ROPER TECHNOLOGIES INC Q4 2025 earnings call

Good morning, and thank you all for joining us as we discuss the fourth quarter and full year 2025 financial results for Roper Technologies. Joining me on the call this morning are Neil Hunn, President and Chief Executive Officer; Jason Conley, Executive Vice President and Chief Financial Officer; Brandon Cross, Vice President and Principal Accounting Officer; and Shannon O'Callaghan, Senior 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. And now, if you'll please turn to page 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. Now, please turn to page three. Today, we will discuss our results primarily on an adjusted, non-GAAP and continuing operations basis. For the fourth quarter, the difference between our GAAP results and adjusted results consists of the following items: amortization of acquisition-related intangible assets and financial impacts associated with our minority investment in Indicor. Reconciliations can be found in our press release and in the appendix of this presentation on our website. Now, if you'll please turn to page four, I'll hand the call over to Neil. After our prepared remarks, we will take questions from our telephone participants. Neil?

Thank you, Zack, and thanks to everyone for joining our call. As we turn to page four, you'll see the topics we plan to cover today. We'll start by highlighting our Q4 and full year performance. Then Jason will walk through our enterprise financials, our Q4 segment performance, our balance sheet, and capital allocation capacity. Next, we'll discuss our segment highlights and introduce our 2026 guidance, and then we'll close with a few summary thoughts before opening the call for questions. So let's go ahead and get started. Next slide, please. As we turn to page five, I want to highlight three takeaways for today's call. First, we delivered solid execution in 2025. Revenue was up 12%, EBITDA was up 11%, and free cash flow was up 8%. Importantly, enterprise software bookings grew in the low double-digit range for the year, providing strength as we head into 2026.

Second, we continue to invest for our long-term and sustainable growth. That said, organic growth this past year was below our expectations in 2025, and we own that. Our organizational focus and resolve are even stronger coming into this year. We've upscaled talent, sharpened strategy, and improved execution across the portfolio, and that work is showing up for the enterprise. To this end, our application software business is safe for Deltek, improved organic growth in the 70 basis points area, demonstrating broad-based growth improvements occurring within the segment. Importantly, we're not starting the year assuming organic growth will inflect in 2026, despite the traction we believe we're starting to achieve. We're going to execute, and we'll reflect any improvement in organic growth in our guidance as it materializes throughout the year. We'll have much more to say on this later in the call.

On AI specifically, we continue to be excited about the AI product opportunity because our businesses sit directly inside mission-critical, high-frequency workflows where we already have deep domain knowledge, proprietary data, and trusted distribution. The way that can move from productivity to on-stack embedded automation that improves outcomes for our customers and is highly monetizable. Importantly, our decentralized model lets each business deploy AI with the appropriate domain specificity across our various end markets. To further accelerate our pace of AI product development, we hired Shane Luke and Eddy Raphael to lead the Roper AI Accelerator team. They will coach and partner directly with our businesses, build a small AI development strike team, and leverage reasonable elements and best practices across the portfolio so we can deploy AI with increasing speed and market-specific precision while scaling what works. Exciting stuff, for sure.

Our third key takeaway centers on capital allocation. During 2025, we materially advanced our portfolio and foundation through capital deployment, deploying $3.3 billion towards high-quality vertical software acquisitions during the year, highlighted by CentralReach, Subsplash, and several tuck-in acquisitions. Also, and importantly, we leaned into opportunistic repurchases, buying back 1.1 million shares for $500 million in Q4. As we look to 2026, we have north of $6 billion of capacity for potential M&A and share repurchases. We're very encouraged by the size and quality of our acquisition pipeline, and we expect to remain active while staying highly disciplined on price and business quality. In parallel, we'll continue to use buybacks opportunistically when they represent the most attractive risk-adjusted path to durable cash flow per share compounding.

So with that, Jason, let me turn the call over to you so you can walk through our quarterly and full year results. Jason?

Thanks, Neil, and good morning, everyone. We'll start off here with the fourth quarter results. To summarize, we finished ahead of expectations on DEPS, driven by very strong margin performance. Revenue of $2.06 billion was up 10% over prior year, with acquisitions contributing 5% and organic growth of 4%, which was below our expectations. I'll expand on this shortly. EBITDA of $818 million was also up 10% over prior year. Notably, our core EBITDA margin expanded 60 basis points in the quarter, representing 54% incremental margin. DEPS of $5.21 was above our guidance range of $5.11-$5.16 and up $0.40 over the prior year. Shares were reduced by 1.1 million in the quarter for repurchases, which you see partially showing up here in our diluted share count on a year-over-year basis.

However, the repurchase did not impact DEPS in the quarter versus our guidance, given the partial quarter share count benefit and higher entry expense. Now, if you turn with me to slide seven, I'll walk through the Q4 segment performance. Application software revenue grew 10% with organic growth of 4%, and margins were solid, expanding 70 basis points to 42.2%. It's important to outline some details on organic revenue. Recurring revenue grew 6% in the quarter. However, non-recurring revenue was down 8% in the quarter and was the primary driver to the lower end of our mid-single digit outlook. In our last call, we talked about Deltek being the big swing factor in the quarter.

With the prolonged government shutdown, large GovCon commercial activity, and perpetual license revenue was meaningfully impacted, leading to Deltek being up at the lower end of mid-single digits for the year as compared to the solid mid-single digit plus grower it's been over the decade that we've owned the business. That said, we are cautiously optimistic about a 2026 improvement for Deltek, given both the 2025 disruptions caused by DOGE and the shutdown, and the forward benefit of the Omnibus appropriations coming into the market. As improvements occur, we will reflect this in our outlook. For network software, revenue grew 14% with organic growth of 5%. Margins were lower at 52.8% due to the recent bolt-ons for DAT that are currently scaling into profitability. On organic revenue, recurring growth here was also 6%.

The recurring performance was consistent with patterns over the last two quarters, with mid-single digit growth at DAT despite a muted market backdrop and steady improvement at Foundry. However, non-recurring revenue was down 3% on lower services revenue and some customers electing to move from perpetual to SaaS, which negatively impacts the quarter but benefits long-term growth and customer lifetime value. For our tech segment, revenue grew 6% or 5% organically, while margins held flat to prior year at 34.8%. NDI outperformed in the quarter, given strong demand for solutions in the cardiac ablation space, while Neptune was down slightly, as expected, as we comped against a stronger prior fourth quarter and worked through the final surcharge negotiations. Now, let's turn to slide 8, where I'll summarize our 2025 full year results.

2025 was a solid year in terms of cash flow and DEPS performance, despite lower than expected organic revenue. Revenue posted at $7.9 billion, or up 12% over prior year. Acquisitions contributed nearly 7% growth. Of note, we acquired two great platform businesses in CentralReach and Subsplash that will be accretive to 2026 second-half organic growth. We also made three strategic bolt-ons for DAT that significantly automate workflow in the spot freight market and will gain adoption in the years to come, which will ultimately inflect the growth rate for DAT. Organic growth was nearly 5.5%, which Neil will discuss in the segment detail. EBITDA reached $3.1 billion, or 39.8% margin, and was up 11% over prior year. Of note, core margin improved 30 basis points and represented 47% incremental margin, which is in line with our long-term growth algorithm.

DEPS of $20 was up 9% over prior year and reflects the top end of our 2025 guidance range provided in January, despite lower organic revenue and in-year dilution from recent acquisitions. Free cash flow of nearly $2.5 billion was up 8% and represented 31% of revenue, which is in line with our initial free cash flow margin framing for the year. This represents an 18% CAGR since 2022, or excluding the impact from Section 174 in both periods, it was at 14%. As we look forward to 2026, we expect higher growth than in 2025 through benefits from working capital and cash tax improvements. This will put us safely over 30% of revenue next year. However, Q1 will be a bit lower given timing of coupon payments for new bonds issued in the third quarter of 2025.

This, of course, does not contemplate future capital deployment towards either M&A or share repurchases, which brings us to our balance sheet discussion on slide nine. We're entering 2026 in a strong financial position with net leverage ratio of 2.9 times and ample near-term liquidity with about $300 million of cash and nearly $2.7 billion available on our revolver. With this position and strong forward cash generation, we have over $6 billion in capacity for capital deployment this year. Regarding M&A opportunities, we've been proactive and successful in executing high-quality acquisitions for the last couple of years despite a weak M&A market. Most anticipate the market to pick up in 2026, which we view as a net positive given Roper is a home of choice for many acquisition target CEOs. Additionally, we have the attractive optionality of a share repurchase program, which was authorized and commenced in the fourth quarter.

As Neil mentioned, we deployed $500 million to acquire 1.1 million shares in the quarter at an average price of just under $446. This leaves us $2.5 billion remaining on our current $3 billion authorization. We will remain agile in deploying capital to the best return for shareholders. Given the current valuation dislocation, we are now very pleased to have the buyback option available. With that, I'll turn it back over to Neil to discuss the segment performance and outlook.

Thanks, Jason. As we turn to page 11, let's review our application software segment. Revenue for the year grew by 16% in total, and organic revenue grew by 5%. EBITDA margins were 42.5%, and core margins improved 80 basis points in the year. For the segment, we saw recurring and reoccurring revenue grow on an organic basis 7% for the year, and total organic revenue improved about 70 basis points save for the Deltek-related market weakness, both of which provide evidence of underlying strength for the businesses in this group. Aderant continues to execute from a position of strength. FY2025 revenue grew in the mid-teens area with strong bookings throughout the year. Importantly, they're leaning into the right long-term work, accelerating SaaS and AI-led innovation while modernizing their tech platform and data lake.

Deltek was the primary weaker part of the story for this segment and has been straightforward all year, with GovCon remaining a challenging market throughout most of 2025. That said, we view the passage of the Omnibus as a positive development for the market. It should drive upside over time, but we've not included any benefit in our 2026 guidance and will monitor customer activity as the year progresses. Vertafore has another solid year with growth driven by strong recurring revenue performance and continued execution on product and customer outcomes. Looking ahead, the team is leaning into a focused set of priorities, scaling automation, particularly AI-enabled workflow improvements, while continuing to leverage steady innovation to the agency and carrier ecosystem. PowerPlan delivered another strong year with healthy recurring growth and steady progress on product modernization and cloud migration.

They continue to invest in product innovation, customer experience, and internal operating capabilities, improving their long-term organic growth profile. Shout out to Raffi for carrying the leadership mantle forward at PowerPlan, and great job managing the transition from Joe. Illumia, formerly known as Seaward and Transact, continues to execute well and is progressing in its integration and platform roadmap while maintaining solid commercial momentum. And we're excited to welcome Greg Brown, our new CEO at Illumia, who brings a long and successful history of leading scaled software businesses. Congrats and thanks to Laura, Rachel, Taran, and Rob for executing the VCP, driving the business combination, and achieving the year-one target. We look at the broader portfolio of businesses we've acquired over the last couple of years, Syntellis, Transact, Subsplash, CentralReach, and Procare. We feel very good about the quality and long-term growth potential of this group.

However, Proca did not perform to our expectations in 2025, although we do feel good about the business building that occurred last year. Specifically, we improved payments execution, upgraded the entire leadership team, and continue to win competitively in the market where Proca remains a category leader. The biggest constraint was implementation timing across both software and payments, which delayed customer time to value and weighed on payments volumes. Improving implementation speed and delighting the customer base are the top priorities, and Procare's leader, Joe Gomes, has executed this playbook before at PowerPlan. CentralReach is off to an outstanding start and ahead of our deal model. The business is scaling well with strong recurring software momentum and expanding profitability, and they're building a broader growth engine through cross-sell and a steady cadence of new product releases, including AI-enabled offerings.

Now, turning to our outlook for 2026, we expect organic growth to be in the higher end of the mid-singles range. We also expect a modest back half weighting as CentralReach turns organic and non-recurring comparables ease in the second half. As mentioned previously, we're maintaining a conservative posture in GovCon at Deltek until we see sustained improvement in commercial activity. So overall, application software remains a durable growth engine supported by recurring revenue momentum and continued product execution across this portfolio. Please turn with us to page 12. Total revenue growth in our network segment was 8%, and organic revenue grew 4% for 2025. EBITDA margins came in at 54.1%. DAT continues to execute well on what they can control: broker integrations, value capture, and trust in the network, all leading to RPO expansion.

Although the freight recession persisted throughout 2025, DAT is continuing its evolution from a traditional load board into a more automated marketplace where brokers and carriers can match loads with greater trust efficiency and increasingly transact within the platform. As this happens, DAT's TAM and monetization opportunities grow. To this end, DAT is advancing its AI-first operating model with concrete use cases across carrier onboarding, fraud detection, and freight matching automation. This is a pattern we like. AI then improves customer outcomes, lowers transaction friction, and expands our TAM, where we have a very high rate to win. ConstructConnect had another strong year of recurring revenue growth, and the team made material technical advances with their AI-based takeoff solution, Boost. Foundry is making steady progress with year-over-year growth and ARR as the market continues to recover.

We continue to be excited about the AI product development at Foundry because it fits naturally in the creative workflows where small improvements can materially improve artist throughput. Importantly, these are high-frequency, high-value tasks that Foundry already sits inside, so AI is being delivered as embedded features that customers should adopt quickly, given the clear and integrated efficiency gains offered. MHA, SoftWriters, and SHP continue to execute well, supported by stable in-market demand and strong recurring revenue models. Each team is advancing its roadmap with targeted investments in functionality, workflow efficiency, and service levels to deepen customer value and retention. Subsplash is off to a great start in the portfolio with strong execution and solid momentum across the business. We're encouraged by the durability of the revenue model and the opportunity to continue expanding value delivered to customers over time.

As we turn to the outlook for the year, we expect network software organic growth to be in the higher end of the mid-singles range, representing a modest improvement versus 2025. We expect a stronger Q4 driven by Subsplash turning organic in the quarter. Of note, we remain conservative on DAT by assuming no meaningful improvement in the freight market. Now, please turn to page 13, and let's review our TEP segment's full year results. Revenue here grew 7% on a total and 6% on an organic basis. EBITDA margins remain strong at 35.7%. We'll start with NDI, whose growth is being driven primarily by sustained momentum in its electromagnetic tracking solutions, supported by strong OEM demand and program ramps. Importantly, OEM order activity has remained strong, and the business is converting that demand into higher revenue scale and operating leverage.

Great job by Dave and the entire team at NDI. Verathon continues to perform very well with solid growth across its GlideScope and BFlex franchises. Importantly, Verathon is the U.S. market share leader in single-use bronchoscopes, which reflects several years of consistent execution and reinforces the durability of the model as the business continues to take share in an attractive procedural workflow area. Looking to 2026, we're optimistic about several new product launches planned throughout the year. For the full year, Neptune grew modestly, notwithstanding the year-long backlog normalization supported by demand for its static ultrasonic meters and its cloud-based software solutions. Although the second-half commercial challenges tied to our tariff surcharging program eased late in the year, we remain cautious and are not underwriting a recovery in our 2026 guidance.

Finally, the balance of the businesses in this segment, CIVCO, FMI, and Inovonics, IPA, and RF IDeas, were really strong throughout 2025 and were meaningful contributors to the segment's results. For the full year, we expect segment organic growth in the mid-single-digit range, with first half being more in the low singles area as Neptune's backlog continues to normalize. Given the more limited visibility of Neptune, we're taking a cautious approach as we monitor underlying demand over the next couple of quarters. With that, please turn to page 15. So now let's turn to our Q1 and full year 2026 guidance. Based on what we previously discussed in our segment overviews, we're initiating our 2026 financial guidance to grow full year revenue in the 8% area, organic revenue growth between 5% and 6%, and adjusted DEPS of $21.30-$21.55.

Our guidance assumes a full year effective tax rate in the 21% area and more in the 22% area for Q1. To reiterate from earlier, our full year guidance does not bake in improvement at Deltek's GovCon business or in DAT's freight market and assumes modest top-line weakness at Neptune versus 2025. As discussed, we expect stronger second-half organic growth driven largely by CentralReach and Subsplash turning organic and easing non-recurring comparables. Our guidance does not assume a meaningful revenue uplift from our AI development work either. We view AI as incremental upside as we scale commercialization across the portfolio. Finally, we remain positioned to be active and opportunistic on capital deployment.

We continue to have a robust M&A funnel, a meaningful remaining share repurchase authorization, and substantial financial flexibility, and we'll remain disciplined and unbiased between acquisitions and buybacks based on what drives the highest and most durable cash flow per share compounding. For the first quarter, we expect adjusted DEPS to be in the range of $4.95-$5.05, reflecting the dynamics previously discussed. Now, please turn to page 16, and we'll open up for your questions. We'll conclude with the same three takeaways with which we started. First, in 2025, we delivered both double-digit revenue and EBITDA growth and solid free cash flow. Enterprise software bookings grew in the low double-digit range, which positioned us well entering 2026. Second, we're investing for long-term sustainable growth improvements while staying disciplined in our expectations.