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S&P 500   5,137.08
DOW   39,087.38
QQQ   445.61
Lawyers who successfully argued Musk pay package was illegal seek $5.6 billion in Tesla stock
This is the #1 Stock to Buy for the AI Tidal Wave (Ad)
Chicago 'mansion' tax to fund homeless services stuck in legal limbo while on the ballot
Sports analytics may be outnumbered when it comes to artificial intelligence
This is the #1 Stock to Buy for the AI Tidal Wave (Ad)
Nobel laureate Muhammad Yunus is granted bail in a Bangladesh graft case
What to watch for as China's major political meeting of the year gets underway
Critical asset just had biggest fall on record (Ad)
South Korean doctors hold massive anti-government rally over medical school recruitment plan
Former Bank of Beijing chairman under investigation, part of China's crackdown on corruption
S&P 500   5,137.08
DOW   39,087.38
QQQ   445.61
Lawyers who successfully argued Musk pay package was illegal seek $5.6 billion in Tesla stock
This is the #1 Stock to Buy for the AI Tidal Wave (Ad)
Chicago 'mansion' tax to fund homeless services stuck in legal limbo while on the ballot
Sports analytics may be outnumbered when it comes to artificial intelligence
This is the #1 Stock to Buy for the AI Tidal Wave (Ad)
Nobel laureate Muhammad Yunus is granted bail in a Bangladesh graft case
What to watch for as China's major political meeting of the year gets underway
Critical asset just had biggest fall on record (Ad)
South Korean doctors hold massive anti-government rally over medical school recruitment plan
Former Bank of Beijing chairman under investigation, part of China's crackdown on corruption
S&P 500   5,137.08
DOW   39,087.38
QQQ   445.61
Lawyers who successfully argued Musk pay package was illegal seek $5.6 billion in Tesla stock
This is the #1 Stock to Buy for the AI Tidal Wave (Ad)
Chicago 'mansion' tax to fund homeless services stuck in legal limbo while on the ballot
Sports analytics may be outnumbered when it comes to artificial intelligence
This is the #1 Stock to Buy for the AI Tidal Wave (Ad)
Nobel laureate Muhammad Yunus is granted bail in a Bangladesh graft case
What to watch for as China's major political meeting of the year gets underway
Critical asset just had biggest fall on record (Ad)
South Korean doctors hold massive anti-government rally over medical school recruitment plan
Former Bank of Beijing chairman under investigation, part of China's crackdown on corruption

Roper Technologies Q3 2022 Earnings Call Transcript


Listen to Conference Call View Latest SEC 10-Q Filing

Participants

Corporate Executives

  • Zack Moxcey
    Vice President, Investor Relations
  • Neil Hunn
    President and Chief Executive Officer
  • Rob Crisci
    Executive Vice President and Chief Financial Officer

Analysts

Presentation

Operator

Good morning, the Roper Technologies Conference Call will now begin. Today's call is being recorded and all participants will be in listen-only mode. [Operator Instructions] I would now like to turn the call over to Zack Moxcey, Vice President, Investor Relations. Please go ahead.

Zack Moxcey
Vice President, Investor Relations at Roper Technologies

Good morning, and thank you all for joining us as we discuss the third quarter financial results for Roper Technologies. Joining me on the call this morning are Neil Hunn, President and Chief Executive Officer; Rob Crisci, Executive Vice President and Chief Financial Officer; Jason Conley, Vice President and Chief Accounting Officer; and Shannon O'Callaghan, 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 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.

And now please turn to Page 3. Unless otherwise noted, we will discuss our results and guidance on an adjusted non-GAAP and continuing operations basis. For the third quarter, the difference between our GAAP results and adjusted results consists of the following items -- amortization of acquisition-related intangible assets, purchase accounting adjustments to commission expense, transaction-related expenses for completed acquisitions, and lastly we have adjusted our cash-flow statement to exclude the cash taxes paid related to our divestiture activity.

GAAP requires these payments to be classified as operating cash-flow items, even though they are related to divestitures. Reconciliations can be found in our press release and in the appendix of this presentation on our website.

And 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?

Neil Hunn
President and Chief Executive Officer at Roper Technologies

Thanks, Zack, and good morning, everyone. As we turn to page 4, we'll walk through our usual agenda, highlights for the most recent quarter, followed by color commentary for each of our segments, and ending with our increased outlook for the year. Let's go ahead and get started. Next slide please.

As we turn to page 5, the main takeaways for today's call are, first -- we had another great quarter of operational and financial performance, and we are further increasing our outlook for the year. Second -- earlier this month, we acquired another leading niche software business, Frontline Education. Third -- we continue to have substantial M&A firepower north of $4 billion. And fourth and perhaps the most important, the new higher-quality Roper portfolio is becoming increasingly more evident, and we've never been more excited about our future.

As it relates to the operating and financial performance in the quarter, we're pleased that revenues grew 10% on an organic basis and that the strength was broad-based across our three segments, and that margin performance improved as well. Consistent with our commentary during the last several quarters, not only did we grow nicely in the quarter but the quality of our underlying business also improved as we saw our software recurring revenue base grew 11% on an organic basis.

More on frontline in a moment. Based on the strength in Q3 and our expectations for Q4, we're increasing our organic growth outlook to north of 9% for the year, and for those reasons together with the addition of frontline, we're increasing our full-year DEPS guidance by $0.57 at the midpoint.

And finally, we've been active in the M&A market. Over the last few months, we deployed just over $4 billion -- $3.7 billion for frontline and $300 million for two bolt-ons, one for Deltek and the other for Aderant. To this end, even after our recent $4 billion of capital deployment, we still have a large amount of available M&A firepower, over $4 billion. We continue to be very active in the M&A markets, but as you saw in Q3, and as always, we will remain super patient and highly disciplined to ensure optimal deployment of our available capital.

Finally, we feel great about the improving quality of the portfolio and the associated financial and operating results. All of this is made possible by an incredibly committed and passionate team and associates. Thank you to everyone.

Turning to the next page, as previously announced, we're excited to introduce to you another niche application software leader, which we've added to the Roper portfolio -- Frontline Education. Of note, we closed this transaction on October 4th. Frontline is a leading provider of SaaS software solutions targeted to the U.S. K to 12 education market. Frontline is an exceptional business which not surprisingly meets all our acquisition criteria, including being the clear leader that delivers administrative and HCM solutions purpose built for the K 12 market. Having multiple durable growth drivers and a high single-digit organic growth outlook, higher recurring revenue north of 90%, great cash-flow characteristics and a passionate high-quality team.

[Indecipherable], days we're delighted to welcome Frontline to the Roper family where we will be their permanent home going forward. This is just another great set relative to our Capital Deployment and Corporate Strategy, not only to increase the scale of our enterprise but the quality as well.

Next slide please. As we turn to page 7, we want to take a moment to highlight the recent transformation of Roper and our higher-quality portfolio. To that end, the vast majority of our 27 businesses, save for their smaller size, could be a highly successful standalone leading vertical software or tech-enabled product company. Each of our 27 businesses are leaders in their respective niche markets. Our businesses serve the mission-critical needs of our customers and have intimate relationships with them. Our market leadership, purpose-built software solutions and customer intimacy are the basis for our long-term competitive advantage.

Next, is our higher-level of organic growth. This is no accident. We have raised the performance expectations for each of our businesses to structurally improve their long-term organic growth capabilities. We're doing this and the balance sheet in a margin friendly way. A large component of the organic growth story is the higher level of recurring revenue within each of our companies, approaching 60% for the enterprise and about 75% for software businesses. In addition, our businesses are blessed with business models that generate high levels of free-cash flow, a result of their operational efficiency, margin levels and customer prepaid orientation of their balance sheets.

Today, our portfolio is 75% software and 25% Medical and Water Products. We are meaningfully less cyclical today versus 2018 given the markets we serve -- Healthcare, Legal, Education, Government Contracting, Utilities and Food, to name some of our larger ones, and our fixed subscription versus volume-based revenue model.

To put today's portfolio in perspective, in 2018 roughly 40% of our Company was either highly cyclical or project-oriented. Today, these market dynamics essentially no longer exists for us.

When we reflect on this portfolio transition, we've never been more excited for the future Roper given our increased quality, higher growth and more resilient portfolio companies.

With that let me turn the call over to Rob to walk you through our financial summary and our balance sheet position, Rob?

Rob Crisci
Executive Vice President and Chief Financial Officer at Roper Technologies

Thanks Neil, good morning, everyone. Turning to page 8 and covering our Q3 financial highlights, as a reminder, as Zack said, all financial results are on a continuing operations basis. Total revenue increased 10% to $1.35 billion. The FX headwind was $20 million or 1.6% and was offset by acquisition contributions. Notably, our mix of business has shifted meaningfully towards more domestic revenue post the announced majority sale of our industrial businesses. The U.S. now represents approximately 85% of our revenue helping to shield our results from the impacts of any currency fluctuations.

Q3 organic revenue increased 10% with broad-based strength across each of our three reporting segments. Application software grew 7%, network software grew 10% and technology-enabled products grew a robust 15% organically. EBITDA margin increased 80 basis points to 41.1% resulting in 12% EBITDA growth. Adjusted DEPS was 367, well above our guidance range and 18% higher than last year. Q3 adjusted free-cash flow was $353 million, which was 9% above prior year. Excluding the Section 174 tax law change we discussed last quarter, quarterly free-cash flow grew 17%.

In the quarter, we made $157 million of additional tax payments related to our recent divestitures. Per our normal convention, those payments have been adjusted out of our reported cash flow. So overall, an excellent third quarter, as Neil said, and great momentum heading into Q4.

Next slide. Turning to Page 9, looking at our strong financial position, we did complete the Frontline acquisition early in the fourth quarter utilizing a combination of our balance sheet cash and a draw on our revolving credit facility. As of today, our drawn revolver balance sits at $2.2 billion. We expect to fully pay down the revolver balance with the proceeds from our industrial sale we should close late in the fourth quarter. So after taking into account the receipt of those industrial transaction proceeds, we'd expect to end the year with a net-debt-to-EBITDA ratio proforma for our recent acquisitions in the mid 2s.

Our consistently strong cash generation quickly refreshes our capacity for capital deployment. So looking forward, we remain active on the M&A front, and we have the ability to deploy an additional $4 billion plus of capital now through the end of 2023.

So, with that, I'll turn it back over to Neil to review our segment performance.

Neil Hunn
President and Chief Executive Officer at Roper Technologies

Thanks Rob. Let's turn to page 11 and walk through our 3Q highlights for our application software segment. Revenues here were $644 million, up 7% on an organic basis, and EBITDA margins were 43.6%. Across this segment, we saw recurring revenue which is about 75% of the revenue for this segment, increased 8% in the quarter. This recurring revenue growth was enabled by strong customer retention and continued migration to our SaaS delivery models. Across this group of companies, the financial strength was broad and has been quite consistent for several quarters running.

As we highlight a few businesses, we will start with Vertafore, who had another great quarter bookings growth, revenue growth and margin performance. Vertafore continues to see success in their software solutions targeted to the P&C insurance market, with particular strength in the enterprise-class market segment. Across both Deltek and Aderant, we continued to see solid new customer adds and nice momentum and migration towards our SaaS solutions. Also, in the quarter we acquired [Indecipherable] technologies for Deltek, a leading software provider servicing the GovCon Manufacturing and QA market and VI Global for Aderant, a leading human resources and recruiting software tool for global law firms.

CBORD, our Nutrition and Access Management software business had strength across both education and healthcare end markets. CliniSys and Data Innovation continued to exhibit strong demand and operational strength. CliniSys continued its market share gains across Europe, and DI continues to demonstrate product market fit by gaining share of wallet across large healthcare systems. Strata continues to be solid for us as evidenced by strong new customer adds, cross-selling and renewal activity. Finally, Frontline will be reported in this segment starting in Q4. Looking at the outlook for the final quarter of the year, we expect to see organic growth in the 6% to 8% area.

Turning to page 12, revenues in the quarter for our network software segment were $347 million, up 10% on organic basis and EBITDA margins were strong at 54.5%. The 10% organic growth in this segment is underpinned by 16% growth in recurring revenue.

As we dig into business-specific performance, our U.S. and Canadian freight matching businesses continue to be fantastic. The market conditions while slowing a touch on the carrier side of the network, remained favorable. These businesses saw a nice new customer adds and ARPU increases during the quarter.

Moving to foundry, our software business that enables live-action filming and computer-generated graphics to be combined in a single frame, again demonstrated our financial strength. Net retention was very strong and ARR grew in the strong double digits again. Foundry success is rooted in their fast-paced innovation capability and favorable long-term market conditions.

Growth in our businesses that focus on alternate site healthcare was led by SHP and SoftWriters, and importantly retention rates across each of these businesses remained extremely high.

Finally, iTrade, our network food supply-chain business and iPipeline, our life insurance SaaS business that tech enables the quoting and underwriting processes, each has solid customer additions which helped drive strong ARR growth in the quarter.

Turning to the outlook for the fourth quarter, we expect to see 8% to 10% organic growth for this segment.

As we turn to page 13, revenues in our tech-enabled product segment were $360 million, up 15% on organic basis. EBITDA margins for the segment increased nicely to 37.2% in the quarter. It's very nice to see 15% organic growth in the quarter and easing supply-chain challenges. While supply-chain challenges remained, we experienced demonstrable easing conditions especially as it relates to chips and chipsets. We are cautiously optimistic, conditions will continue to improve.

Let's start with Neptune, which once again set records for orders and quarter-end backlog. For a few quarters running, Neptune was able to gain market share by successfully maintaining industry-leading product lead times, while simultaneously launching new products, both in terms of cellular connectivity and static meter reading technologies. To this end, Neptune continues to experience accelerating demand for their static meter solutions.

Verathon was simply strong. They grew nicely in the quarter driven by momentum across all three components of the product portfolio; bladder volume measurement, video innovation and single-use bronchoscopes. As it relates to the Northern Digital, they set a new record for quarterly revenues as we experienced continued strong demand for their precision measurement solutions.

Our outlook for the final quarter of the year is 5% to 7% organic growth for this segment as we have a more difficult comp heading into Q4.

Now please turn to page 15, and let's review our updated and increased outlook for the balance of the year. As a reminder, last quarter we increased our adjusted DEPS outlook to be between $13.46 and $13 62. We are now once again increasing our guidance to be between $14.09 and $14.13, an increase of $0.57 at the midpoint. This increase in guidance is driven by a strong third quarter performance and the momentum we carry into Q4, together with the addition of Frontline Education.

Embedded in this guidance is full-year organic growth of 9% plus, an increase from 8% to 9% organic growth guidance discussed last quarter. As we look to the fourth quarter, we're establishing DEPS guidance to be in the range of $3.72 and $3.76.

Now our concluding comments, and we'll get to your questions.

As we turn to page 16, we want to leave you with the same key points with which we started. First, we had another great quarter of operational and financial performance, and we are increasing our outlook for the year. Second, we acquired another leading net software business Frontline Education. Third, we continue to have substantial M&A firepower north of $4 billion. And fourth and perhaps the most important, the new higher-quality Roper portfolio is becoming ever more visible. As it relates to our strong start, we grew revenues organically by 10% and EBITDA by 12%. We're lifting our full-year organic growth and depth guidance based on the factors previously discussed.

Regarding capital deployment, we have been active. Over the past couple of months, we deployed just over $4 billion. To this end, our prudence and patience are being rewarded for the identification of selection of these high-quality assets. We continue to have a large amount of available M&A capacity north of $4 billion. We continue to be very active in the M&A markets, but as you saw in Q3, as always, we remain super patient and highly disciplined to ensure optimal deployment of our available capital.

Finally, and perhaps the most important, the new higher-quality Roper portfolio is becoming increasingly more evident, and we have never been more excited about the future of [Indecipherable]

As we turn to your questions, let us remind everyone that our strategy is the same. We compound cash-flow by acquiring and growing niche market-leading technology businesses. This is what we've done for over 20 years and we'll continue to do. In addition, our value-creation and governance model remains unchanged. We operate a portfolio of market-leading businesses and defensible niches. Each of our businesses has high levels of recurring revenue, strong margins and competes based on customer intimacy, which yield highly resilient organic growth rates. We operate in highly decentralized operating structure that focuses on long-term business building. Our culture sets a very high bar for performance and focus is on continually improving. We are all paid to grow, which reinforces our culture of transparency, nimbleness and humility. Finally, we redeploy the vast majority of our capital to acquire the next great business. We do this with centralized corporate resources in a highly disciplined, thoughtful and analytical manner. This strategy unchanged delivers compounded and superior long-term shareholder value.

So, thanks for joining us this morning, and with that, let's open up to your questions.


Questions and Answers

Operator

Thank you. We will now go to our question-and-answer portion of the call. We request that our callers limit their questions to one main question and one follow-up. [Operator Instructions] Today's first question comes from Deane Dray at RBC Capital Markets. Please go ahead.

Deane Dray
Analyst at RBC Capital Markets

Thank you, and good morning, everyone.

Neil Hunn
President and Chief Executive Officer at Roper Technologies

Hey good morning, Deane.

Deane Dray
Analyst at RBC Capital Markets

Hey, I know we're not seeing it in any of your reported numbers today with all this upside, but has there been any changes in customer behavior on the software side given the uncertain macro? Whether it's the velocity of new contracts, orders, customer adds, anything kind of below the radar screen?

Neil Hunn
President and Chief Executive Officer at Roper Technologies

Yes, Deane, nothing in a meaningful sustained manner, right? So, I think we attribute that first to the markets that we serve, right? So, think about customers in healthcare, education, insurance, food, government contracting, utilities, I mean the macro forces generally our lessons or less impactful in those end-markets. ARRs, I think are up to double digits, 10%, so that's always a leading indicator of the strength. But there is certainly quarter-to-quarter there can be some noise, and so last quarter we're looking at, for instance PowerPlan saw some softening but that recovered this quarter, and so it's not to say there's not pockets of things we look at, but nothing in a sustained manner at this stage.

Deane Dray
Analyst at RBC Capital Markets

That's great to hear. And as a follow-up, can you expand on this initiative to structurally improve the longer-term organic growth rates of the businesses, just so we're clear, part of your acquisition criteria has never been to buy the fastest topline growing companies because that just doesn't fit the kind of -- where you're looking for these unicorns that have high barriers to entry, that private equity is not going to take public, so you've never been focused on the real sexy top topline growth, but what is the target when you say kind of long-term improvement in organic growth?

Neil Hunn
President and Chief Executive Officer at Roper Technologies

Yeah, I'll draw you back. This is the same thing we've been talking about since really for over the last four or five years, since I became COO and CEO and the team we have in place today. So, historically, longest history -- this we've said this is a GDP plus a little bit grower, and as we restructured the portfolio and we've, as we've talked about here, increased the expectation outlook for more organic existing portfolio, now it's mid-single digits, certainly through cycle, and we always looking to continue to improve that. We've talked ad nauseam about the desire to improve the organic growth outlooks through our governance system of our businesses, thinking about how to do strategy right? Where to play and how to win? How to execute that strategy in a processed and disciplined manner, and then how to build the team and talent to sort of use that as a long-term competitive advantage. We've been at this with the portfolio for, you know, three or four years, and we're starting to see some signs of improvement. So, we're encouraged but it's an ongoing body of work that never ends.

Operator

Thank you, and our next question today comes from Scott Davis of Melius Research. Please go ahead.

Scott Davis
Analyst at Melius Research

Hey good morning, guys.

Neil Hunn
President and Chief Executive Officer at Roper Technologies

Hey Scott, good morning.

Scott Davis
Analyst at Melius Research

Great results as usual. It probably sounds like a broken record after kind of a decade of that, but I was hoping for a little bit of a play-by-play on frontline, where there the same kind of number of people that showed up for the auction, was it less, was it a little less competitive, the same -- just a little bit of a play-by-play would be helpful.

Neil Hunn
President and Chief Executive Officer at Roper Technologies

Sure. I appreciate the opportunity to talk about that. I will tell you, you never have perfect information, and so this is using all of our inputs and reading the tea leaves to really understand what happened. And the process, the seller here [Indecipherable] had some bespoke reasons they needed to get liquidity from an asset, they chose this one. They happened to time it in the market where private-equity bidders had a difficult time bidding because there has not been a private leverage loan market, and so that resolved, the process was better competitively, meaningfully centered competitively, and that's why we believe we're able to get a very fair price for the asset. So the process dynamics are a little bit different, and just another example of sort of the patience and our commitment to investment-grade leverage and the conservative posture of our financial policy enables us to sort of move nimbly when an opportunity presents itself.

Scott Davis
Analyst at Melius Research

That's helpful, and can you give us just as a follow-up, just a little bit of sense of magnitude of price in your 10% growth number this quarter, is it a third, a half, or something that you can give us just a sense of what component that was?

Neil Hunn
President and Chief Executive Officer at Roper Technologies

It's very difficult for us to sort of bifurcate, you know, volume and price. Keep in mind we're 75% software. Inside software, the growth algorithm of every one of our software business is you attrit a little bit. There is price baked in every year to sort of offset mostly if not all of the attrit, then your cross-selling and upselling into the customer base that gets to your net retention, then you're adding new customers to get to total growth, and so pricing and value capture is just completely native to the inner workings of the pricing model inside of software, and it's not, and it would be generally consistent with the past. I mean, there maybe a little bit more prices, labor has gone up in the software model.

As it relates to the product businesses, our product businesses have done a fabulous job of essentially passing the cost increases through with the margin to our customers. As you know, that lags a little bit, it showed up in margins this quarter on top, that will continue to bleed out over the next several quarters as the backlog that was built early in the years is shipped, and so the teams have done a nice job with that.

Operator

Thank you, and our next question today comes from Joe Giordano with Cowen. Please go ahead.

Joe Giordano
Analyst at Cowen and Company

Hey good morning guys.

Neil Hunn
President and Chief Executive Officer at Roper Technologies

Hey, good morning.

Joe Giordano
Analyst at Cowen and Company

Hey just a follow-up kind of on Deane's question. We are starting to see like at least announcements about layoffs that tech companies and these kind of things as their business starts to slow. Obviously, the businesses you have are very different, but if you were to start extrapolating those type of announcements down to permeate throughout the broader economy, like how do you play that scenario with your businesses, like okay we're seeing this and that means this much impacts you, some of the software businesses, and here's what we do and here's how we kind of think about that, like kind of like run us through that playbook.

Neil Hunn
President and Chief Executive Officer at Roper Technologies

So, it is Company specific, right? So every company is going to adjust as the market demands. As a general manner, as large tech employment softens, I view that as a good thing for our business because it makes it easier for us to hire the labor and talent that we need to hire. It is point one. Point two is, keep in mind what we do for our customers, right? We are selling and delivering to them the thing they need to run their business, so we are mission-critical to what they do, and our pricing model is vastly fixed subscription, so it's not volume or transaction-based, so we should be relatively muted to sort of short-cycle fluctuations and in the macroeconomic indicators, and so a little bit better labor environment I think on balance a good thing for us.

Joe Giordano
Analyst at Cowen and Company

And then as you think about going forward in M&A, just given where the stock has derated, we haven't been in a situation where some of the deals you might look at are higher multiples than Roper itself, so how are you kind of thinking about actionability of certain things, just given where the stock trades?

Neil Hunn
President and Chief Executive Officer at Roper Technologies

We're always focused on improving both the scale and the quality of the enterprise. It has been 20 years; it will be the next 20 years in finding the best asset at the best prices we can find. And there's no difference in that going forward.

Operator

Thank you, and our next question today comes from Christopher Glynn at Oppenheimer. Please go ahead.

Christopher Glynn
Analyst at Oppenheimer and Company

Thanks, good morning. Was curious on NSS margins seemed to step out a bit nicely, very strong incrementals, just want to kind of discuss if there is a mix-shift there that's kind of episodic or kind of sticky?

Rob Crisci
Executive Vice President and Chief Financial Officer at Roper Technologies

Yeah, hey Chris, it's Rob. I don't think anything really to call out. I mean, we had really strong organic growth, and with the software businesses that comes through with great incrementals. I'm just looking back to the margins last year. I think we ended last year at 54% in the fourth quarter, we are 54.5% EBITDA here, so, yeah, I think it was a nice quarter performance. It's probably similar for the fourth quarter in terms of EBITDA margin for the segment.

Christopher Glynn
Analyst at Oppenheimer and Company

Okay, and thinking about frontline accretion, we take the $175 million of EBIT. Maybe that's $160 million EBITDA, and then there might be some net interest increase expected there, so just curious how to put that together?

Rob Crisci
Executive Vice President and Chief Financial Officer at Roper Technologies

Yeah, that's right. So for the fourth quarter, we've got about $40 million of EBITDA in for Frontline, and there is about $24 million, excuse me, of incremental interest if you look at where we were before to now. As I mentioned, earlier we did draw on the revolver, and so we're paying the revolver interest for much of the fourth quarter than we're assuming that the industrial sale closes late in the quarter, and then that interest expense would go away. So, I think the math on that is about $0.12 of our sort of $0.57 guidance increase was Frontline.

Neil Hunn
President and Chief Executive Officer at Roper Technologies

Depreciation of about $7 million or $8 million a year.

Christopher Glynn
Analyst at Oppenheimer and Company

Yeah. Thanks.

Operator

Thank you, and our next question today comes from Julian Mitchell with Barclays. Please go ahead.

Julian Mitchell
Analyst at Barclays

Hi good morning. Just wanted to circle back to network software in terms of the top-line. So, I think you've had now sort of six quarters consecutive of around double-digit organic sales growth. And I was curious to what extent it's the same one or two businesses driving that consistently, or is it kind of different horses pulling it along at different times and kind of the leadership is changing, and any thoughts on the next few quarters, which businesses you see driving the network software organic growth?

Neil Hunn
President and Chief Executive Officer at Roper Technologies

Yes, sure, I'll take a crack at it and then ask Rob if he wants to correct me or amplify anything I say. So, it's been a pretty consistent set of performance across the various businesses. We've talked for many quarters about the strength of U.S.-Canadian freight match, right? It's just been fantastic for us. It continues to be good for the last two quarters, this quarter and last quarter. We've talked about how the rate of growth is slowing a little bit, but it's still very, very good. Even this quarter there was a strong number of new carrier adds. So, we would expect that to sort of slow down a bit over the course of the next year. The other businesses - Foundry, SoftWriters, iTrade, SHP, iPipeline, are just solid performers that have been very consistent, and generally don't have that macro sort of tailwind that the freight match businesses have had, so we wouldn't expect any meaningful change in those businesses. Anything you want to add or comp?

Rob Crisci
Executive Vice President and Chief Financial Officer at Roper Technologies

No. I think that's fair.

Julian Mitchell
Analyst at Barclays

Thank you, and then just on technology-enabled products. You have had issues like most manufacturers from cost inflation, from supply-chain challenges for some time. Those are starting to ease it looks like. So maybe help us understand, you know what you're assuming for the pace of those supply-chain challenges easing, and then you know assuming you've got volume growth ahead, easier supply-chain and inflation, what kind of operating leverage should we expect in the TEP segment? We don't know so much next quarter, but let's say the next 12 months.

Neil Hunn
President and Chief Executive Officer at Roper Technologies

I'll take the first parts of that question around, the supply-chain pacing and improvement, and let Rob comment about the OP leverage or EBITDA leverage there. So, just to set the context, for us the supply-chain, we have been modestly gated from shipping in one or two of the businesses for short periods of time, but for the most part it's been about. We've been able to ship but it's been about a higher component cost and expedited logistics in order to sort of both inbound and outbound the products. This quarter demonstrably, supply-chain, especially around chips, improved intra-quarter. We went into the quarter assuming it is going to difficult, and it meaningfully improved during the quarter. So, it's our expectation that that part of the supply-chain element continues to ease Q4 and beyond. There still a little bit of challenges around certain components principally come out of China, I think motors and things like that, that still have longer lead times, but those appear to be abating as well. We don't assume that happens per se in Q4.

As it relates to the price and sort of pushing that through, we talked about a little bit before. The companies have been very good at taking price increases to offset the component. Price or cost increases, but it lacks by a handful -- not a handful but a couple of quarters between when you take the order and when you deliver that order, and that started showing up this quarter.

Rob Crisci
Executive Vice President and Chief Financial Officer at Roper Technologies

Yeah, I'll just add to that. There is great momentum here. Neptune is performing really, really well. Neil talked about how they are still seeing great orders and great backlog and great momentum, so that should certainly carry forward. So, with the supply-chain issues easing, as Neil mentioned, leverage here, I think it was 50% EBITDA leverage in the quarter. We should be north of 40% leverage over the long term as these businesses continue to grow strong organically, so that would tick up the EBITDA margins a little bit in that segment.

Operator

Thank you, and our next question today comes from Steve Tusa at J.P. Morgan. Please go ahead.

Steve Tusa
Analyst at J.P. Morgan

Hey good morning.

Neil Hunn
President and Chief Executive Officer at Roper Technologies

Hey, good morning, Steve.

Steve Tusa
Analyst at J.P. Morgan

Just on going back to the Frontline, so if that adds like $0.12, I think your sequential increase in earnings is -- I don't know like $0.07 or something like that. What's the -- I know it's only down modestly but, maybe sometimes you have an increase in the fourth quarter. I think obviously seasonality has changed a bit, but anything else kind of moving around? Or is everything generally just kind of flat from 3 to 4 [Indecipherable]

Rob Crisci
Executive Vice President and Chief Financial Officer at Roper Technologies

I think if you look at the guide, the tap volume, revenue is a little lower fourth quarter versus third quarter, as you mentioned some supply-chain ease and some stuffs shipped a little bit earlier. Other than that, I think you're right. I mean, it's a much different portfolio, right? We don't have the seasonality with all the energy businesses with big fourth quarter suggest. Those businesses have been divested.

Steve Tusa
Analyst at J.P. Morgan

Right, and then just for free-cash flow, can you just baseline us on fourth quarter or just for the year. What do you guys would guide, I know you don't guide but we're getting close to the end of the year, maybe you could just baseline us on what you expect for the fourth quarter, and deferred revenue is actually pretty negative in the quarter. What's going on there?

Rob Crisci
Executive Vice President and Chief Financial Officer at Roper Technologies

Yeah, so, I mean cash flow should be strong in the fourth quarter, obviously setting aside the fact that we're still making payments on the divestitures. It's always our best working capital quarter on deferred revenue. In the fourth quarter is when we get most of our renewals for the software businesses, that's usually the best quarter for that as well, so it's usually very good working capital quarter. And then if you look forward, we certainly don't guide cash flow but we are really, really well positioned for great cash conversion next year, as we get these cash tax payments behind us, and now we have a portfolio with even better working capital characteristics. And so, we feel great about our ability to continue to compound cash-flow moving forward.

Operator

Thank you, and our next question today comes from Allison Poliniak with Wells Fargo. Please go ahead.

Allison Poliniak
Analyst at Wells Fargo Securities

Hi good morning. Let me go back to the network software businesses, particularly when you look, you touched on freight matching and then iTrade network. Those businesses which I would have thought had pretty strong market share historically. Could you maybe talk to with the new customer adds, are those markets evolving for you or is it something that Roper is doing specifically to capture share in there. Just any thoughts?

Neil Hunn
President and Chief Executive Officer at Roper Technologies

So, yeah, each one is different between the freight match, the North American freight match business and iTrade on what they're doing relative to their product and go-to-market strategy. Well, the DAT, there's a lot that we can impact. In July, I had talked about this on a call down more a longer form way, but the short version is they've done a terrific job on both their freight match products and their analytics product, and then creating product tears based on the value the customer wants to sort of buy into. At DAT also, something like 75% of the bookings today are through their e-commerce channel where three years ago or five years ago it was 0. So, they've really removed the barriers to do business with them and when you look at the ARPU increases like 70% of the ARPU increase has been because customers have elected to a higher package, because there have been more value to sort of get from the network. So, they've done a wonderful job, that's bespoke and unique to DAT like it is for all 27 businesses. And iTrade, the go-to-market motion there has been, it's been mostly the same, but this over the course of probably about a year and a half ago, the company released a new product offering to enable the supplier part of the network to do easier trading with the buy-side of the network, it is the simplest way I can describe it. So, think of it as like a lighter-weight supply-chain management software tool for half of the network, and it's just been -- it's has had very consistent bookings over the last four or five quarters that has been released.

Allison Poliniak
Analyst at Wells Fargo Securities

Great, thanks. And then just as we think about organic, recurring revenue in the software business has been quite strong. Do we have similar level of recurring revenue growth as we look toward Q4 numbers, just any thoughts there?

Neil Hunn
President and Chief Executive Officer at Roper Technologies

You want to comment on the Q4 revenue recurring?

Rob Crisci
Executive Vice President and Chief Financial Officer at Roper Technologies

Yeah, should be should be similar that we've seen. The trends there continue to be very positive overall on recurring revenue for sure.

Operator

Thank you, and our next question today comes from Joe Ritchie of Goldman Sachs. Please go ahead.

Joe Ritchie
Analyst at The Goldman Sachs Group

Thanks. Good morning, everyone. So guys, I have been getting a bunch of questions on just the long-term growth rates for your businesses, and clearly like the portfolio is above the line overtime. I think last quarter we talked about 6% long-term growth. I was just wondering if you kind of look at the 27 companies that now make up Roper, are there businesses that you expect to grow, let's call it high single, low double-digits overtime, because of where they are in the maturity, and if there are, could you maybe just talk through some of those?

Rob Crisci
Executive Vice President and Chief Financial Officer at Roper Technologies

Yeah. I think, the place to start right is the removal of the cyclicality, right? So if you look at where Roper is now as we mentioned earlier, it's a very different portfolio because we don't have that 40% of Roper that was projects and cyclicality back in 2018. So now you don't have the situation where you might have something that grows 15% one year and then goes down 15% the next year, so really the whole portfolio is sort of plus or minus mid-single digit organic, and in a bad year something might be up 2% or 3% and in great year it can certainly be double digits. And, I'll let Neil expand on that.

Neil Hunn
President and Chief Executive Officer at Roper Technologies

Yeah, what I would do is maybe add three points to that, Joe. One is when you look at the 27 companies, it's a very tight distribution in terms of the growth rate. There's not, it is not a barbell where you got 10 companies growing 2% and 10 companies growing 15% in averages into something different. It's very tight. I think the only two acquisitions we've done, we've announced as a high-single-digit organic growth business, everything else has been mid singles, and working to improve that, so as a general matter I think of it as a mid-single digit through cycle organic growth portfolio that has all the cash flow characteristics you'd want to see with that. We see operating leverage occurs so that's going to translate to a little bit more cash-flow growth organically, and then you've got a layer on top of that, the M&A flywheel, so we feel very comfortable we have a mid teen sort of cash-flow compounding growth algorithm that's embedded in our strategy.

Joe Ritchie
Analyst at The Goldman Sachs Group

Got it. That's super helpful, and then I guess, my final question. I hadn't historically thought of you guys would be potentially a big beneficiary of some of the stimulus packages that have been passed and so, as an example like the K through 12 education stimulus funding, but then as you're talking about CBORD and another acquisition of Frontline, I'm just wondering like do you guys see yourself as a beneficiary of some of these stimulus measures, where we actually haven't seen a lot of that spending yet come through, and perhaps we'll start to see some of that in 2023?

Neil Hunn
President and Chief Executive Officer at Roper Technologies

We think the answer is no. We're not in any meaningful way or even in a minor way a beneficiary of stimulus or COVID funds. For instance, with Frontline we studied that extensively during our diligence process, and while the K through 12 districts certainly onboarded stimulus and COVID dollars, the vast, vast majority of those funds, the one-time funds were spent on one-time type items, principally getting, for instance, student-to-device ratio is still one-to-one for instance. The districts were super hesitant to buy a recurring software package with one-time money, so Frontline we don't believe in any meaningful way was a beneficiary that we think that's a good thing. Goes to the durability of the growth drivers of the business. CBORD, same thing. There is what CBORD does. I mean, it's about food and management for these K through 12 and higher ed facilities and campuses as well as Access Management and Integrated Security, and they have not been a meaningful beneficiary, so no is the short answer.

Operator

Thank you, and our next question today comes from Brendan Luecke with AllianceBernstein. Please go ahead.

Brendan Luecke
Analyst at AllianceBernstein

Good morning all and thanks for taking my question. A few quick ones on the M&A environment. So, you haven't been shy in the past levering up for big deals. Has your target leverage ratio changed out with the higher-rate environment?

Rob Crisci
Executive Vice President and Chief Financial Officer at Roper Technologies

No. The leverage ratio is completely independent of the rate environment.

Brendan Luecke
Analyst at AllianceBernstein

Okay great. And then within the higher-rate environment, do you feel you have an advantage over PE funds, particularly with the IPO market drying up?

Neil Hunn
President and Chief Executive Officer at Roper Technologies

We've long said that higher interest rates we believe have been a real benefactor of that. For the reasons that 70% to 80% of our capital that we deploy is from our internally generated cash-flow. Obviously 20% to 30% is from the balance sheet, versus private equity who are competing against 50 plus percent of what they deploy in every deal is variable-rate debt at the moment, so they are much more indexed and their values are much more indexed to shorter-term rates than anything that we would see.

Rob Crisci
Executive Vice President and Chief Financial Officer at Roper Technologies

And very high yield, and that's those markets are tending closed.

Neil Hunn
President and Chief Executive Officer at Roper Technologies

So we think we're beneficiaries in a higher-rate environment, because one would think overtime if these rates are sustained and that's a big if they are sustained, then you'd see valuations adjust accordingly. And so, we think that's our view on that. We've been very consistent of that view for a long time.

Operator

Thank you, and our next question today comes from Alex Blanton at Clear Harbor Asset Management. Please go ahead.

Alex Blanton
Analyst at Clear Harbor Asset Management

Hi good morning. Moderator, my second question, if you wait until I say thank you before you call up my mike please.

Operator

Yeah, sure, no problem.

Alex Blanton
Analyst at Clear Harbor Asset Management

The first question is, in the tech-enabled segment, you had a 15% growth. What portion of that was just due to supply-chain catch up, catching up on things that have been delayed because of the supply-chain.

Neil Hunn
President and Chief Executive Officer at Roper Technologies

Alex, that's a hard one to give you a level of precision. I will tell you we did better in the quarter because the supply-chain got better. I mean, Verathon had a lot of things that had to go exactly right, and they most reverse what they did. Neptune did a nice job as well. Northern Digital did a great job. So, a chunk of the beat would certainly be attributed to that.

Alex Blanton
Analyst at Clear Harbor Asset Management

Yeah, okay. And secondly on the acquisition front. In the past when you've made a big acquisition like this, you've had a pause in your acquisition pace until you transition into the new company, and get things squared away. What do you expect to do this time? You have $4 billion in dried powder. Would you expect to use some of that or a lot of that or little of that in the coming year.

Rob Crisci
Executive Vice President and Chief Financial Officer at Roper Technologies

Yeah Alex, so, there's certainly no need for a pause to de-lever, because our leverage rates are still relatively low, because we are benefiting from the fact that we did these divestitures and we're still really redeploying those proceeds in addition to our normal cadence. So, really no reason to pause. We're very active in the M&A markets today will remain active, we might do deals very soon, it might take us a couple of quarters. As Neil mentioned, we are going to be very, very patient, but we're certainly going to remain active, and there's not going to be any sort of a pause in that activity like you've seen after some of the larger deals we did lever up in emergency situation where we had to take some time to reduce the leverage.

Alex Blanton
Analyst at Clear Harbor Asset Management

And there's a good backlog of companies to find that you're looking at?

Neil Hunn
President and Chief Executive Officer at Roper Technologies

Yeah, the market is the number of deals and processes that are in slider are quite large.

Alex Blanton
Analyst at Clear Harbor Asset Management

Yes. Okay thank you. This concludes concludes our question-and-answer session. We will now turn back to Zack Moxcey for any closing remarks.

Zack Moxcey
Vice President, Investor Relations at Roper Technologies

Thank you everyone for joining us today. We look forward to speaking with you during our next earnings call.

Operator

[Operator Closing Remarks]

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