aggregate.
Acquisition of Foundry - On April 18, 2019, Roper acquired 100% of the shares of Foundry, a leading provider of software technologies used to deliver visual effects and 3D content for the entertainment, digital design, and visualization industries. The results of Foundry are reported in the Network Software & Systems reportable segment.
Acquisition of ComputerEase - On August 19, 2019, Roper acquired substantially all of the assets of ComputerEase Software, a leading provider of integrated accounting, project management and field-to-office solutions for commercial construction firms. ComputerEase is integrating into our Deltek business and its results are reported in the Application Software reportable segment.
Acquisition of iPipeline - On August 22, 2019, Roper acquired 100% of the shares of iPipeline Holdings, Inc., a leading provider of cloud-based software solutions for the life insurance and financial services industries. The results of iPipeline are reported in the Network Software & Systems reportable segment.
The Company recorded $1,424.9 in goodwill and $1,165.5 of other identifiable intangibles in connection with the acquisition; however, purchase price allocations are preliminary pending final tax-related adjustments. The majority of the goodwill is not expected to be deductible for tax purposes. The amortizable intangible assets include customer relationships of $1,005.3 (15.8 year weighted average useful life) and technology of $107.6 (6.8 year weighted average useful life).
Assets and Liabilities Held for Sale
During the second quarter of 2018, Roper and Thermo Fisher Scientific, Inc. (“Thermo Fisher”) entered into a definitive agreement under which Thermo Fisher would acquire 100% of the shares of Gatan, Inc. (“Gatan”), a wholly owned subsidiary of Roper, for approximately $925.0 in cash. On June 10, 2019, Roper and Thermo Fisher announced a mutual termination of this agreement due to the challenges in obtaining regulatory approval in the United Kingdom.
During the third quarter of 2019, Roper and AMETEK, Inc. (“AMETEK”) entered into a definitive agreement under which AMETEK would acquire Gatan for approximately $925.0 in cash. On October 29, 2019, the Company closed on its sale of Gatan to AMETEK. The Company is currently calculating the gain and associated tax expense on the sale, which will be disclosed within the Company’s 2019 Annual Report on Form 10-K. Gatan is reported in the Measurement & Analytical Solutions reportable segment.
At December 31, 2018 and September 30, 2019, the assets and liabilities of Gatan were classified as held for sale on Roper’s Condensed Consolidated Balance Sheets. The Company recognized a deferred tax liability of $10.0 associated with the excess of
book basis over tax basis in the shares of Gatan during 2018. The Company reversed this deferred tax liability in the third quarter of 2019 due to the structure of the transaction with AMETEK.
The Company closed on its sale of Princeton Instruments, Photometrics, Lumenera, and other brands (collectively, the “Imaging” businesses) to Teledyne Technologies Inc. on February 5, 2019 for approximately $225.0 in cash. The results of the Imaging businesses are reported in the Measurement & Analytical Solutions segment through such date. The sale resulted in a pretax gain of $119.6, which is reported within “Gain on disposal of business” in the Condensed Consolidated Statement of Earnings. In addition, we recognized income tax expense of $32.2 in connection with the sale, which is included within “Income taxes” in the Condensed Consolidated Statement of Earnings. The assets and liabilities of the Imaging businesses were classified as held for sale on Roper’s Condensed Consolidated Balance Sheet at December 31, 2018.
5. Stock Based Compensation
The Roper Technologies, Inc. 2016 Incentive Plan (“2016 Plan”) is a stock-based compensation plan used to grant incentive stock options, nonqualified stock options, restricted stock, stock appreciation rights or equivalent instruments to Roper’s employees, officers, directors and consultants.
The following table provides information regarding the Company’s stock-based compensation expense:
Three months ended September 30,
Nine months ended September 30,
Tax effect recognized in net earnings
Stock Options - In the nine months ended September 30, 2019, 0.753 options were granted with a weighted average fair value of $68.05 per option. During the same period in 2018, 0.694 options were granted with a weighted average fair value of $57.59 per option. All options were issued with an exercise price equal to the closing price of Roper’s common stock on the date of grant, as required by the 2016 Plan.
Roper records compensation expense for employee stock options based on the estimated fair value of the options on the date of grant using the Black-Scholes option-pricing model. Historical data is used to estimate the expected price volatility, the expected dividend yield, the expected option life and the expected forfeiture rate. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for the estimated life of the option. The following weighted average assumptions were used to estimate the fair value of options granted during current and prior year periods using the Black-Scholes option-pricing model:
Nine months ended September 30,
Risk-free interest rate (%)
Expected option life (years)
Expected volatility (%)
Expected dividend yield (%)
Cash received from option exercises for the nine months ended September 30, 2019 and 2018 was $55.8 and $53.8, respectively.
Restricted Stock Grants - During the nine months ended September 30, 2019, the Company granted 0.317 shares with a weighted average grant date fair value of $318.46 per restricted share. During the same period in 2018, the Company granted 0.372 shares with a weighted average grant date fair value of $277.92 per restricted share. All grants were issued at grant date fair value.
During the nine months ended September 30, 2019, 0.177 restricted shares vested with a weighted average grant date fair value of $192.93 per restricted share and a weighted average vest date fair value of $313.68 per restricted share.
Employee Stock Purchase Plan - Roper’s stock purchase plan allows employees in the U.S. and Canada to designate up to 10% of eligible earnings to purchase Roper’s common stock at a 5% discount to the average closing price of the stock at the beginning and end of a quarterly offering period. Common stock sold to employees pursuant to the stock purchase plan may be either treasury stock, stock purchased on the open market, or newly issued shares.
During both the nine months ended September 30, 2019 and 2018, participants in the employee stock purchase plan purchased 0.016 shares of Roper’s common stock for total consideration of $5.2 and $4.1, respectively. All shares were purchased from Roper’s treasury shares.
The components of inventory were as follows:
September 30, 2019
December 31, 2018
Raw materials and supplies
Work in process
7. Goodwill and Other Intangible Assets
The carrying value of goodwill by segment was as follows:
Network Software & Systems
Measurement &Analytical Solutions
Balances at December 31, 2018
Currency translation adjustments
Balances at September 30, 2019
Other relates primarily to purchase accounting adjustments for acquisitions.
Amortization expense of other intangible assets was $262.1 and $234.9 during the nine months ended September 30, 2019 and 2018, respectively.
An evaluation of the carrying value of goodwill and indefinite-lived intangibles is required to be performed on an annual basis and on an interim basis if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. There have been no events or changes in circumstances which indicate an interim impairment review is required in 2019. The Company will perform the annual analysis during the fourth quarter of 2019.
On August 26, 2019, the Company completed a public offering of $500.0 aggregate principal amount of 2.35% senior unsecured notes due September 15, 2024 (“2024 Notes”) and $700.0 aggregate principal amount of 2.95% senior unsecured notes due September 15, 2029 (“2029 Notes” and, together with the 2024 Notes, the “Notes”). The net proceeds were used to fund a portion of the purchase of iPipeline Holdings, Inc.
The 2024 Notes and 2029 Notes bear interest at a fixed rate of 2.35% and 2.95% per year, respectively, and are payable semi-annually in arrears on March 15 and September 15 of each year, beginning March 15, 2020.
Roper may redeem some or all of the Notes at any time or from time to time, at 100% of their principal amount, plus a make-whole premium based on a spread to U.S. Treasury securities.
The Notes are senior unsecured obligations of the Company and rank equally in right of payment with all of its existing and future senior unsecured indebtedness. The Notes are effectively subordinated to any of our existing and future secured indebtedness to the extent of the value of the collateral securing such indebtedness. The Notes are not, and will not be, guaranteed by any of our subsidiaries and are effectively subordinated to all existing and future indebtedness and other liabilities of our subsidiaries.
9. Fair Value of Financial Instruments
Roper’s debt at September 30, 2019 included $5,300 of fixed-rate senior notes with the following fair values:
$600 3.000% senior notes due 2020
$500 2.800% senior notes due 2021
$500 3.125% senior notes due 2022
$700 3.650% senior notes due 2023
$500 2.350% senior notes due 2024
$300 3.850% senior notes due 2025
$700 3.800% senior notes due 2026
$800 4.200% senior notes due 2028
$700 2.950% senior notes due 2029
The fair values of the senior notes are based on the trading prices of the notes, which the Company has determined to be Level 2 in the FASB fair value hierarchy.
Roper, in the ordinary course of business, is the subject of, or a party to, various pending or threatened legal actions, including product liability and employment practices that, in general, are based upon claims of the kind that have been customary over the past several years and which the Company is vigorously defending. After analyzing the Company’s contingent liabilities on a gross basis and, based upon past experience with resolution of its product liability and employment practices claims and the limits of the primary, excess, and umbrella liability insurance coverages that are available with respect to pending claims, management believes that adequate provision has been made to cover any potential liability not covered by insurance, and that the ultimate liability, if any, arising from these actions should not have a material adverse effect on Roper’s consolidated financial position, results of operations or cash flows.
Roper or its subsidiaries have been named defendants along with numerous industrial companies in asbestos-related litigation claims in certain U.S. states. No significant resources have been required by Roper to respond to these cases and Roper believes
it has valid defenses to such claims and, if required, intends to defend them vigorously. Given the state of these claims, it is not possible to determine the potential liability, if any. In April 2018, a stockholder derivative complaint was filed in Sarasota County, Florida against the Company, nominally, and its directors and former chairman & chief executive officer (“CEO”), alleging the directors breached their fiduciary duties and were unjustly enriched by the compensation earned by the nonexecutive directors and the CEO in 2015 and 2016. The matter was settled in June 2019, and the settlement was approved by the court in September. Under the terms of the settlement, the Company agreed to, among other things, expand future disclosures regarding its compensation practices, submit a new director compensation plan to shareholders for approval in 2020, and pay plaintiff’s attorneys’ fees and expenses.
11. Business Segments
Net revenues and operating profit by segment are set forth in the following table: