ROPER TECHNOLOGIES, INC. 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 endedDecember 31, 2020 ("Annual Report") as filed onFebruary 22, 2021 with theU.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 theSEC 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, including: the duration and scope of the pandemic, new variants of the virus and the distribution and efficacy of vaccines; any negative impact on global and regional markets, economies and economic activity; actions governments, businesses and individuals take in response to the pandemic; the effects of the pandemic, including all of the foregoing, on our employees, customers, suppliers, and business partners, and how quickly economies and demand for our products and services recover following the pandemic. Additional 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; •limitations on our business imposed by our indebtedness; •unfavorable changes in foreign exchange rates; •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; •difficulties associated with exports/imports and risks of changes to tariff rates; •risks and costs associated with our international sales and operations; •rising interest rates; •product liability and insurance risks; •increased warranty exposure; •future competition; •the cyclical nature of some of our markets; •reduction of business with large customers; •risks associated with government contracts; •changes in the supply of, or price for, raw materials, parts and components; •environmental compliance costs and liabilities; •risks and costs associated with asbestos-related litigation; •potential write-offs of our goodwill and other intangible assets; •our ability to successfully develop new products; •failure to protect our intellectual property; •the effect of, or change in, government regulations (including tax); 15 -------------------------------------------------------------------------------- Table of Contents •economic disruption caused by terrorist attacks, health crises (such as the COVID-19 pandemic) or other unforeseen geopolitical events; and •the factors discussed in other reports filed with theSEC from time to time. We believe these forward-looking statements are reasonable. However, 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 them in light of new information or future events.
Overview
Roper is a diversified technology company. We operate businesses that design and develop software (both license and SaaS) and engineered products and solutions for a variety of niche end markets. We pursue consistent and sustainable growth in earnings and cash flow by emphasizing continuous improvement in the operating performance of our existing businesses and by acquiring other businesses that offer high value-added software, services, engineered products and solutions that we believe are capable of achieving growth and maintaining high margins. We compete in many niche markets and believe we are the market leader or a competitive alternative to the market leader in most of these markets.
Critical Accounting Policies
There were no material changes during the six months endedJune 30, 2021 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.
Impact of COVID-19 on our Business
The extent to which the COVID-19 pandemic impacts our business, results of
operations and financial condition will depend on future developments, which are
highly uncertain and are difficult to predict, including, but not limited to,
the duration and spread of the outbreak, its severity, the actions to contain
the virus and its variants including the distribution, administration and
efficacy of available vaccines, and how quickly and to what extent normal
economic and operating conditions can resume. As COVID-19 and its variants
spread, particularly in countries with low vaccination rates, certain countries
may experience more severe and lasting impacts from the pandemic. To the extent
we have operations and/or customers in these countries, we may experience
adverse impacts on our businesses located in such countries.
16
--------------------------------------------------------------------------------
Table of Contents
Results of Operations
All currency amounts are in millions, percentages are of net revenues
General
Percentages may not sum due to rounding.
The following table sets forth selected information for the periods indicated.
Three months ended June 30, Six months ended June 30,
2021 2020 2021 2020
Net revenues:
Application Software $ 591.6 $ 398.4 $ 1,168.2 $ 803.5
Network Software & Systems 458.7 422.0 898.9 860.2
Measurement & Analytical Solutions 397.0 363.9 778.0 729.1
Process Technologies 140.3 120.7 271.1 262.9
Total $ 1,587.6 $ 1,305.0 $ 3,116.2 $ 2,655.7
Gross margin:
Application Software 69.2 % 68.7 % 69.2 % 67.7 %
Network Software & Systems 69.5 67.5 68.8 67.2
Measurement & Analytical Solutions 58.0 60.9 58.5 59.8
Process Technologies 53.9 52.7 54.1 54.1
Total 65.1 64.7 65.1 64.0
Selling, general and administrative
expenses:
Application Software 43.1 % 40.3 % 42.8 % 41.5 %
Network Software & Systems 36.7 36.5 37.0 35.9
Measurement & Analytical Solutions 26.8 27.1 26.6 27.3
Process Technologies 22.5 38.7 23.7 31.2
Total 35.4 35.2 35.4 34.8
Segment operating margin:
Application Software 26.1 % 28.5 % 26.4 % 26.3 %
Network Software & Systems 32.8 30.9 31.8 31.3
Measurement & Analytical Solutions 31.2 33.8 31.9 32.5
Process Technologies 31.3 14.0 30.3 22.9
Total 29.8 29.4 29.7 29.3
Corporate administrative expenses (3.4) (3.9) (3.4) (3.6)
Income from operations 26.3 25.6 26.3 25.7
Interest expense, net (3.7) (3.6) (3.9) (3.5)
Other income (expense), net 0.1 (0.2) 0.9 -
Earnings before income taxes 22.6 21.8 23.3 22.2
Income taxes (4.6) (5.0) (4.8) (4.9)
Net earnings 18.0 % 16.8 % 18.5 % 17.3 %
Three months ended
Net revenues for the three months ended
In our Application Software segment, revenues were$591.6 in the second quarter of 2021 as compared to$398.4 in the second quarter of 2020, an increase of 48%. Acquisitions contributed 38%, organic revenues increased 9% and foreign exchange contributed 2% to growth in the segment. The increase in organic revenues was due to broad-based revenue growth across the segment led by our businesses serving the government contracting, healthcare and education markets. Gross margin increased 17 -------------------------------------------------------------------------------- Table of Contents to 69.2% in the second quarter of 2021 as compared to 68.7% in the second quarter of 2020 due primarily to the acquisition ofVertafore and operating leverage on higher organic revenues. Selling, general and administrative ("SG&A") expenses as a percentage of revenues increased to 43.1% in the second quarter of 2021 as compared to 40.3% in the second quarter of 2020 due primarily to higher amortization of acquired intangibles from theVertafore and EPSi acquisitions, partially offset by operating leverage on higher organic revenues. The resulting operating margin was 26.1% in the second quarter of 2021 as compared to 28.5% in the second quarter of 2020. In ourNetwork Software & Systems segment, revenues were$458.7 in the second quarter of 2021 as compared to$422.0 in the second quarter of 2020, an increase of 9%. Organic revenues increased 6%, acquisitions contributed 2% and foreign exchange contributed 1% to growth in the segment. The increase in organic revenues was primarily due to subscription growth at our SaaS businesses led by our businesses serving the freight match and construction markets, partially offset by lower toll tag volumes in our toll and traffic business. Gross margin increased to 69.5% in the second quarter of 2021 as compared to 67.5% in the second quarter of 2020 due primarily to revenue mix. SG&A expenses as a percentage of revenues increased to 36.7% in the second quarter of 2021 as compared to 36.5% in the second quarter of 2020 due primarily to higher amortization of acquired intangibles from the acquisitions completed in 2020. As a result, operating margin was 32.8% in the second quarter of 2021 as compared to 30.9% in the second quarter of 2020. Our Measurement & Analytical Solutions segment revenues increased by 9% to$397.0 in the second quarter of 2021 as compared to$363.9 in the second quarter of 2020. Organic revenues increased 7% and foreign exchange contributed 2% to growth in the segment. The growth in organic revenues was primarily due to broad-based growth in our water meter technology business, industrial businesses, and medical products businesses excludingVerathon , which declined due to unprecedented demand for their products used in the treatment of COVID-19 during 2020. Gross margin decreased to 58.0% in the second quarter of 2021 as compared to 60.9% in the second quarter of 2020 due primarily to revenue mix. SG&A expenses as a percentage of revenues decreased to 26.8% in the second quarter of 2021 as compared to 27.1% in the second quarter of 2020 due primarily to higher operating leverage on organic revenue growth. The resulting operating margin was 31.2% in the second quarter of 2021 as compared to 33.8% in the second quarter of 2020. Our Process Technologies segment revenues increased by 16% to$140.3 in the second quarter of 2021 as compared to$120.7 in the second quarter of 2020. Organic revenues increased 13% and foreign exchange contributed 4%. Organic revenues increased due to broad-based revenue growth across the segment as energy and industrial markets began to recover from the pandemic. Gross margin increased to 53.9% in the second quarter of 2021 as compared to 52.7% in the second quarter of 2020 due primarily to revenue mix. SG&A expenses as a percentage of revenues decreased to 22.5% in the second quarter of 2021 as compared to 38.7% in the second quarter of 2020 due primarily to a$13.6 restructuring charge for structural cost reduction actions taken at certain businesses during the second quarter of 2020 and higher operating leverage on organic revenue growth. As a result, operating margin was 31.3% in the second quarter of 2021 as compared to 14.0% in the second quarter of 2020. Corporate expenses increased to$54.6 , or 3.4% of revenues, in the second quarter of 2021 as compared to$50.3 , or 3.9% of revenues, in the second quarter of 2020. The dollar increase was due primarily to higher compensation related expenses, partially offset by lower acquisition related expenses.
Net interest expense was
Other income, net, of$0.9 for the second quarter of 2021 was composed primarily of royalty income. Other expense, net, of$2.0 for the second quarter of 2020 was composed primarily of foreign exchange losses at our non-U.S. based subsidiaries. Income taxes as a percent of pretax earnings decreased to 20.3% in the second quarter of 2021 as compared to 22.8% in the second quarter of 2020. The rate was favorably impacted primarily due to the recognition of a net tax benefit in connection with an internal restructuring plan, partially offset by an unfavorable impact due to aUK tax rate change. Backlog is equal to our remaining performance obligations expected to be recognized within the next 12 months as discussed in Note 11 of the Notes to Condensed Consolidated Financial Statements. Backlog increased 30% to$2,647.6 atJune 30, 2021 as compared to$2,044.3 atJune 30, 2020 , organic growth was 11% and acquisitions contributed 19%. 18
--------------------------------------------------------------------------------
Table of Contents
Backlog as of
June 30,
2021 2020
Application Software $ 1,392.6 $ 870.3
Network Software & Systems 828.9 832.9
Measurement & Analytical Solutions 295.5 231.4
Process Technologies 130.6 109.7
Total $ 2,647.6 $ 2,044.3 Six months ended
Net revenues for the six months endedJune 30, 2021 increased by 17% as compared to the six months endedJune 30, 2020 . Acquisitions contributed 12%, organic revenues increased 3% and foreign exchange contributed 2%. In our Application Software segment, revenues were$1,168.2 in the six months endedJune 30, 2021 as compared to$803.5 in the six months endedJune 30, 2020 , an increase of 45%. Acquisitions contributed 38%, organic revenues increased 5% and foreign exchange contributed 2%. The growth in organic revenues was primarily due to businesses serving healthcare and government contracting markets. Gross margin increased to 69.2% in the six months endedJune 30, 2021 as compared to 67.7% in the six months endedJune 30, 2020 due primarily to the acquisition ofVertafore and operating leverage on higher organic revenues. SG&A expenses increased as a percentage of revenue to 42.8% in the six months endedJune 30, 2021 as compared to 41.5% in the six months endedJune 30, 2020 due primarily to higher amortization of acquired intangibles from theVertafore and EPSi acquisitions, partially offset by operating leverage on higher organic revenues. The resulting operating margin was 26.4% in the six months endedJune 30, 2021 as compared to 26.3% in the six months endedJune 30, 2020 . In ourNetwork Software & Systems segment, revenues increased by 4% to$898.9 in the six months endedJune 30, 2021 as compared to$860.2 in the six months endedJune 30, 2020 . Acquisitions contributed 2%, organic revenues increased 1% and foreign exchange contributed 1%. The increase in organic revenues was primarily due to subscription growth at our SaaS businesses led by our businesses serving the freight match and construction markets, partially offset by lower toll tag volumes in our toll and traffic business. Gross margin increased to 68.8% in the six months endedJune 30, 2021 as compared to 67.2% in the six months endedJune 30, 2020 due primarily to revenue mix. SG&A expenses increased as a percentage of revenues at 37.0% in the six months endedJune 30, 2021 as compared to 35.9% in the six months endedJune 30, 2020 due primarily to revenue mix. As a result, operating margin was 31.8% in the six months endedJune 30, 2021 as compared to 31.3% in the six months endedJune 30, 2020 . Our Measurement and Analytical segment revenues increased by 7% to$778.0 in the six months endedJune 30, 2021 as compared to$729.1 in the six months endedJune 30, 2020 . Organic revenues increased 5% and foreign exchange contributed 2%. The growth in organic revenues was primarily due to broad-based growth led by our industrial businesses, water meter technology business, and medical products businesses excludingVerathon , which declined due to unprecedented demand for their products used in the treatment of COVID-19 during 2020. Gross margin decreased to 58.5% in the six months endedJune 30, 2021 as compared to 59.8% in the six months endedJune 30, 2020 due primarily to revenue mix. SG&A expenses as a percentage of revenues decreased to 26.6% in the six months endedJune 30, 2021 as compared to 27.3% in the six months endedJune 30, 2020 due primarily to higher operating leverage on organic revenue growth. The resulting operating margin was 31.9% in the six months endedJune 30, 2021 as compared to 32.5% in the six months endedJune 30, 2020 . Our Process Technologies segment revenues increased by 3% to$271.1 in the six months endedJune 30, 2021 as compared to$262.9 in the six months endedJune 30, 2020 . Organic revenues were flat with foreign exchange contributing 3% to the growth in the segment. Gross margin was flat at 54.1% in the six months endedJune 30, 2021 andJune 30, 2020 . SG&A expenses as a percentage of revenues decreased to 23.7% in the six months endedJune 30, 2021 as compared to 31.2% in the six months endedJune 30, 2020 due primarily to$13.6 of restructuring charges for structural cost reduction actions taken at certain of our businesses during the second quarter of 2020. As a result, operating margin was 30.3% in the six months endedJune 30, 2021 as compared to 22.9% in the six months endedJune 30, 2020 . Corporate expenses increased to$105.7 , or 3.4% of revenues, in the six months endedJune 30, 2021 as compared to$94.7 , or 3.6% of revenues, in the six months endedJune 30, 2020 . The dollar increase was due primarily to higher compensation related expenses, partially offset by lower acquisition related expenses. 19 -------------------------------------------------------------------------------- Table of Contents Net interest expense was$120.1 for the six months endedJune 30, 2021 as compared to$92.9 for the six months endedJune 30, 2020 due to higher weighted average debt balances, partially offset by lower weighted average interest rates. Other income, net, of$27.9 for the six months endedJune 30, 2021 was composed primarily of a gain on sale of minority investment of$27.1 . Other expense, net, of$1.2 for the six months endedJune 30, 2020 was composed primarily of foreign exchange losses at our non-U.S. based subsidiaries. Income taxes as a percent of pretax earnings decreased to 20.8% in the six months endedJune 30, 2021 as compared to 21.9% in the six months endedJune 30, 2020 . The rate was favorably impacted primarily due to the recognition of a net tax benefit in connection with an internal restructuring plan, partially offset by an unfavorable impact due to aUK tax rate change.
Financial Condition, Liquidity and Capital Resources All currency amounts are in millions
Selected cash flows for the six months endedJune 30, 2021 and 2020 were as follows: Six months ended June 30, Cash provided by/(used in): 2021 2020 Operating activities$ 985.1 $ 813.0 Investing activities (22.2) (177.5) Financing activities (934.6) 532.9 Operating activities - Net cash provided by operating activities increased by 21% to$985.1 in the six months endedJune 30, 2021 as compared to$813.0 in the six months endedJune 30, 2020 , due primarily to (i) higher net income net of non-cash expenses, and (ii) growth in our software businesses, which generated cash from working capital, these increases were partially offset by higher cash taxes due to the deferral of$137.5 of tax payments in the second quarter 2020 under the Coronavirus Aid, Relief, and Economic Security Act of 2020.
Investing activities - Cash used in investing activities during the six months
ended
Financing activities - Cash used in financing activities for the six months endedJune 30, 2021 was primarily due to net repayments on our unsecured credit facility and dividend payments, partially offset by net proceeds from stock based compensation. Cash provided by financing activities during the six months endedJune 30, 2020 was primarily due to net proceeds from the issuance of notes and net proceeds from stock based compensation, partially offset by dividend payments. Effect of foreign currency exchange rate changes on cash - Cash and cash equivalents increased during the six months endedJune 30, 2021 by$1.2 due primarily to the weakening of theU.S. dollar against the functional currency of our Canadian subsidiaries. Cash and cash equivalents decreased during the six months endedJune 30, 2020 by$7.3 due primarily to the strengthening of theU.S. dollar against the functional currencies of ourUnited Kingdom and Canadian subsidiaries. 20
--------------------------------------------------------------------------------
Table of Contents
Total debt at
$500 2.800% senior notes due 2021 500.0$500 3.125% senior notes due 2022 500.0$300 0.450% senior notes due 2022 300.0$700 3.650% senior notes due 2023 700.0$500 2.350% senior notes due 2024 500.0$300 3.850% senior notes due 2025 300.0$700 1.000% senior notes due 2025 700.0$700 3.800% senior notes due 2026 700.0$700 1.400% senior notes due 2027 700.0$800 4.200% senior notes due 2028 800.0$700 2.950% senior notes due 2029 700.0$600 2.000% senior notes due 2030 600.0$1,000 1.750% senior notes due 2031 1,000.0 Unsecured credit facility 750.0 Deferred finance costs (54.0) Other 5.9
Total debt, net of deferred finance costs 8,701.9 Less current portion
502.4
Long-term debt, net of deferred finance costs
The interest rate on borrowings under our$3,000.0 unsecured credit facility is calculated based upon various recognized indices plus a margin as defined in the credit facility. AtJune 30, 2021 , there were$750.0 outstanding borrowings under our unsecured credit facility. AtJune 30, 2021 , we had$5.9 of other debt in the form of short term borrowings, finance leases and several smaller facilities that allow for borrowings in various foreign locations to support our non-U.S. businesses and$62.2 of outstanding letters of credit. Cash at our foreign subsidiaries atJune 30, 2021 increased to$316 as compared to$259 atDecember 31, 2020 due primarily to the cash generated at our foreign subsidiaries during the six months endedJune 30, 2021 , partially offset by the repatriation of$185 during the six months endedJune 30, 2021 . We intend to repatriate substantially all historical and future earnings. We expect existing cash balances, together with cash generated by our operations and amounts available under our credit facility, will be sufficient to fund our operating requirements for the foreseeable future.
We were in compliance with all debt covenants related to our unsecured credit
facility throughout the six months ended
Net working capital (total current assets, excluding cash, less total current liabilities, excluding debt) was negative$541.8 atJune 30, 2021 as compared to negative$498.4 atDecember 31, 2020 , reflecting a decrease in working capital due primarily to a decrease in accounts receivable, net, and an increase in accounts payable, partially offset by an increase in unbilled receivables. Consistent negative net working capital demonstrates Roper's continued evolution and focus on asset-light business models. Total debt was$8,701.9 atJune 30, 2021 as compared to$9,566.5 atDecember 31, 2020 , due primarily to the net repayments under our unsecured credit facility. Our leverage is shown in the following table: 21
--------------------------------------------------------------------------------
Table of Contents
June 30, December 31,
2021 2020
Total debt $ 8,701.9 $ 9,566.5
Cash (337.8) (308.3)
Net debt 8,364.1 9,258.2
Stockholders' equity 11,089.2 10,479.8
Total net capital $ 19,453.3 $ 19,738.0
Net debt / total net capital 43.0 % 46.9 %
Capital expenditures were $17.2 for the six months ended June 30, 2021 as
compared to $15.5 for the six months ended June 30, 2020 . Capitalized software
expenditures were $15.3 for the six months ended June 30, 2021 as compared to
$5.2 for the six months ended June 30, 2020 . We expect the aggregate of capital
expenditures and capitalized software expenditures for the balance of the year
to be comparable to prior years as a percentage of revenues.
Off-Balance Sheet Arrangements
AtJune 30, 2021 , we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Outlook Current geopolitical and economic uncertainties could adversely affect our business prospects. The COVID-19 pandemic has had, and may continue to have, an adverse impact on our business. A significant terrorist attack, other global conflict, or public health crisis could cause changes in world economies that would adversely affect us. It is impossible to isolate each of these potential factor's future effects on current economic conditions or any of our businesses. It is also impossible to predict with any reasonable degree of certainty what or when any additional events may occur that also would similarly disrupt the economy and have an adverse impact on our businesses. Although we maintain an active acquisition program we are currently focused on reducing debt. Future acquisitions will be dependent on numerous factors and it is not feasible to reasonably estimate if or when any such acquisitions will occur and what the impact will be on our business, financial condition and results of operations. Such acquisitions may be financed by the use of existing credit lines, future cash flows from operations, future divestitures, the proceeds from the issuance of new debt or equity securities or any combination of these methods, the terms and availability of which will be subject to market and economic conditions generally. We anticipate that our businesses will generate positive cash flows from operating activities, and that these cash flows will permit the reduction of currently outstanding debt in accordance with the repayment schedule. However, the rate at which we can reduce our debt during 2021 (and reduce the associated interest expense) will be affected by, among other things, the financing and operating requirements of any new acquisitions, the financial performance of our existing companies and the impact of the COVID-19 pandemic on our business prospects and the financial markets generally. None of these factors can be predicted with certainty. 22
--------------------------------------------------------------------------------
Table of Contents
© Edgar Online, source
