ROPER TECHNOLOGIES INC Q1 2026 earnings call

Good morning, and thank you all for joining us as we discuss the first quarter 2026 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 Chief 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. Now if you'll please turn to page 2. 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 3. Today, we will discuss our results primarily on an adjusted non-GAAP and continuing operations basis. For the first 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 4, 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 4, you'll see the topics we will cover today. We'll start by highlighting our Q1 enterprise performance. Jason will walk through the enterprise financials, our balance sheet, and provide an update on our share repurchase program. We'll discuss our segment highlights and outlook and introduce our Q2 and increased full-year 2026 guidance. Finally, we'll close with a few summary points before opening the call for questions. Let's go ahead and get started. Next slide, please. As you turn to page 5, I want to highlight three takeaways for today's call. First, we delivered a strong start to 2026 and are raising our full-year debt guidance. Our Q1 results exceeded expectations across every key metric.

Total revenue grew 11%, organic revenue grew 6%, EBITDA grew 8%, free cash flow grew 11%, and DEPS was $5.16. Importantly, enterprise gross retention remains strong, consistently in the mid-90s area. On that foundation, enterprise software bookings were also strong, core up low double digits on a TTM basis. This continues the momentum from our last call and bolsters our confidence for the balance of the year. On the back of this quarter's performance, we're raising our full-year DEPS guidance to a range of $21.80-$22.05, up $0.50 at the midpoint, and more on this later. Second, we're continuing to accelerate AI velocity across the portfolio. In Q1, AI innovation continued to broaden across our businesses, move deeper into core products, and increasingly show up in both product roadmaps and customer conversations.

Businesses like CentralReach, ConstructConnect, Vertafore, iPipeline, Aderant, DAT, Subsplash, and SoftWriters all released meaningful new AI-enabled product capabilities during the quarter. The signal from our own portfolio that AI can be a meaningful growth driver in vertical software keeps getting clearer by the day. On the AI accelerator team at Roper, as a reminder, this is a central strike team that partners directly with our operating companies to accelerate AI product development and capture reusable patterns for deployment across the portfolio. The team is ramping quickly. The team's first partnership was with Vertafore, helping deliver AI agents unveiled at their customer conference last week. This is exactly the kind of portfolio impact we envisioned when we invested in this team, and we expect the pace of partnerships with our operating companies to accelerate throughout the year. Our third takeaway centers on capital employment.

Since November last year, we've repurchased 6 million shares for $2.2 billion, including 4.9 million shares for $1.7 billion year to date in 2026. Importantly, our board authorized an additional $3 billion of repurchase capacity, giving us $3.8 billion of remaining authorization and north of $5 billion of total capital employment capacity over the next 12 months. Our approach remains unchanged. We're disciplined and unbiased between acquisitions and opportunistic buybacks, focusing on driving the best risk-adjusted long-term cash flow compounding per share for our shareholders. Our M&A pipeline today is targeted, focused on high-quality strategic opportunities where we're developing deep relationships and real conviction, and we expect to remain active as disciplined long-term buyers. Before I turn it to Jason, one theme you'll hear throughout today's call: organizational velocity across our portfolio continues to build.

The investments we've made over the past 2 years in leadership, in AI, in modern engineering practices, and in operational rigor are working and demonstrating meaningful results. Our businesses are releasing innovation faster, executing sharper, and moving with more confidence. That's what gives us conviction in the balance of the year and beyond. With that, Jason, let me turn the call over to you.

Thanks, Neil, and good morning, everyone. I'll take you through our first quarter financial performance, starting on slide 6.

As you heard, we delivered a strong first quarter, finishing well above the high end of our debt guidance range and ahead of expectations on organic growth. Revenue of $2.1 billion was up 11%, with organic growth of 6% and acquisitions contributing 5%. Importantly, recurring software revenue growth across our software segments was again strong at 7%, which continues to be the best indicator of business health and durability. EBITDA of $797 million was up 8% over prior year. EBITDA margin was 38.1%. Our core EBITDA margin was down 70 basis points in the quarter, driven by lower gross margins in our tech segment due to mix of more consumables at NDI and Verathon, coupled with higher input costs at Neptune. Core EBITDA margins in our software segments expanded 40 basis points, which includes continued investment in AI.

EPS of $5.16 was above our guidance range of $4.95-$5 and up 8% over prior year. The upside was driven by the combination of stronger organic growth, a lower tax rate, and the benefit of lower share count resulting from our net purchasing activity in Q1. Free cash flow of $562 million was up 11% over prior year. On a trailing 12-month basis, free cash flow is now $2.5 billion and has compounded at a 19% CAGR over the last 3 years or 15%, excluding the impact of Section 174. We continue to view free cash flow per share as the most important metric in evaluating our progress. On that basis, we were up 15% versus the prior year, given the combination of growing cash flow and a declining share count. Relatedly, and for modeling purposes, we exited Q1 with 102.4 million shares outstanding.

Now, if you turn with me to slide 7, I'll walk through our financial position and capital deployment update. We exited Q1 at 3.1x net debt to EBITDA, which is up modestly from 2.9x at year-end, given the $1.5 billion we deployed towards share repurchases in the quarter. We have $383 million of cash and $2 billion drawn on our $3.5 billion revolver. Importantly, we closed on a new 5-year, $3.5 billion revolving credit facility during the quarter, which provides ample liquidity at improved pricing and terms. This also enhances our cost of capital strategic advantage in the face of an increasingly constrained private credit market that other market participants looking to make acquisitions will be facing. Even after significant repurchase activity in Q1, we maintain over $5 billion of annualized capacity for capital deployment, which speaks to the strength of Roper's cash generation engine.

Neil highlighted the share repurchase activity in the opening. To put it in perspective, our cumulative 6 million of share repurchases is about 6% of shares outstanding and brings us back to a share count we have not seen since 2017. Additionally, our board approved expanding our share repurchase authorization by another $3 billion, which provides capital deployment flexibility and reflects continued confidence in our vertical market software position, enhanced capabilities, and execution velocity to capture the AI opportunities in front of us. On M&A, the pipeline of high-quality opportunities remains very attractive. As we've discussed, we believe the structural dynamics in the PE-backed software market and a constrained private credit market continue to create a compelling environment for Roper. We remain active and disciplined. With that, I'll turn it back over to Neil to discuss the segment performance and outlook. Neil?

Thanks, Jason. As you turn to page 9, let's review our application software segment. Revenue for the quarter grew 12% in total, and our organic revenue growth was 5%. EBITDA grew 13%, EBITDA margins were 42%, and core margins improved 50 basis points year-over-year. The quality growth here is notable. Recurring revenue, about 85% of the segment, grew in the mid-single-digit plus range, while non-recurring was essentially flat. Stepping back at a segment level, three themes stand out for the quarter. First, enterprise gross retention remains strong, consistently in the mid-90s area. On that foundation, enterprise bookings were also strong in the quarter, consistent with the momentum we described in our January call and supportive of our confidence for the balance of the year. Second, our SaaS transitions continue to advance meaningfully.

Several of our larger businesses made real progress on on-prem to cloud conversions and on bringing new cloud-native products to market. Third, AI progress continued to build. The signal is shifting from product investment to product shipping, and you'll see this clearly in the three company highlights to follow. First, Aderant delivered a record quarter, strong revenue growth, and a new Q1 bookings record. Strength was broad-based, with particularly strong SaaS momentum on Sierra, Onyx, and ViGlobal. Aderant also launched AI-driven talent evaluation within ViGlobal, continued the rollout of the Stridyn AI platform, and completed a record number of Sierra cloud migrations in the quarter. Simply put, Aderant is winning in the legal market and doing so from a position of strength. Second, Vertafore delivered a solid quarter, steady mid-single-digit revenue growth with EBITDA ahead of revenue.

Recurring revenue continued to build across agency, MGA, and carrier, with MGA again leading on double-digit growth driven by strong bookings and high retention. Last week at their Accelerate user conference in Las Vegas, Vertafore unveiled its new Velocity AI platform, along with a suite of AI agents embedded across the product portfolio, Connect and reconciliation to submission processing and email agent automation. AI is a meaningful TAM expansion opportunity for Vertafore, and they're quickly moving to capture it. As I mentioned earlier, this is where the Roper AI accelerator team had its first impact, and it's exciting to see. Third, CentralReach continues to execute ahead of our deal model. Recurring software revenue grew well north of 20%, with margins expanding, demonstrating the operating leverage in this business as it scales. Most importantly, CentralReach continues to be one of our strongest AI proof points.

AI-generated session notes have dropped from 5-10 minutes to about 30 seconds, giving clinicians back roughly 8 hours a week to work with autism learners. BCBAs are saving 140+ hours a year on report authoring and review, and daily claim generation is 6x faster. Customers are responding. AI and AI-influenced bookings were 75% of new business in the quarter, up from 0 to 2 years ago. This is a textbook example of how the AI right to win we believe exists across our portfolio. CentralReach sits inside mission-critical workflows, has proprietary data, and is translating that advantage into real growing AI revenue. Prior to turning to the outlook for this section, I'll provide an update on Deltek and the GovCon market.

Importantly, Deltek grew recurring revenue in the mid-single digit plus range in the quarter, driven by strong private sector demand, partially offset by continued softness in GovCon enterprise. SaaS remains strong, with ground-to-cloud conversions trending positively. Consistent with January, we're still waiting for the GovCon inflection. This is not new. We continue to work through the tail of last year's disruption to federal procurement, agency reorganizations, and broader budget uncertainty, which is delaying decision-making, particularly on large enterprise perpetual deals. Longer term, we remain encouraged. The One Big Beautiful Bill is a meaningful positive for defense and government contracting spend, though the benefit reaches us only after our customers win awards and invest in systems, and that takes a bit of time. Consistent with January, we're not baking into our guidance any GovCon inflection or any OBBB benefit, and rather will adjust as conditions warrant.

Turning to our outlook for application software, we expect organic growth for the balance of the year to be in the mid-single digit plus range, lowering Q2 on some non-recurring timing, improving in the back half with CentralReach's turning organic, and easing non-recurring comps. Please turn to page 10. Total revenue growth in our network software segment was 14%, and organic revenue grew 5% in the quarter. The quality growth mirrored application software. Organic recurring grew mid-single digit plus. Non-recurring declined mid-single as customers moved to our cloud offerings, and bookings remained strong here. EBITDA margins were 50.7%, down 460 basis points year-over-year, while core margins held steady, down just 20 basis points. The gap reflects two dynamics: our acquisition of Subsplash, a faster-growth business with a lower but steadily improving margin profile, and our ongoing investment in DAT, particularly Convoy.

Stepping back at the segment level, we see similar themes playing out here that we described in application software. First, enterprise bookings were strong and gross retention remained high across our network businesses, together giving us improved visibility into the balance of the year. Second, AI progress is tangible and shipping to customers today. Let me highlight three businesses in this segment. First, DAT is executing well against a mixed freight backdrop. RPU expansion continues, and adoption of our digital freight marketplace solutions remain strong. On the macro, spot rates are up 20%-30% year-over-year, and the carrier side of our ecosystem grew in Q1 for the first time in several years, real green shoots, particularly in the second half of the quarter.

That said, a sharp diesel spike compressed carrier margins late in the quarter, and our guidance continues to assume no meaningful freight market recovery. Our early-stage investment Convoy inside DAT represents a material TAM expansion opportunity. Today, DAT is a subscription-based two-sided network. Brokers and carriers pay to access the largest freight marketplace in North America. With Convoy, DAT is evolving into a full end-to-end agentic and ML-powered marketplace, participating in the workflow and the economics of the transaction itself, a meaningfully larger and more valuable business over time. The innovation that enables this transformation exists, and it's working in the market, and we continue to enhance and extend the tech. In the most recent quarter, DAT's RateView AI agent moved into live production, replacing manual rate lookups with instant conversational lane rate guidance.

Convoy Load Notes is turning brokers' freeform emails and chat messages directly into bookable loads, eliminating manual data entry, and Loadlink Voice to Post is enabling hands-free load posting. The AI work at DAT is not theoretical. It's shipping in production and delivering incredible value to customers today. Turning to ConstructConnect, another strong quarter with recurring revenue up double digits and continued breakout from Boost, their AI-based takeoff solution. AI AutoCount, which reads construction schedules, launches this quarter. Most importantly, ConstructConnect has now moved its entire product and engineering organization into agentic coding processes and tools. Shipping 4x the features versus a year ago. Broadening this across the portfolio to drive multi-fold product velocity gains is a key priority and an exciting one for enterprise. Third, Foundry returned to year-over-year revenue growth in Q1, with Nuke closing the quarter at record ARR.

Net retention returned above 100% for the first time since the 2023 actors and writer strikes, and our recent Griptape acquisition extends Foundry's leadership into AI orchestration across the visual effects and animation pipeline, enabling studios to securely coordinate multiple AI models and agents in their production and post-production workflows. Finally, prior to turning to our segment outlook, I'd like to make a couple quick call-outs. SoftWriters launched its AI-enabled order entry product last week, a meaningful workflow enhancement for long-term care pharmacies, and Subsplash released Trends AI, giving ministry customers the ability to generate custom data insights through natural language prompts, a key unlock for this customer constituency. Turning to our outlook for network software, we expect organic growth for the balance of the year to be in the mid-single digit plus range. A couple of quick call-outs.

Subsplash turns organic in Q4, and margins will reflect continued investment in our freight platform acquisitions through the balance of the year. Now please turn to page 11, and let's review our Technology-Enabled Products segment. Revenue here grew 9% in total and 7% organic, significantly better than expected, driven by strength at NDI and Verathon. EBITDA margins were 33.6%, down 260 basis points year-over-year, reflecting two dynamics. First, input cost pressure at Neptune, principally bronze ingot inflation. Second, a mix shift at both NDI and Verathon towards faster-growing consumables, which carry lower gross margins but more durable recurring revenue profiles. Let me start with NDI. Another record quarter driven by exceptional demand for their electromagnetic tracking solutions across cardiac, neurological, and orthopedic precision measurement applications. The EP market, in particular, is a strong multi-year growth vector for NDI.

Procedure volumes continue to grow, meaning OEMs are introducing new tracking-enabled catheter platforms, and NDI has a unique right to win at the sensor layer. Great job by Dave and the entire team at NDI. Turning to Neptune, revenue declined low single digits in the quarter, which was better than expected, driven by strong execution from Don and the entire team at Deltek. The market dynamics were large as expected, with lower mechanical meter volumes partially offset by strong static meter growth. Importantly, Neptune's cloud-based software adoption continues to scale nicely, though off a small base. Consistent with our Q4 commentary, we're not underwriting a Neptune recovery in our 2026 guidance and will continue to monitor underlying demand. Rounding out the segment, Verathon delivered solid growth supported by strong D-Flex and GlideScope demand, and we're optimistic about new product launches planned for the balance of the year.