ROPER TECHNOLOGIES INC [ROP] Filings

10-Q 1 rop-20230930.htm 10-Q rop-20230930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023


☐			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)


Delaware		51-0263969
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

6496 University Parkway
Sarasota,	Florida	34240
(Address of principal executive offices)		(Zip Code)

(941) 556-2601

(Registrant’s telephone number, including area code)

6901 Professional Parkway, Suite 200

Sarasota, Florida 34240

(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

Trading Symbol(s)

Name of Each Exchange On Which Registered

Common Stock, $0.01 Par Value

ROP

The Nasdaq Stock Market LLC

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). ☒ Yes ☐ No

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	☐	Accelerated filer

☐	Non-accelerated filer	☐	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 27, 2023 was 106,822,117.

ROPER TECHNOLOGIES, INC.

REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2023

TABLE OF CONTENTS


		Page
PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements (unaudited):

	Condensed Consolidated Statements of Earnings	3

	Condensed Consolidated Statements of Comprehensive Income	4

	Condensed Consolidated Balance Sheets	5

	Condensed Consolidated Statements of Cash Flows	6

	Condensed Consolidated Statements of Changes in Stockholders ’ Equity	8

	Notes to Condensed Consolidated Financial Statements	9

Item 2.	Management ’s Discussion and Analysis of Financial Condition and Results of Operations	20

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28

Item 4.	Controls and Procedures	28

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	29

Item 1A.	Risk Factors	29

Item 5.	Other Information	29

Item 6.	Exhibits	30

	Signatures	31

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Roper Technologies, Inc.

Condensed Consolidated Statements of Earnings (unaudited)

(in millions, except per share data)


	Three months ended September 30,				Nine months ended September 30,
	2023		2022		2023		2022
Net revenues	$	1,563.4	$	1,350.3	$	4,564.3	$	3,940.9
Cost of sales	467.1		408.5		1,382.3		1,190.4
Gross profit	1,096.3		941.8		3,182.0		2,750.5

Selling, general and administrative expenses	650.2		548.6		1,899.6		1,638.5
Income from operations	446.1		393.2		1,282.4		1,112.0

Interest expense, net	42.4		41.3		114.6		138.6
Equity investment activity, net	33.9		—		98.7		—
Other income (expense), net	5.0		3.6		(0.1)		0.2


Earnings before income taxes	442.6		355.5		1,266.4		973.6

Income taxes	97.0		78.6		275.5		235.3

Net earnings from continuing operations	345.6		276.9		990.9		738.3

Earnings (loss) from discontinued operations, net of tax	(2.9)		49.0		(4.1)		170.3
Gain on disposition of discontinued operations, net of tax	4.5		1.1		8.4		1,707.7
Net earnings from discontinued operations	1.6		50.1		4.3		1,878.0

Net earnings	$	347.2	$	327.0	$	995.2	$	2,616.3

Net earnings per share from continuing operations:
Basic	$	3.23	$	2.61	$	9.30	$	6.97
Diluted	$	3.21	$	2.59	$	9.23	$	6.91

Net earnings per share from discontinued operations:
Basic	$	0.02	$	0.47	$	0.04	$	17.74
Diluted	$	0.02	$	0.47	$	0.04	$	17.59

Net earnings per share:
Basic	$	3.25	$	3.08	$	9.34	$	24.71
Diluted	$	3.23	$	3.06	$	9.27	$	24.50

Weighted average common shares outstanding:
Basic	106.7		106.0		106.5		105.9
Diluted	107.6		106.8		107.3		106.8

See accompanying notes to Condensed Consolidated Financial Statements.

Roper Technologies, Inc.

Condensed Consolidated Statements of Comprehensive Income (unaudited)

(in millions)


	Three months ended September 30,				Nine months ended September 30,
	2023		2022		2023		2022
Net earnings	$	347.2	$	327.0	$	995.2	$	2,616.3

Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	(50.1)		(180.9)		10.2		(285.6)
Total other comprehensive income (loss), net of tax	(50.1)		(180.9)		10.2		(285.6)

Comprehensive income	$	297.1	$	146.1	$	1,005.4	$	2,330.7

See accompanying notes to Condensed Consolidated Financial Statements.

Roper Technologies, Inc.

Condensed Consolidated Balance Sheets (unaudited)

(in millions)


	September 30, 2023		December 31, 2022
ASSETS:

Cash and cash equivalents	$	299.5	$	792.8
Accounts receivable, net	746.4		724.5
Inventories, net	122.5		111.3
Income taxes receivable	55.2		61.0
Unbilled receivables	112.1		91.5
Other current assets	168.8		151.3

Total current assets	1,504.5		1,932.4

Property, plant and equipment, net	98.3		85.3
Goodwill	17,047.6		15,946.1
Other intangible assets, net	8,343.6		8,030.7
Deferred taxes	52.1		55.9
Equity investments	736.4		535.0
Other assets	405.5		395.4

Total assets	$	28,188.0	$	26,980.8

LIABILITIES AND STOCKHOLDERS’ EQUITY:

Accounts payable	$	135.8	$	122.6
Accrued compensation	225.3		228.8
Deferred revenue	1,496.7		1,370.7
Other accrued liabilities	389.5		454.6
Income taxes payable	66.1		16.6
Current portion of long-term debt, net	499.3		699.2

Total current liabilities	2,812.7		2,892.5

Long-term debt, net of current portion	6,379.0		5,962.5
Deferred taxes	1,546.0		1,676.8
Other liabilities	411.6		411.2

Total liabilities	11,149.3		10,943.0

Commitments and contingencies (Note 10)

Common stock	1.1		1.1
Additional paid-in capital	2,723.8		2,510.2
Retained earnings	14,507.5		13,730.7
Accumulated other comprehensive loss	(176.8)		(187.0)
Treasury stock	(16.9)		(17.2)
Total stockholders’ equity	17,038.7		16,037.8

Total liabilities and stockholders’ equity	$	28,188.0	$	26,980.8

See accompanying notes to Condensed Consolidated Financial Statements.

Roper Technologies, Inc.

Condensed Consolidated Statements of Cash Flows (unaudited)

(in millions)


	Nine months ended September 30,
	2023		2022
Cash flows from operating activities:
Net earnings from continuing operations	$	990.9	$	738.3
Adjustments to reconcile net earnings from continuing operations to cash flows from operating activities:
Depreciation and amortization of property, plant and equipment	26.3		28.0
Amortization of intangible assets	532.8		438.4
Amortization of deferred financing costs	7.7		9.2
Non-cash stock compensation	99.2		90.8
Equity investment activity, net	(98.7)		—

Income tax provision	275.5		235.3
Changes in operating assets and liabilities, net of acquired businesses:
Accounts receivable	25.8		48.3
Unbilled receivables	(15.3)		(21.7)
Inventories	(11.2)		(33.6)
Accounts payable	12.1		24.7
Other accrued liabilities	(72.0)		(59.0)
Deferred revenue	18.6		(15.2)
Cash taxes paid for gain on disposal of businesses	(16.4)		(534.6)
Cash income taxes paid, excluding tax associated with gain on disposal of businesses	(335.6)		(397.5)
Other, net	(24.0)		(1.2)
Cash provided by operating activities from continuing operations	1,415.7		550.2
Cash provided by (used in) operating activities from discontinued operations	(2.4)		112.7
Cash provided by operating activities	1,413.3		662.9

Cash flows from (used in) investing activities:
Acquisitions of businesses, net of cash acquired	(1,970.1)		(580.9)
Capital expenditures	(37.8)		(30.0)
Capitalized software expenditures	(28.7)		(21.9)


Distributions from equity investment	25.3		—
Other, net	0.6		(1.8)
Cash used in investing activities from continuing operations	(2,010.7)		(634.6)
Proceeds from disposition of discontinued operations	2.0		2,997.1
Cash used in investing activities from discontinued operations	—		(4.9)
Cash provided by (used in) investing activities	(2,008.7)		2,357.6

Cash flows from (used in) financing activities:
Payments of senior notes	(700.0)		(800.0)
Borrowings (payments) under revolving line of credit, net	910.0		(470.0)
Debt issuance costs	—		(3.9)

Cash dividends to stockholders	(217.5)		(196.2)
Proceeds from stock-based compensation, net	99.3		57.0
Treasury stock sales	11.6		11.6

Other	(0.1)		(0.3)
Cash provided by (used in) financing activities from continuing operations	103.3		(1,401.8)
Cash used in financing activities from discontinued operations	—		(11.3)
Cash provided by (used in) financing activities	103.3		(1,413.1)
(Continued)

Roper Technologies, Inc.

Condensed Consolidated Statements of Cash Flows (unaudited) - Continued

(in millions)


	Nine months ended September 30,
	2023		2022

Effect of exchange rate changes on cash	(1.2)		(64.4)

Net increase (decrease) in cash and cash equivalents	(493.3)		1,543.0

Cash and cash equivalents, beginning of period	792.8		351.5

Cash and cash equivalents, end of period	$	299.5	$	1,894.5

See accompanying notes to Condensed Consolidated Financial Statements.

Roper Technologies, Inc.

Condensed Consolidated Statements of Changes in Stockholders’ Equity (unaudited)

(in millions, except per share data)


	Common stock		Additional paid-in capital		Retained earnings		Accumulated other comprehensive loss		Treasury stock		Total stockholders’ equity
Balances at June 30, 2023	$	1.1	$	2,655.3	$	14,233.2	$	(126.7)	$	(17.0)	$	16,745.9

Net earnings	—		—		347.2		—		—		347.2
Stock option exercises	—		29.9		—		—		—		29.9
Treasury stock sold	—		3.1		—		—		0.1		3.2
Currency translation adjustments	—		—		—		(50.1)		—		(50.1)
Stock-based compensation	—		36.7		—		—		—		36.7
Restricted stock activity	—		(1.2)		—		—		—		(1.2)
Dividends declared ($0.6825 per share)	—		—		(72.9)		—		—		(72.9)
Balances at September 30, 2023	$	1.1	$	2,723.8	$	14,507.5	$	(176.8)	$	(16.9)	$	17,038.7

Balances at December 31, 2022	$	1.1	$	2,510.2	$	13,730.7	$	(187.0)	$	(17.2)	$	16,037.8

Net earnings	—		—		995.2		—		—		995.2
Stock option exercises	—		111.7		—		—		—		111.7

Treasury stock sold	—		11.3		—		—		0.3		11.6
Currency translation adjustments	—		—		—		10.2		—		10.2
Stock-based compensation	—		101.9		—		—		—		101.9
Restricted stock activity	—		(11.3)		—		—		—		(11.3)
Dividends declared ($2.0475 per share)	—		—		(218.4)		—		—		(218.4)
Balances at September 30, 2023	$	1.1	$	2,723.8	$	14,507.5	$	(176.8)	$	(16.9)	$	17,038.7

Balances at June 30, 2022	$	1.1	$	2,417.1	$	11,613.5	$	(287.8)	$	(17.4)	$	13,726.5

Net earnings	—		—		327.0		—		—		327.0
Stock option exercises	—		17.9		—		—		—		17.9
Treasury stock sold	—		3.0		—		—		0.1		3.1
Currency translation adjustments	—		—		—		(180.9)		—		(180.9)
Stock-based compensation	—		31.7		—		—		—		31.7
Restricted stock activity	—		(1.8)		—		—		—		(1.8)
Dividends declared ($0.62 per share)	—		—		(65.7)		—		—		(65.7)
Balances at September 30, 2022	$	1.1	$	2,467.9	$	11,874.8	$	(468.7)	$	(17.3)	$	13,857.8

Balances at December 31, 2021	$	1.1	$	2,307.8	$	9,455.6	$	(183.1)	$	(17.6)	$	11,563.8


Net earnings	—		—		2,616.3		—		—		2,616.3
Stock option exercises	—		80.8		—		—		—		80.8
Cash settlement of share-based awards in connection with disposition of discontinued operations	—		(11.1)		—		—		—		(11.1)
Treasury stock sold	—		11.3		—		—		0.3		11.6
Currency translation adjustments	—		—		—		(285.6)		—		(285.6)
Stock-based compensation	—		102.9		—		—		—		102.9
Restricted stock activity	—		(23.8)		—		—		—		(23.8)
Dividends declared ($1.86 per share)	—		—		(197.1)		—		—		(197.1)
Balances at September 30, 2022	$	1.1	$	2,467.9	$	11,874.8	$	(468.7)	$	(17.3)	$	13,857.8

See accompanying notes to Condensed Consolidated Financial Statements.

Roper Technologies, Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

(Dollar 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, 2023 and 2022 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, 2022 financial position data included herein was derived from the audited consolidated financial statements included in the Company’s 2022 Annual Report on Form 10-K (“Annual Report”) filed on February 27, 2023 with the U.S. 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 related 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, 2023 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.

Discontinued Operations – Roper has completed the divestitures of TransCore, Zetec, CIVCO Radiotherapy (“2021 Divestitures”), and the majority stake in its industrial businesses (“Indicor”). The financial results for these businesses are reported as discontinued operations for all periods presented. Unless otherwise noted, discussion within these notes to the Condensed Consolidated Financial Statements relates to continuing operations. Refer to Note 5 for additional information on discontinued operations.

2. Recent Accounting Pronouncements

The Financial Accounting Standards Board (“FASB”) establishes changes to accounting principles under GAAP in the form of accounting standards updates (“ASUs”) to the Accounting Standards Codification (“ASC”). The Company considers the applicability and impact of all ASUs. Any recent ASUs were assessed and either determined to be not applicable or are expected to have an immaterial impact on the Company’s results of operations, financial position, or cash flows.

3. Weighted Average Shares Outstanding

Basic earnings per share was calculated using net earnings and the weighted average number of shares of common stock outstanding during the respective period. Diluted earnings per share was 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 average 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 presented below:


	Three months ended September 30,		Nine months ended September 30,
	2023	2022	2023	2022
Basic shares outstanding	106.7	106.0	106.5	105.9
Effect of potential common stock:
Common stock awards	0.9	0.8	0.8	0.9
Diluted shares outstanding	107.6	106.8	107.3	106.8

For the three and nine months ended September 30, 2023, there were 0.707 and 0.734 outstanding stock options, respectively, that were not included in the determination of diluted earnings per share because doing so would have been antidilutive, as compared to 0.832 and 0.829 outstanding stock options that would have been antidilutive in the respective 2022 periods.

4. Business Acquisitions

On May 2, 2023, Roper acquired the outstanding membership interests of Promium, LLC, a leading provider of laboratory information management systems in the environmental and water markets for a purchase price of $16.5. This acquisition has been integrated into our CliniSys business and its results are reported in the Application Software reportable segment.

On August 7, 2023, Roper acquired the outstanding membership interests of Syntellis Parent, LLC, a Delaware limited liability company and the parent company of Syntellis Performance Solutions, LLC, a leading provider of cloud-based performance management and data solutions for healthcare, financial institutions, and higher education markets for a purchase price of $1,381, adjusted for cash acquired and certain liabilities assumed. Additionally, the purchase price contemplated a net present value tax benefit of approximately $135 which is expected to be utilized over the next 15 years. This acquisition has been integrated into our Strata business and its results are reported in the Application Software reportable segment.

On August 21, 2023, Roper acquired the assets of Replicon Inc., a provider of time tracking software solutions for project and services centric organizations, for a purchase price of $447.5, adjusted for cash acquired and certain liabilities assumed. Additionally, the purchase price contemplated a net present value tax benefit of approximately $80 which is expected to be utilized over the next 15 years. This acquisition has been integrated into our Deltek business and its results are reported in the Application Software reportable segment.

The Company recorded $1,137.8 in goodwill, $30.7 assigned to trade names that are not subject to amortization, and $792.7 of other identifiable intangibles in connection with these three acquisitions. The amortizable intangible assets include customer relationships of $710.1 (19.2 year weighted average useful life) and technology of $82.6 (6.6 year weighted average useful life).

The results of operations of the acquired businesses are included in Roper’s Condensed Consolidated Financial Statements since the date of each acquisition. Pro forma results of operations and the revenues and net earnings subsequent to the acquisition date for the acquisitions have not been presented because the effects of the acquisitions were not material to our financial results.

On August 4, 2023, Roper acquired an 18.2% limited partnership minority interest in CI Ultimate Holdings, L.P., the parent entity of Certinia Inc., a leading provider of professional services automation software, for $125.0, which is recorded as a component of “Equity investments” in our Condensed Consolidated Balance Sheet. The Company’s investment is accounted for under the equity method of accounting. Beginning in the fourth quarter of 2023, Roper will report our proportionate share of earnings/(loss) associated with this investment as a component of “Equity investment activity, net.”

5. Discontinued Operations

The Company concluded that the 2021 Divestitures and the sale of a majority 51% stake in Indicor each represented a strategic shift that had a major effect on the Company’s operations and financial results. Accordingly, the financial results related to these transactions are presented in the Condensed Consolidated Financial Statements as discontinued operations for all periods presented.

The following transactions closed in the first quarter of 2022:

•On March 17, 2022, Roper closed on the divestiture of our TransCore business to an affiliate of Singapore Technologies Engineering Ltd, for approximately $2,680.0 in cash. The sale resulted in a pretax gain of $2,073.7 and income tax expense of $550.5, which are reported within “Gain on disposition of discontinued operations, net of tax” in the Condensed Consolidated Statements of Earnings. TransCore was previously included in the historical Network Software & Systems reportable segment.

•On January 5, 2022, Roper closed on the divestiture of our Zetec business to Eddyfi NDT Inc. for approximately $350.0 in cash. The sale resulted in a pretax gain of $255.3 and income tax expense of $60.9, which are reported within “Gain on disposition of discontinued operations, net of tax” in the Condensed Consolidated Statements of Earnings. Zetec was previously included in the historical Process Technologies reportable segment.

The following table summarizes the major classes of revenues and expenses constituting net earnings from discontinued operations attributable to the TransCore and Zetec businesses:


	Three months ended September 30,		Nine months ended September 30,
	2022		2022
Net revenues	$	—	$	100.4
Cost of sales	—		71.2
Gross profit	—		29.2

Selling, general and administrative expenses (1)	—		19.9
Income from operations	—		9.3

Other income, net	—		0.1

Earnings before income taxes	—		9.4

Income taxes	—		(6.2)

Earnings from discontinued operations, net of tax	—		15.6

Gain on disposition of discontinued operations, net of tax (2)	1.1		1,707.7

Net earnings from discontinued operations	$	1.1	$	1,723.3

(1) Includes stock-based compensation expense of $0.9. Stock-based compensation was previously reported as a component of unallocated corporate general and administrative expenses.

(2) Includes expense of $4.5 associated with accelerated vesting of share-based awards for the nine months ended September 30, 2022.

Indicor – On November 22, 2022, Roper completed the divestiture of a majority 51% stake in Indicor to Clayton, Dubilier & Rice, LLC (“CD&R”). In connection with the transaction, Roper retained an initial 49% minority equity interest in Indicor (described further in Note 9).

The following table summarizes the major classes of revenues and expenses constituting net earnings from discontinued operations attributable to Indicor:


	Three months ended September 30,				Nine months ended September 30,
	2023		2022 (1)		2023		2022 (1)
Net revenues	$	—	$	269.0	$	—	$	770.9
Cost of sales	—		126.3		—		361.6
Gross profit	—		142.7		—		409.3

Selling, general and administrative expenses	0.7		78.9		2.3		213.4
Income (loss) from operations	(0.7)		63.8		(2.3)		195.9

Other income, net	—		2.5		—		3.6

Earnings (loss) before income taxes	(0.7)		66.3		(2.3)		199.5

Income taxes	2.2		17.3		1.8		44.8

Earnings (loss) from discontinued operations, net of tax	(2.9)		49.0		(4.1)		154.7

Gain on disposition of discontinued operations, net of tax	4.5		—		8.4		—

Net earnings from discontinued operations	$	1.6	$	49.0	$	4.3	$	154.7

(1) Includes depreciation and amortization expense of $6.4 for the nine months ended September 30, 2022 and stock-based compensation expense of $2.6 and $8.1 for the three and nine months ended September 30, 2022. Stock-based compensation was previously reported as a component of unallocated corporate general and administrative expenses.

6. Stock-Based Compensation

The Roper Technologies, Inc. 2021 Incentive 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,
	2023		2022		2023		2022
Stock-based compensation	$	35.7	$	29.6	$	99.2	$	90.8
Tax benefit recognized in net earnings from continuing operations	6.0		6.2		16.7		19.1

Stock Options – In the nine months ended September 30, 2023, 0.373 options were granted with a weighted average fair value of $129.69 per option. During the same period in 2022, 0.379 options were granted with a weighted average fair value of $115.91 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 Company’s stock-based compensation plans.

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,
	2023	2022
Risk-free interest rate (%)	3.74	2.09
Expected option life (years)	5.63	5.63
Expected volatility (%)	26.05	24.54
Expected dividend yield (%)	0.63	0.55

Cash received from option exercises for the nine months ended September 30, 2023 and 2022 was $110.6 and $80.8, respectively.

Restricted Stock Grants – During the nine months ended September 30, 2023, the Company granted 0.273 shares with a weighted average grant date fair value of $437.36 per restricted share. During the same period in 2022, the Company granted 0.239 shares with a weighted average grant date fair value of $450.49 per restricted share. All grants were issued at grant date fair value.

During the nine months ended September 30, 2023, 0.096 restricted shares vested with a weighted average grant date fair value of $379.64 per restricted share and a weighted average vest date fair value of $441.53 per restricted share.

Employee Stock Purchase Plan – Roper’s employee stock purchase plan (“ESPP”) allows employees in the U.S. and Canada to designate up to 10% of eligible earnings to purchase Roper’s common stock at a 10% discount on the lower of the closing price of the stock on the first and last day of each quarterly offering period. Common stock sold to employees pursuant to the ESPP may be either treasury stock, stock purchased on the open market, or newly issued shares.

During the nine months ended September 30, 2023 and 2022, participants in the ESPP purchased 0.029 and 0.031 shares of Roper’s common stock, respectively, for total consideration of $11.6 in both the current and prior year periods. All shares were purchased from Roper’s treasury shares.

7. Inventories

The components of inventories were as follows:


	September 30, 2023		December 31, 2022
Raw materials and supplies	$	61.2	$	60.6
Work in process	26.9		24.9
Finished products	43.0		31.3
Inventory reserves	(8.6)		(5.5)
Inventories, net	$	122.5	$	111.3

8. Goodwill and Other Intangible Assets

The carrying value of goodwill by segment was as follows:


	Application Software		Network Software		Technology Enabled Products		Total
Balances at December 31, 2022	$	11,417.5	$	3,598.3	$	930.3	$	15,946.1
Goodwill acquired	1,137.8		—		—		1,137.8

Other	(44.5)		—		—		(44.5)
Currency translation adjustments	2.6		5.5		0.1		8.2
Balances at September 30, 2023	$	12,513.4	$	3,603.8	$	930.4	$	17,047.6

Other relates to purchase accounting adjustments for acquisitions completed in 2022 and is composed primarily of a measurement period adjustment of $43.0 to decrease goodwill and deferred tax liabilities in connection with the Frontline opening balance sheet.

Other intangible assets were comprised of:


	Cost		Accumulated amortization		Net book value
Assets subject to amortization:
Customer related intangibles	$	9,300.7	$	(2,437.7)	$	6,863.0
Unpatented technology	954.6		(506.9)		447.7
Software	149.0		(134.0)		15.0
Patents and other protective rights	10.3		(1.2)		9.1
Trade names	9.7		(3.1)		6.6
Assets not subject to amortization:
Trade names	689.3		—		689.3

Balances at December 31, 2022	$	11,113.6	$	(3,082.9)	$	8,030.7

Assets subject to amortization:
Customer related intangibles	$	10,014.5	$	(2,850.3)	$	7,164.2
Unpatented technology	1,040.8		(603.1)		437.7
Software	149.0		(140.9)		8.1
Patents and other protective rights	10.3		(1.4)		8.9
Trade names	9.7		(5.2)		4.5
Assets not subject to amortization:
Trade names	720.2		—		720.2

Balances at September 30, 2023	$	11,944.5	$	(3,600.9)	$	8,343.6

Amortization expense of other intangible assets was $176.7 and $143.8 during the three months ended September 30, 2023 and 2022, respectively, and $517.6 and $429.7 during the nine months ended September 30, 2023 and 2022, 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 2023. The Company will perform the annual analysis during the fourth quarter of 2023.

9. Fair Value

Financial assets and liabilities are valued using market prices on active markets (Level 1), less active markets (Level 2), and little or no market activity (Level 3). Level 1 instrument valuations are obtained from real-time quotes for transactions in active exchange markets involving identical assets. Level 2 instrument valuations are obtained from readily available pricing sources for comparable instruments, identical instruments in less active markets, or models using market observable inputs. Level 3 instrument valuations typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability.

Debt – Roper’s debt included $6,000 of fixed-rate senior notes with the following fair values:


Fixed-rate senior notes			Fair value
Principal amount	Interest rate	Year of maturity	As of September 30, 2023
$500	2.350%	2024	$484
$300	3.850%	2025	$289
$700	1.000%	2025	$640
$700	3.800%	2026	$663
$700	1.400%	2027	$599
$800	4.200%	2028	$752
$700	2.950%	2029	$607
$600	2.000%	2030	$474
$1,000	1.750%	2031	$759

The fair values of the senior notes are based on the trading prices of each series of notes, which the Company has determined to be Level 2 in the FASB fair value hierarchy.

On September 15, 2023, $700.0 of 3.650% senior notes due 2023 were repaid at maturity using borrowings under our unsecured credit facility.

Indicor Investment – Following the sale of a majority stake in its industrial businesses to CD&R, Roper now holds a minority 47.7% equity interest in Indicor. We elected to apply the fair value option as we believe this is the most reasonable method to value the equity investment. The fair value of Roper’s equity investment in Indicor is updated on a quarterly basis and its impact is reported as a component of “Equity investment activity, net.”

We initially valued our investment using the implied equity value associated with the sale price of the majority equity interest in Indicor to CD&R. During the second quarter of 2023, we revised our valuation methodology to utilize the market multiple approach consisting of comparable guideline public companies revenue and earnings multiples to estimate the fair value of the investment. Our valuation methodology was updated given the passage of time since the transaction date and in consideration of observable market data, including Indicor’s divestiture of its Compressor Controls business unit (“CCC”) to Honeywell International Inc. (“Honeywell”) for approximately $670 which closed on June 30, 2023.

The assessment of fair value for the equity investment requires significant judgments to be made by management. Although our assumptions are considered reasonable and are consistent, there is significant judgment applied. Changes in estimates or the application of alternative assumptions could produce significantly different results. The fair value of the investment reflects management’s estimate of assumptions that market participants would use in pricing the equity interest, which the Company has determined to be Level 3 in the FASB fair value hierarchy.

The following table provides a reconciliation of the fair value for our equity investment in Indicor measured using Level 3 inputs:


	Three months ended September 30, 2023		Nine months ended September 30, 2023
Balance at beginning of period	$	591.3	$	535.0
Change in fair value	20.1		76.4
Balance at end of period	$	611.4	$	611.4

The Company received dividend distributions of $13.2 and $25.3 from Indicor during the three and nine months ended September 30, 2023, respectively, which are reported within “Equity investment activity, net.” These dividends were intended to offset certain cash taxes associated with the Company’s ownership stake, including $16.4 of cash taxes paid associated with the Company’s portion of Indicor’s gain on the sale of CCC to Honeywell, and are contemplated in the determination of the fair value related to the equity investment in Indicor.

10. Contingencies

Roper, in the ordinary course of business, is party to various pending or threatened legal actions, including product liability, intellectual property, antitrust, data privacy, and employment practices that, in general, are of a nature consistent with those over the past several years. After analyzing the Company’s contingent liabilities on a gross basis and, based upon past experience with resolution of such legal claims and the availability and limits of the primary, excess, and umbrella liability insurance coverages 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. However, no assurances can be given in this regard.

Roper’s subsidiary, PowerPlan, Inc. (“PowerPlan”), is a defendant in an action pending in the U.S. District Court for the Northern District of Georgia (Lucasys Inc. v. PowerPlan, Inc., Case 1:20-cv-02987-AT) in which the plaintiff, a firm started by former PowerPlan employees, alleges PowerPlan has engaged in anticompetitive practices in violation of federal antitrust law. The plaintiff further alleges that PowerPlan violated Georgia’s deceptive trade practices act and undertook other tortious activities which impacted the plaintiff’s ability to commercialize its software and services offerings. The plaintiff claims damages in excess of $66, and seeks treble damages in addition to punitive damages, attorney fees, and pre-judgment interest. PowerPlan strongly denies the allegations in the dispute, and has asserted several affirmative defenses. PowerPlan and the plaintiff have each moved for summary judgment, and in the event such is not granted, PowerPlan anticipates this matter going to trial in the second half of 2024.

Roper’s subsidiary, Vertafore, Inc. (“Vertafore”), had been named in three putative class actions, all of which are now dismissed: two in the U.S. District Court for the Southern District of Texas (Allen, et al. v. Vertafore, Inc., Case 4:20-cv-4139, filed December 4, 2020) and Masciotra, et al. v. Vertafore, Inc. (originally filed on December 8, 2020 as Case 1:20-cv-03603 in the U.S. District Court for the District of Colorado and subsequently transferred)), and one in the U.S. District Court for the Northern District of Texas (Mulvey, et al. v. Vertafore, Inc., Case 3:21-cv-00213-E, filed January 31, 2021). In July 2021, the court granted Vertafore’s motion to dismiss the Allen Case, with the dismissal affirmed by the U.S. Fifth Circuit Court of Appeals, effectively concluding the litigation. In July 2021, the plaintiff in the Masciotra case voluntarily dismissed his action without prejudice. In February 2023, the court granted Vertafore’s motion to dismiss the Mulvey case, and the plaintiff failed to appeal the dismissal effectively concluding the matter. Both the Allen and Mulvey cases purported to represent approximately 27.7 million individuals who held Texas driver’s licenses prior to February 2019. In November 2020, Vertafore announced that as a result of human error, three data files were inadvertently stored in an unsecured external storage service that appears to have been accessed without authorization. The files, which included driver information for licenses issued before February 2019, contained Texas driver license numbers, as well as names, dates of birth, addresses, and vehicle registration histories. The files did not contain any Social Security numbers or financial account information. These cases sought recovery under the Driver’s Privacy Protection Act, 18 U.S.C. § 2721. As set forth above, all of these matters have now been dismissed.

Roper’s subsidiary, Verathon, Inc. (“Verathon”), was a defendant in a patent infringement action pending in the U.S. District Court for the Western District of Washington (Berall v. Verathon, Inc., Case 2:2021mc00043). The plaintiff claimed that video laryngoscopes and certain accessories sold by Verathon and other manufacturers from approximately 2004 through 2016 infringed U.S. Patent 5,827,178. Verathon and the plaintiff agreed to settle the matter for $45.0 which was fully concluded and cash settled in the first quarter of 2023.

11. Business Segments

The following table presents selected financial information by reportable segment:


	Three months ended September 30,						Nine months ended September 30,
	2023		2022		Change %		2023		2022		Change %
Net revenues:
Application Software	$	803.4	$	644.0	24.8	%	$	2,335.1	$	1,899.7	22.9	%
Network Software	364.1		346.6		5.0	%	1,076.7		1,028.0		4.7	%
Technology Enabled Products	395.9		359.7		10.1	%	1,152.5		1,013.2		13.7	%

Total	$	1,563.4	$	1,350.3	15.8	%	$	4,564.3	$	3,940.9	15.8	%
Gross profit:
Application Software	$	557.7	$	440.2	26.7	%	$	1,609.2	$	1,306.5	23.2	%
Network Software	310.7		293.9		5.7	%	914.0		867.9		5.3	%
Technology Enabled Products	227.9		207.7		9.7	%	658.8		576.1		14.4	%

Total	$	1,096.3	$	941.8	16.4	%	$	3,182.0	$	2,750.5	15.7	%
Operating profit *:
Application Software	$	206.9	$	173.8	19.0	%	$	601.3	$	511.4	17.6	%
Network Software	164.4		148.1		11.0	%	465.0		422.0		10.2	%
Technology Enabled Products	137.1		126.5		8.4	%	391.7		337.6		16.0	%

Total	$	508.4	$	448.4	13.4	%	$	1,458.0	$	1,271.0	14.7	%
Long-lived assets:
Application Software	$	176.0	$	145.1	21.3	%
Network Software	26.7		27.6		(3.3)	%
Technology Enabled Products	30.7		26.9		14.1	%

Total	$	233.4	$	199.6	16.9	%

* Segment operating profit is before unallocated corporate general and administrative and enterprise-wide stock-based compensation expenses. These expenses were $62.3 and $55.2 for the three months ended September 30, 2023 and 2022, respectively, and $175.6 and $159.0 for the nine months ended September 30, 2023 and 2022, respectively.

12. Revenues from Contracts

Disaggregated Revenue – We disaggregate our revenues by reportable segment into four categories: (i) recurring revenue comprised of Software-as-a-Service (“SaaS”) licenses and software maintenance; (ii) reoccurring revenue comprised of transactional and volume-based fees related to software licenses; (iii) non-recurring revenue comprised of term and perpetual software licenses, professional services associated with software products and hardware sold with our software licenses; and (iv) product revenue. See details in the table below:


	Three months ended September 30, 2023								Three months ended September 30, 2022
Revenue stream	Application Software		Network Software		Technology Enabled Products		Total		Application Software		Network Software		Technology Enabled Products		Total
Software related
Recurring	$	630.9	$	262.8	$	4.3	$	898.0	$	471.1	$	247.5	$	3.2	$	721.8
Reoccurring	33.4		66.0		—		99.4		30.0		62.0		—		92.0
Non-recurring	139.1		35.3		0.3		174.7		142.9		37.1		0.3		180.3
Total Software Revenue	803.4		364.1		4.6		1,172.1		644.0		346.6		3.5		994.1

Product Revenue	—		—		391.3		391.3		—		—		356.2		356.2
Total Revenue	$	803.4	$	364.1	$	395.9	$	1,563.4	$	644.0	$	346.6	$	359.7	$	1,350.3


	Nine months ended September 30, 2023								Nine months ended September 30, 2022
Revenue stream	Application Software		Network Software		Technology Enabled Products		Total		Application Software		Network Software		Technology Enabled Products		Total
Software related
Recurring	$	1,798.7	$	777.0	$	12.3	$	2,588.0	$	1,390.5	$	729.2	$	8.6	$	2,128.3
Reoccurring	103.1		195.9		—		299.0		90.3		184.5		—		274.8
Non-recurring	433.3		103.8		1.1		538.2		418.9		114.3		0.9		534.1
Total Software Revenue	2,335.1		1,076.7		13.4		3,425.2		1,899.7		1,028.0		9.5		2,937.2

Product Revenue	—		—		1,139.1		1,139.1		—		—		1,003.7		1,003.7
Total Revenue	$	2,335.1	$	1,076.7	$	1,152.5	$	4,564.3	$	1,899.7	$	1,028.0	$	1,013.2	$	3,940.9

Remaining performance obligations – Remaining performance obligations represent the transaction price of firm orders for which work has not been performed and exclude unexercised contract options. As of September 30, 2023, the aggregate amount of the transaction price allocated to remaining performance obligations was $4,321.4. We expect to recognize revenues of $2,913.7, or approximately 67% of our remaining performance obligations over the next 12 months (“Backlog”), with the remainder to be recognized thereafter.

Contract balances


Balance sheet account	September 30, 2023		December 31, 2022		Change
Unbilled receivables	$	112.1	$	91.5	$	20.6
Deferred revenue – current	(1,496.7)		(1,370.7)		(126.0)
Deferred revenue – non-current (1)	(127.6)		(111.5)		(16.1)
Net contract assets/(liabilities)	$	(1,512.2)	$	(1,390.7)	$	(121.5)

(1) The non-current portion of deferred revenue is included in “Other liabilities” in our Condensed Consolidated Balance Sheets.

The change in our net contract assets/(liabilities) from December 31, 2022 to September 30, 2023 was due primarily to net contract liabilities associated with the acquisitions completed during 2023, most notably Syntellis with approximately $80, and the timing of payments and invoicing relating to SaaS and post contract support (“PCS”) contracts, driven predominantly by the renewal cycle of our Frontline business which primarily occurs in the third quarter.

The Company records deferred revenue when cash payments are received or due in advance of the Company’s performance relating primarily to SaaS and PCS renewals. Revenue recognized from the deferred revenue balance on December 31, 2022 and 2021 was $206.1 and $181.5 for the three months ended September 30, 2023 and 2022, respectively, and $1,192.7 and $958.2 for the nine months ended September 30, 2023 and 2022, respectively. In order to determine revenues recognized in the period, we allocate revenue to the individual deferred revenue balance outstanding at the beginning of the year until the revenue exceeds that balance.

The current and non-current portions of deferred commissions are included in “Other current assets” and “Other assets,” respectively, in our Condensed Consolidated Balance Sheets. At September 30, 2023 and December 31, 2022, we had $66.1 and $64.8 of total deferred commissions, respectively.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2022 (“Annual Report”) as filed on February 27, 2023 with the U.S. Securities and Exchange Commission (“SEC”) and the Notes to Condensed Consolidated Financial Statements included elsewhere in this report.

Information About Forward-Looking Statements

This report includes “forward-looking statements” within the meaning of the federal securities laws. In addition, we, or our executive officers on our behalf, may from time to time make forward-looking statements in reports and other documents we file with the SEC or in connection with oral statements made to the press, potential investors, or others. All statements that are not historical facts are “forward-looking statements.” Forward-looking statements may be indicated by words or phrases such as “anticipate,” “estimate,” “plans,” “expects,” “projects,” “should,” “will,” “believes,” or “intends” and similar words and phrases. These statements reflect management’s current beliefs and are not guarantees of future performance. They involve risks and uncertainties that could cause actual results to differ materially from those expressed or implied in any forward-looking statement. Such risks and uncertainties include any ongoing impacts of the COVID-19 pandemic on our business, operations, financial results, and liquidity, which will depend on numerous evolving factors that we cannot accurately predict or assess.

Examples of forward-looking statements in this report include but are not limited to statements regarding operating results, the success of our operating plans, our expectations regarding our ability to generate cash and reduce debt and associated interest expense, profit and cash flow expectations, the prospects for newly acquired businesses to be integrated and contribute to future growth, and our expectations regarding growth through acquisitions. Important assumptions relating to the forward-looking statements include, among others, demand for our products, the cost, timing, and success of product upgrades and new product introductions, raw material costs, expected pricing levels, expected outcomes of pending litigation, competitive conditions, and general economic conditions. These assumptions could prove inaccurate. Although we believe that the estimates and projections reflected in the forward-looking statements are reasonable, our expectations may prove to be incorrect. Important factors that could cause actual results to differ materially from estimates or projections contained in the forward-looking statements include but are not limited to:

•general economic conditions;

•difficulty making acquisitions and successfully integrating acquired businesses;

•any unforeseen liabilities associated with future acquisitions;

•failure to effectively mitigate cybersecurity threats, including any litigation arising therefrom;

•failure to comply with new data privacy laws and regulations, including any litigation arising therefrom;

•risks and costs associated with our international sales and operations;

•rising interest rates;

•limitations on our business imposed by our indebtedness;

•product liability, litigation, and insurance risks;

•future competition;

•reduction of business with large customers;

•risks associated with government contracts;

•changes in the supply of, or price for, labor, energy, raw materials, parts, and components, including as a result of impacts from the current inflationary environment, supply chain constraints, or additional or ongoing impacts of the COVID-19 pandemic;

•potential write-offs of our goodwill and other intangible assets;

•our ability to successfully develop new products;

•failure to protect our intellectual property;

•unfavorable changes in foreign exchange rates;

•difficulties associated with exports/imports and risks of changes to tariff rates;

•increased warranty exposure;

•environmental compliance costs and liabilities;

•the effect of, or change in, government regulations (including tax);

•risks associated with the use of artificial intelligence;

•economic disruption caused by armed conflicts (such as the war in Ukraine and the conflict in the Middle East), terrorist attacks, health crises (such as the COVID-19 pandemic), or other unforeseen geopolitical events; and

•the factors discussed in other reports we file with the SEC from time to time.

You should not place undue reliance on any forward-looking statements, which are based on current expectations. Further, forward-looking statements speak only as of the date they are made, and we undertake no obligation to publicly update any of these statements in light of new information or future events.

Overview

Roper is a diversified technology company. Roper has a proven, long-term, successful track record of compounding cash flow and shareholder value. We operate market leading businesses that design and develop vertical software and technology enabled products for a variety of defensible niche markets.

We pursue consistent and sustainable growth in revenue, earnings, and cash flow by enabling continuous improvement in the operating performance of our businesses and by acquiring other businesses that offer high value-added software, services, technology-enabled products, and solutions that we believe are capable of achieving growth and maintaining high margins.

Discontinued Operations

Roper has completed the divestitures of TransCore, Zetec, CIVCO Radiotherapy (“2021 Divestitures”), and the majority stake in its industrial businesses (“Indicor”). The financial results for these businesses are reported as discontinued operations for all periods presented. Unless otherwise noted, discussion within Management’s Discussion and Analysis of Financial Condition and Results of Operations relates to continuing operations. Refer to Note 5 of the Notes to Condensed Consolidated Financial Statements for additional information on discontinued operations.

Critical Accounting Policies

Other than the changes described in Note 9 of the Notes to Condensed Consolidated Financial Statements with respect to our equity investment in Indicor, there were no material changes during the nine months ended September 30, 2023 to the items that we disclosed as our critical accounting policies and estimates in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report.

Recently Issued Accounting Standards

Information regarding new accounting pronouncements is included in Note 2 of the Notes to Condensed Consolidated Financial Statements.

Results of Continuing Operations

All currency amounts are in millions, percentages are of net revenues

Percentages may not sum due to rounding.

The following table sets forth selected information for the periods indicated:


	Three months ended September 30,						Nine months ended September 30,
	2023			2022			2023			2022
Net revenues:
Application Software	$	803.4		$	644.0		$	2,335.1		$	1,899.7
Network Software	364.1			346.6			1,076.7			1,028.0
Technology Enabled Products	395.9			359.7			1,152.5			1,013.2

Total	$	1,563.4		$	1,350.3		$	4,564.3		$	3,940.9

Gross margin:
Application Software	69.4		%	68.4		%	68.9		%	68.8		%
Network Software	85.3			84.8			84.9			84.4
Technology Enabled Products	57.6			57.7			57.2			56.9

Total	70.1		%	69.7		%	69.7		%	69.8		%

Selling, general and administrative expenses:
Application Software	43.7		%	41.4		%	43.2		%	41.9		%
Network Software	40.2			42.1			41.7			43.4
Technology Enabled Products	22.9			22.6			23.2			23.5

Total	37.6		%	36.5		%	37.8		%	37.5		%

Segment operating margin:
Application Software	25.8		%	27.0		%	25.8		%	26.9		%
Network Software	45.2			42.7			43.2			41.1
Technology Enabled Products	34.6			35.2			34.0			33.3

Total	32.5		%	33.2		%	31.9		%	32.3		%

Corporate administrative expenses	(4.0)		%	(4.1)		%	(3.8)		%	(4.0)		%
Income from operations	28.5			29.1			28.1			28.2
Interest expense, net