Q3 2018 Financial Results October 26, 2018 Safe Harbor Statement - - PowerPoint PPT Presentation

A Diversified Technology Company

Q3 2018 Financial Results

October 26, 2018

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A Diversified Growth Company

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Safe Harbor Statement

The information provided in this presentation contains forward-looking statements within the meaning of the federal securities laws. These forward-looking statements may include, among others, statements regarding

• perating results, the success of our internal operating plans, and the prospects for newly acquired businesses

to be integrated and contribute to future growth, profit and cash flow expectations. 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 contained in any forward-looking statement. Such risks and uncertainties include our ability to identify and complete acquisitions consistent with our business strategies, integrate acquisitions that have been completed, realize expected benefits and synergies from, and manage

• ther risks associated with, the newly acquired businesses. We also face general risks, including our ability to

realize cost savings from our operating initiatives, general economic conditions and the conditions of the specific markets in which we operate, changes in foreign exchange rates, difficulties associated with exports, risks associated with our international operations, increased product liability and insurance costs, increased warranty exposure, future competition, changes in the supply of, or price for, parts and components, environmental compliance costs and liabilities, risks and cost associated with asbestos related litigation and potential write-offs

• f our substantial intangible assets, and risks associated with obtaining governmental approvals and maintaining

regulatory compliance for new and existing products. Important risks may be discussed in current and subsequent filings with the SEC. You should not place undue reliance on any forward-looking statements. These statements speak only as of the date they are made, and we undertake no obligation to update publicly any of them in light of new information or future events. We refer to certain non-GAAP financial measures in this presentation. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures can be found within this presentation.

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• Reg. G Disclosure

Today’s Conference Call Will Discuss Results Primarily on an Adjusted (Non-GAAP)

• Basis. The Q3 2018 Results are Adjusted for the Following Items:

(1) Acquisition-Related Intangible Amortization Expense (2) Purchase Accounting Adjustment to Acquired Deferred Revenue (3) Debt Extinguishment Charge (4) Measurement Period Adjustment to 2017 Provisional Income Tax Amounts Resulting from the Tax Cuts and Jobs Act See Appendix and Press Release for Reconciliations from GAAP to Adjusted Results

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Roper Conference Call

» Q3 2018 Enterprise Financial Results » Segment Detail & Outlook » Q4 and FY 2018 Guidance » Q&A

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Tremendous Performance Across the Board

Results are presented on an Adjusted (Non-GAAP) basis. See Appendix of this presentation and press release for reconciliations from GAAP to Adjusted results.

Q3 2018 Enterprise Highlights

» Record Results: Revenue, EBITDA, Net Earnings, Cash Flow » Revenue +13% to $1.32B; Organic +9%

–

Double-Digit Revenue Growth in All Four Segments

» Gross Profit +14%; Margin +80 Bps to 63.8% » EBITDA +16% to $473M; EBITDA Margin +100 Bps to 35.8%

–

Double-Digit EBITDA Growth with Margin Expansion in All Four Segments

» Earnings Before Taxes +18% to $411M » DEPS +31% to $3.09 » Free Cash Flow +34% to $404M, 31% of Revenue

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Q3 Income Statement Metrics

(in $ millions, except DEPS)

Q3’17 Q3’18 Revenue $1,171 $1,321

+13%; Organic +9%

Gross Profit $738 $842

Gross Margin 63.0% 63.8%

+80 bps

EBITDA $407 $473

+16%

EBITDA Margin 34.8% 35.8%

+100 bps

Interest Expense $46 $48 Earnings Before Taxes $348 $411

+18%

Tax Rate 29.7% 21.5% Net Earnings $245 $323 DEPS $2.36 $3.09

+31%

Results are presented on an Adjusted (Non-GAAP) basis. See Appendix of this presentation and press release for reconciliations from GAAP to Adjusted results.

$316 $418

2017 2018

Compounding Cash Flow

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Cash Remains the Best Measure of Performance

» Q3 Operating Cash Flow: $418M

– +32% vs Prior Year – 32% of Revenue

» Q3 Free Cash Flow: $404M

– +34% vs Prior Year – 31% of Revenue

» YTD Operating Cash Flow: $966M

– +12% vs Prior Year

Q3 Operating Cash Flow

(in $ millions)

Free Cash Flow = Operating Cash Flow less Capital Expenditures and Capitalized Software

Results are presented on an Adjusted (Non-GAAP) basis. See Appendix of this presentation and press release for reconciliations from GAAP to Adjusted results.

+32%

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Negative Net Working Capital Accelerates Cash Flow Compounding

$290 $535 $620 2016 2017 2018

1) Defined as Inventory + A/R + Unbilled Receivables – A/P – Accrued Liabilities – Deferred Revenue; Excludes Acquisitions Completed in Each Quarter and Dividend Accrual. 2) Includes Gatan’s assets and liabilities that have been classified as held-for-sale on Roper's balance sheet. 3) Ending balance as of September 30th.

9/30/16 9/30/17 9/30/18

(I) Inventory 5.2% 4.5% 4.4% (R) Receivables 16.3% 16.4% 16.6% (P) Payables & Accruals 11.1% 12.0% 11.5% (D) Deferred Revenue 7.7% 11.5% 11.7% Total (I+R-P-D) 2.7% (2.5)% (2.2)%

Net Working Capital

(1)(2) as % of Q3

Annualized Revenue

Asset-Light Business Model

Note: Percentages may not sum correctly due to rounding.

Q3 Deferred Revenue

(2)(3)

(in $ millions)

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Strategically Positioned for Continued Capital Deployment

Results are presented on an Adjusted (Non-GAAP) basis. See Appendix of this presentation and press release for reconciliations from GAAP to Adjusted results.

Strong Financial Position

» Successful $1.5B Bond Offering in August

–

$700M of 3.65% Senior Notes due 2023

–

$800M of 4.20% Senior Notes due 2028

» Redeemed $500M of 6.25% Senior Notes due 2019

–

$16M One-Time Debt Extinguishment Charge in Q3

» Well Positioned for Rising Interest Rate Environment

–

$4.1B of Fixed Rate Debt at 3.5% (weighted)

(1)

» Gross Debt-to-EBITDA: 2.8x

(2)

–

Before Gatan Divestiture Proceeds

1) As of 10/1/18. 2) Per Credit Facility Definition.

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Segment Detail & Outlook

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Q3 Highlights

»

Organic +4%

»

Software Businesses +6% Organic; Toll and Traffic In-Line with Expectations

»

Continued Strong Deltek Performance; Software Growth Balanced Across GovCon and Professional Services End Markets

»

Outstanding Freight Match Growth; Network Expansion and Favorable Market Conditions

»

Double-Digit Aderant Growth Aided by Share Gains

»

PowerPlan Performing Well; SaaS Wins in Adjacent End Markets

»

Favorable Pipeline of Toll and Traffic Opportunities for 2019

RF Technology & Software

Results are presented on an Adjusted (Non-GAAP) basis. See Appendix of this presentation and press release for reconciliations from GAAP to Adjusted results.

Q4 2018

»

6 - 8% Organic Growth for the Segment

»

Software Businesses Continue Strong Growth and Cash Performance

»

Toll and Traffic Improves on Timing of Tag Shipments and Easier Project Comps

(43% of Roper Revenue)

(in $ millions)

Q3’18 V to PY Revenue $563 +14% Op Profit $168 +16% OP Margin 29.8% Core: +100 bps Acq.: (60) bps EBITDA $226 +17%

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Medical & Scientific Imaging

Q3 Highlights

»

Organic +11%

»

Medical Businesses +7% Organic; Strong Scientific Imaging Shipments as Expected

»

Growth Across Niche Application Software Businesses Serving Healthcare Markets

»

Double-Digit Verathon Growth – Demand for New BladderScan – North American Sales Execution – GlideScope Recurring Revenue Strength

»

Northern Digital Growth on Continued Adoption

• f Proprietary Electromagnetic Measurement

Technology Q4 2018

»

5 – 6% Organic Growth for the Segment

»

MSD Growth from Medical Businesses

»

Gatan Divestiture Expected to Close by the End of 2018

Results are presented on an Adjusted (Non-GAAP) basis. See Appendix of this presentation and press release for reconciliations from GAAP to Adjusted results.

(29% of Roper Revenue)

(in $ millions)

Q3’18 V to PY Revenue $380 +11% Op Profit $133 +15% OP Margin 35.0% +140 bps EBITDA $161 +11%

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Industrial Technology / Energy Systems

Energy Segment Q3 Highlights

»

Organic +11%, FX (1)%

»

Double-Digit CCC Growth; Rebound in New Construction Projects

»

Strong Growth in Upstream Applications

»

Broad-Based Growth Across Industrial End Markets

»

Q4 2018: MSD Organic Growth with Strong Leverage; Markets Remain Favorable Industrial Segment Q3 Highlights

»

Organic +15%, FX (1)%

»

Double-Digit Growth at Neptune Driven by Continued Share Gains

»

Strong Fluid Handling Growth Across Multiple End Markets and Applications

»

Q4 2018: MSD Organic Growth with Strong Leverage; Markets Remain Favorable Energy Systems & Controls

(11% of Roper Revenue)

Industrial Technology

(17% of Roper Revenue)

Results are presented on an Adjusted (Non-GAAP) basis. See Appendix of this presentation and press release for reconciliations from GAAP to Adjusted results.

(in $ millions)

Q3’18 V to PY Revenue $230 +15% Op Profit $74 +19% OP Margin 32.3% +120 bps EBITDA $78 +18%

(in $ millions)

Q3’18 V to PY Revenue $149 +10% Op Profit $46 +27% OP Margin 31.1% +420 bps EBITDA $50 +23%

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Guidance Update

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Guidance Update

» Raising Full Year 2018 Guidance

– Adjusted DEPS: $11.69 - $11.73

• Previously $11.40 - $11.56

– Organic Revenue Growth: 7%+

» Establishing Q4 2018 Guidance

– Adjusted DEPS: $3.10 - $3.14 – Tax Rate: ~23%

Results are presented on an Adjusted (Non-GAAP) basis. See Appendix of this presentation and press release for reconciliations from GAAP to Adjusted results.

Guidance excludes the impact of future acquisitions or divestitures, and also excludes the impact of the pending Gatan divestiture.

Q3 2018 Summary

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Results are presented on an Adjusted (Non-GAAP) basis. See Appendix of this presentation and press release for reconciliations from GAAP to Adjusted results.

» Asset-Light, Diversified, Niche Market Strategy Continues to

Produce Outstanding Results

–

9% Organic Revenue Growth; Broad-Based Across All Four Segments

–

Gross Margin +80 Bps to 63.8%; EBITDA Margin +100 Bps to 35.8%

–

Operating and EBITDA Margins Expanded in All Four Segments

–

Free Cash Flow Increased 34%; 31% of Revenue

» Strategically Positioned for Continued Capital Deployment

–

Strong Balance Sheet; Bond Offering Captured Favorable Fixed Rates

–

Pending Gatan Divestiture Will Enhance Acquisition Powder

–

Pipeline of Attractive Acquisition Opportunities

–

Proven Business Model & CRI Discipline Drives Ability to Compound Cash Flow

Another Excellent Quarter; Positive Outlook for Q4 and 2019

Software and Engineered Products & Services for Diverse Niche Markets

Consistent Roper Strategy

Strategy Results

Significant Growth Platforms

• Leadership in Favorable Markets
• Diverse End Markets, Broad Customer Base

Simple Ideas. Powerful Results.

Outstanding Cash Flow/Conversion

• Strong and Sustainable Margins
• High Incremental Operating Profit

Cash Deployment Creates Value

• Internal Strategic Growth Initiatives
• Disciplined Acquisitions

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High Gross Margins Recurring Revenue

Strong Operations Management

Superior Operating Profits Excess Free Cash Flow

Strategic Reinvestment of Cash

R&D, Internal Growth, Acquisitions

Appendix

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Reconciliations I

Adjusted Revenue and Gross Margin Reconciliation ($M) ฀ Q3 2017 ฀ Q3 2018 V% / Bps GAAP Revenue 1,160 $ 1,319 $ 14% Purchase accounting adjustment to acquired deferred revenue 12 2

A

Adjusted Revenue 1,171 $ 1,321 $ 13% GAAP Gross Profit 726 $ 840 $ Purchase accounting adjustment to acquired deferred revenue 12 2

A

Adjusted Gross Profit 738 $ 842 $ 14% GAAP Gross Margin 62.6% 63.7% +110 bps Adjusted Gross Margin 63.0% 63.8% +80 bps Revenue Growth Reconciliation ฀ Q3 2018 RF Technology Medical & Scientific Imaging Industrial Technology Energy Systems & Controls Roper Organic Growth 4% 11% 15% 11% 9% Acquisitions/Divestitures 11%

• 5%

Foreign Exchange

• (1%)

(1%)

• Rounding

(1%)

• 1%
• (1%)

Total Revenue Growth 14% 11% 15% 10% 13%

Note: Numbers may not foot due to rounding.

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Reconciliations II

Adjusted EBITDA Reconciliation ($M) ฀ Q3 2017 ฀ Q3 2018 V% / Bps GAAP Revenue 1,160 $ 1,319 $ 14% Purchase accounting adjustment to acquired deferred revenue 12 2

A

Adjusted Revenue 1,171 $ 1,321 $ 13% GAAP Net Earnings 190 248 Taxes 74 64 Interest Expense 46 48 Depreciation 12 12 Amortization 74 83 EBITDA 397 $ 455 $ 15% Purchase accounting adjustment to acquired deferred revenue 12 2

A

Purchase accounting adjustment for commission expense (1)

• Debt extinguishment charge B
• 16

Adjusted EBITDA 407 $ 473 $ 16% % of Adjusted Revenue 34.8% 35.8% +100 bps

Note: Numbers may not foot due to rounding.

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Reconciliations III

Adjusted Earnings Before Taxes Reconciliation ($M) ฀ Q3 2017 ฀ Q3 2018 V % GAAP Earnings Before Taxes 265 $ 312 $ 18% Purchase accounting adjustment to acquired deferred revenue 12 2

A

Purchase accounting adjustment for commission expense (1)

• Amortization of acquisition-related intangible

assets C 73 82 Debt extinguishment charge B

• 16

Adjusted Earnings Before Taxes 348 $ 411 $ 18% Adjusted Net Earnings Reconciliation ($M) D ฀ Q3 2017 ฀ Q3 2018 V % GAAP Net Earnings 190 $ 248 $ 30% Purchase accounting adjustment to acquired deferred revenue 8 2

A

Purchase accounting adjustment for commission expense (1)

• Amortization of acquisition-related intangible

assets C 48 65 Measurement period adjustment to 2017 provisional income tax amounts resulting from the Tax Cuts and Jobs Act E

• (3)

Debt extinguishment charge B

• 13

Adjusted Net Earnings 245 $ 323 $ 32%

Note: Numbers may not foot due to rounding.

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Reconciliations IV

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Adjusted DEPS Reconciliation D Q3 2017 Q3 2018 V % GAAP DEPS 1.84 $ 2.37 $ 29% Purchase accounting adjustment to acquired deferred revenue 0.07 0.02

A

Purchase accounting adjustment for commission expense (0.01)

• Amortization of acquisition-related intangible assets C

0.46 0.62 Measurement period adjustment to 2017 provisional income tax amounts resulting from the Tax Cuts and Jobs Act E

• (0.03)

Debt extinguishment charge B

• 0.12

Rounding

• (0.01)

Adjusted DEPS 2.36 $ 3.09 $ 31% Forecasted Adjusted DEPS Reconciliation D Q4 2018 Full Year 2018 Low End High End Low End High End GAAP DEPS 2.48 $ 2.52 $ 9.06 $ 9.10 $ Purchase accounting adjustments to acquired deferred revenue and commissions F 0.01 0.01 0.06 0.06 Amortization of acquisition-related intangible assets C 0.61 0.61 2.37 2.37 Debt extinguishment charge B

• 0.12

0.12 Recognition of deferred tax expense due to held-for- sale classification of Gatan G

• 0.10

0.10 Measurement period adjustment to 2017 provisional income tax amounts resulting from the Tax Cuts and Jobs Act E

• (0.02)

(0.02) Adjustments to 2017 provisional income tax amounts resulting from the Tax Cuts and Jobs Act TBD TBD TBD TBD Adjusted DEPS 3.10 $ 3.14 $ 11.69 $ 11.73 $

Note: Numbers may not foot due to rounding.

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Reconciliations V

* Excludes Corporate Expenses

Note: Numbers may not foot due to rounding.

Segment Reconciliation ($M) RF Technology Medical & Scientific Imaging Industrial Technology Energy Systems & Controls Q3 2017 Q3 2018 Q3 2017 Q3 2018 Q3 2017 Q3 2018 Q3 2017 Q3 2018 GAAP Revenue 481 $ 560 $ 344 $ 380 $ 200 $ 230 $ 135 $ 149 $ Add: ConstructConnect & Deltek; PowerPlan & Onvia 12 2

• Adjusted Revenue

492 563 344 380 200 230 135 149 GAAP Gross Profit 299 364 247 273 102 117 78 86 Add: ConstructConnect & Deltek; PowerPlan & Onvia 12 2

• Adjusted Gross Profit

310 366 247 273 102 117 78 86 Adjusted Gross Margin 63.1% 65.0% 71.9% 71.9% 50.9% 51.0% 57.9% 58.0% GAAP Operating Profit 134 166 116 133 62 74 36 46 Add: ConstructConnect & Deltek, Less Deltek Prepaid Commissions Adj; Add PowerPlan & Onvia 10 2

• Adjusted Operating Profit

144 168 116 133 62 74 36 46 Adjusted Operating Margin 29.4% 29.8% 33.6% 35.0% 31.1% 32.3% 26.9% 31.1% Add Amortization 42 52 26 25 2 2 3 3 EBITA 187 220 142 158 64 76 40 49 Add Depreciation 6 6 3 3 2 2 1 1 EBITDA 193 226 145 161 67 78 41 50 EBITDA Margin 39.2% 40.1% 42.3% 42.4% 33.2% 34.2% 30.0% 33.6%

Free Cash Flow Reconciliation ($M) ฀ Q3 2017 ฀ Q3 2018 V % Operating Cash Flow 316 $ 418 $ 32% Capital Expenditures (11) (11) Capitalized Software Expenditures (2) (3) Free Cash Flow 302 $ 404 $ 34%

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Footnotes

• A. Acquisition-related fair value adjustment to deferred revenue related to the acquisitions of Onvia

and PowerPlan ($2M pretax, $2M after-tax).

• B. Debt extinguishment charge ($16M pretax, $13M after-tax) related to the early redemption of 2019

Senior Notes.

• C. Actual results and forecast of estimated amortization of acquisition-related intangible assets ($M,

except per share data); for comparison purposes, prior period amounts are also shown below. Tax rate of 35% applied to amortization in 2017, and tax rate of 21% applied to amortization in 2018. Q3 2017A Q3 2018A Q4 2018E FY 2018E Pretax $73 $82 $81 $314 After-tax $48 $65 $64 $248 Per share $0.46 $0.62 $0.61 $2.37

• D. All 2017 adjustments taxed at 35%, all 2018 adjustments taxed at 21%.
• E. Measurement period adjustment of $3 million for Q3 2018 and $2 million for the full year 2018

to 2017 provisional income tax amounts resulting from the Tax Cuts and Jobs Act.

• F. Forecasted acquisition-related fair value adjustments to acquired deferred revenue and commissions
• f Onvia and PowerPlan, as shown below ($M, except per share data).

Q4 2018E FY 2018E Pretax $1 $7 After-tax $1 $6 Per Share $0.01 $0.06

• G. Recognition of $10 million deferred tax expense due to held-for-sale classification of Gatan.

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