The Roper Technologies First Quarter 2020 financial results conference call will now begin. I will now turn the call over to Zack Moxcey, Vice President of Investor Relations. Please go ahead.

Good morning and thank you all for joining us as we discuss the first quarter financial results for Roper Technologies. We hope everyone is staying safe and healthy. 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 Controller; 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’ll please turn to slide two, we begin with our Safe Harbor statement. During today’s call, we will make forward-looking statements which are subject to risks and uncertainties including the impact of the COVID-19 pandemic. A description can be found 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 slide three. Today, we will discuss our results for the quarter and year primarily on an adjusted non-GAAP basis. Reconciliations between GAAP and adjusted measures can be found in our press release and in the appendix of this presentation on our website. For the first quarter, the difference between our GAAP results and adjusted results consists of the following items; amortization of acquisition-related intangible assets and purchase accounting adjustments to acquired deferred revenue. And now, if you’ll please turn to slide four, I will hand the call over to Neil. After our prepared remarks, we will take questions from our telephone participants. Neil?

Thanks Zack and good morning everyone. First, and most importantly, we hope that everyone that is joining us this morning and your families are staying safe and our in good health. With that in mind, our first quarter was quite good, 4% organic revenue growth, expanding gross and EBITDA margins, and very strong cash flow coming in at 13% above last year. After a brief run through of Q1 results, I'll turn the call to Rob and he will discuss our P&L, our balance sheet, and our cash position. We find ourselves in a very fortunate position to have $1 billion of cash on the balance sheet and a completely undrawn $2.5 billion revolver. Then, I'll turn to discuss our operational status and respond to the COVID-19 situation. To this end, all of our product businesses are deemed essential, and all our non-production workforce are being productive working remotely from home. As we turn to our segment discussion, the majority of our comments will focus on a detailed view of how our businesses and business models should perform through the current situation. The impacts we're seeing across our diverse set of businesses range from a pause and new license sales for some of our high recurring revenue software business to a positive spike in demand for Verizon's critical medical products to sharp declines in our Industrial and Process Technologies businesses. Following this, we will break down our Q2 and full year organic revenue guidance. In the midst of this global economic shutdown, we are guiding our full year organic revenues be plus or minus flat. This is a remarkable testament to the durability of our business model. During the discussion of our guidance, we outlined to you the assumptions that would cause our earnings to be on the low or high end of our guidance range. I'll then turn to discuss our outlook for continued capital deployment and end with a summary of a few of the Roper companies that are on the frontlines responding to the COVID-19 virus. Finally, we'll turn to your questions. Now, let's turn to a brief run through our Q1 results. Next slide please. Q1 was quite good for us. Our businesses continue to work hard to execute strategy and town offenses. And Q1 is another good data point that what we're doing is taking hold. revenue grew 4% organically, with solid organic growth in three of our four segments. Gross margins and EBITDA margins expanded nicely and debt came in at $3.05, a $0.05 above our guidance range. And as we said for nearly 20 years, cash is the best performance measure with free cash flow being up 13% in the quarter to $353 million, which was 26% of revenue and 76% of EBITDA. Now, I'll turn the call over to Rob to discuss or detail financial performance.

Thanks, Neil. Good morning, everyone. It's really great to have the opportunity to connect with all of you today. Turning to page six, Q1 income statement metrics. As Neil mentioned, organic growth was a very solid 4%, which was better than we had expected coming into the quarter. We did have positive organic growth in three of the four segment, led by Network Software & Systems at plus 9% and Application Software at plus 5%. Once again, really strong margin execution by our business leaders in the quarter, driving strong operating leverage while continuing to invest for future growth, gross margin expanded 50 basis points to 63.5%. EBITDA margin also expanded 50 basis points to a record 34.5%, driving very solid 7% EBITDA growth for the quarter. Earnings before taxes increased 7% to $408 million. As a reminder, last year, we had a $43 million discrete tax item in Q1, resulting in a $0.41 benefit, which drove our tax rate last year below 10%. This year our Q1 tax rate was a more normal 21%, which resulted in debt of $3.05, which was well above our guidance range, as Neil mentioned. So in summary, a really strong operational quarter for Roper and really great execution by our business leaders. Next slide. Turning to cash flow, Q1 operating cash flow 364 million was a 10% increase versus prior year, Q1 free cash flows was $353 million, a 13% increase versus prior year. So, looking over the past few years, our Q1 free cash flows compound at a very strong 14%. As Roper -- at Roper, as Neil said, and as you've all said, as you know, hundreds of times over the past few decades, we really do believe cash is the best measure performance and those are really another great cash…

Thanks, Rob. It's worth underscoring the strength of our balance sheet and borrowing capacity. Also a great job by Rob and Shannon, and adjusting to a net debt covenant this further strengthens our capital appointment capacity and the ability to play offense at the appropriate time. Also, thanks to our lending group. Now let's turn to how we're responding operationally to COVID-19 sectors. We are blessed to have very few COVID-19 cases, each of which has recovered or is recovering. From an operational readiness perspective we are also fortunate. All of our businesses with manufacturing facilities have engage essential and remain operational delivering the vital products that our customers need during – at successfully transition to working from home. Our portfolio of niche businesses are characterized by having meaningfully reduced cyclical exposure, having high levels of recurring revenues, low asset intensity, low levels of fixed costs and high levels of operating cash flow. We operate this portfolio in a highly decentralized operating structure that enables rapid, nimble execution. Our locally driven, bottoms up approach to business planning performs exceptionally well in any environment and clearly. This is an unprecedented one. Given this, there have not been any top down mandates or mandatory targets, but rather a few guiding principles to consider and an incentive system that promotes investments and long-term organic growth. We did after businesses to assess the short and medium term impact to the demand drivers and take a sober view of each. Based on this, each business deploy appropriate cost countermeasures with emphasis on three items. First, each business work to manage their margins appropriately with always vigilant management of cash flow. Second, each business targeted mostly temporary cost, countermeasures. And third, each business continues to make no regrets investments in innovation and talent, all of which…

Operator: Thank you. We will now go to our question-and-answer portion of the call. [Operator Instructions] Our first question comes from Deane Dray of RBC Capital Markets.

Thank you. Good morning, everyone.

Good morning, Dean.

It's great to hear everyone's voice on the call. And I just want to thank you for all the additional color that you provided today on both the application software and network software business models in the mix. That was helpful. And that last slide on all the ways you're participating in the COVID defense, that was great to see as well. So Neil, for the first question, it's the idea here is most companies are drawing on revolvers. You're obviously not doing that. You're at much stronger position. But keeping $1 billion in cash at the ready to deploy an M&A at the appropriate time, can you talk through the – when will be the appropriate time? Because will these – there be targets in distress that would be opportunistic? Because it typically takes a while for prices to reset in a downdraft like this. So maybe kind of set expectations on when and how you deploy M&A here? Thanks.

Sure. Appreciate the question. In any environment, it's hard to predict the timing of capital deployment because, as you know, it's lumpy. But a few comments. First, leading into the shutdown, leading into the middle of March, we were extraordinarily active and pause several things and believe at the right time, we can unpause those things. Only time will tell there. But we stay in constant contact with the owners of those assets, the leadership team for those assets. And these were very late-stage sort of situations. On the – but once we work through that, sort of, late-stage part of the pipeline, there continues to be some level of discussions between sponsors and ourselves. We've spent years developing relationships. We know the portfolio as well. And this is the time where those relationships matter the most, because it's unlikely that here in the next couple, three, four, five months, how long it is, that there's going to be broad-based sell-side processes. But sponsors still have requirement to get liquidity back to their shareholders. And if there's one-off trades that make sense for both sides, we think those could happen. And then finally, they're more likely than not, we saw it in the last downturn in 2007, 2008, 2009 time frame as we studied that. I wouldn't call them just – they're just – there are likely be some companies that are distressed from a capital structure point of view, not from an operating point of view, which gives them -- sort of, they put them in a pinch to where we're able to acquire nice assets, operating assets and meet all of our criteria, but they just have made some poor decisions or have some bad timing on their capital structure. So there's really -- it's the nature of where we sort of target might change modestly, because you're right, it does take typically a couple of quarters, plus or minus, for private valuations to reset to where public ones are.

That's real helpful. And then a follow-up for Rob on working capital. You said that there was -- you might be seeing some delayed payments. Can you elaborate on that? And when you said you expect working capital to remain negative, was that a comment for quarterly or for the year? And how do you think the quarterly stacks out for -- in terms of being negative each quarter? Thanks.

Yeah. Good morning, Deane. Appreciate the question. It's always difficult to predict working capital, right? It's one of the toughest things to predict. We certainly know that there are some end markets, particularly acute care, healthcare, where if you call the news, there's going to be some challenges there where hospitals are slowing some payments, et cetera. So difficult to predict each quarter. I will say that our customers overall were in very durable end markets. And so, we expect really no credit risk across all of our customers. So it's a matter of timing of payments. And when you have the huge deferred revenue balance, when you have management teams, they're really close to their customers. We feel really confident that the working capital position will remain very strong and negative throughout the year.

That's very helpful. Thank you.

Yeah. Thank you.

Our next question today comes from Steve Tusa of JPMorgan.

Hey, guys. Good morning.

Good morning, Steve.

Good morning, Steve.

Thanks for all the detail. Every quarter, more successive detail on all the businesses. It's very helpful in helping us some industrial analysts understand these tech businesses. So I appreciate that. On the second quarter guide, the – it looks to me like your sales are down like $85 million -- $80 million to $90 million, just using kind of a mid-single-digit rate maybe. And – but the EPS decline of like $0.45 seems to be a pretty high decremental. Is that just kind of the nature of the business? How to – can you kind of just help us walk to kind of the profit performance there? Anything moving around mix wise?

Yeah. I'll start, and then I'll ask Rob to add any color. So obviously, the – this demand shop for every company came fast and deep, right? So we started feeling it across a few of our companies at the end of the quarter. And then obviously, it's sustained here through the first part of April. So a couple of comments. So first, when this happened, just from a planning perspective, we first – we didn't try to overreact or react too quickly. We first had to get everybody home, which took a week or two. We then took a week to 10 days to let our leaders really onboard and accept the reality of the demand shock. And then we started our planning process, which was really the first week or so in April. So sometimes takes by. And so by the time you do the planning process in the second quarter and then start putting in the cost countermeasures, it was really just starting to layer in now against what we believe is going to be the steepest demand shock. And so when you put those two together, you just naturally get sort of the worst leverage, if you will, in 2Q and things stabilized from that point in time.

Yes. And I'll just add to that. We talked a lot about the perpetual license timing. And so when you're in the second quarter period where the economy is basically shut down for at least the first month of the quarter. So we're not assuming much, if any, license revenue. As you know, that comes at a really high margin. We do have the TransCore project continuing, which is lower margin. So you're really also looking at some mix impacts, adding on to what Neil said.

And then the final thing, Steve, so I should have mentioned at the onset is we're not adding back any of the restructuring costs. So that is a little bit of a headwind in the quarter as well.

Got it. How much is that again?

It's sub-$10 million.

Okay. That makes some sense. And then it's my understanding that in some of these software businesses, you see kind of perhaps a bit of a pause, but then that's kind of a quarterly variance. We're kind of used to some CapEx businesses that are kind of more annual cycles. So that – are you expecting kind of a push on revenues in application software from second quarter into third, so that you kind of have a bit of like pent-up revenue in the second half of the year, if you will? Is that how we should kind of think about this or not really?

So Steve, everything's certainly pushing to the right. We've not assumed that there's a – it's a 2Q push that comes back in 3Q. It's just everything sliding to the right. And to the extent what you describe happens, then that would lead us to be more on the higher side of our guidance than the lower side. On the new logo sales, the new customers that are buying relatively high dollar transformational type IT projects, those are going to be pushed to the right for the balance of the year for the most part, right? Who's going to make a big IT investment right now, setting aside how our salespeople actually get to that customer and sell. But the smaller ticket items, the upgrades and the add-on products, that level of activity has actually been quite nice. At Deltek, for instance, the top of the funnel here in the last three or four weeks, like this is the inquiries are up 30% to 35% versus a year ago. Now some of that is everybody's sitting at home doing Google searches, right? So the quality of that top of the funnel may not be as high. But what's been accepted as sales acceptance leads at Deltek has actually paced even a little bit ahead of last year. So the exact nature of how this thing is going to unfold because it's more of a shock than a cycle is yet to be seen.

Sorry, one more for you. Any impact to MHA? I know that obviously, nursing homes and those types of things are having a real hard time right now dealing with all of this in certain areas, kind of struggle to understand whether that's it's obviously negative in life, but whether it's negative or positive for your business. How does that work here with the stress in nursing homes?

Yeah. So certainly, the number of new admissions to the skilled nursing, or SNF, sort of, care setting is likely going to be paused for quite some time, right? We're not putting in the elderly population in that care setting. So that – because the census, if you will, in SNFs, is going to be impacted by that. That will have some, but it'd be a modest and slow building impact, negative impact to the growth rate for MHA. What still happens, we're not seeing any meaningful discharges, right? The people that are in this setting for a long ark of time, they're not being pulled out because of what's going on. And this is just one of many growth drivers at MHA, right? You still have pricing that goes up. You still have pharmaceutical consumption per capita that goes up. You still have the team building to put new products online. There still are new pharmacies that will start that we'll capture. So there's a handful of sort of consistent growth drivers. But certainly, census levels will moderate some in the skilled nursing facility, which will impact the growth rate of modestly of MHA.

Great. Thanks for the color guys. I appreciate it. Best of luck.

Our next question today comes from Julian Mitchell of Barclays.

Hey. Good morning, everyone. This is John for Julian. Maybe switching back to working capital first. Can you talk a bit on how the unearned revenue is going to kind of play with that expectation? How well has that been holding up? And how much of a headwind can that be with AS guided down for Q2?

Yeah, sure. This is Rob. The way deferred revenue works for our software businesses is, it's just the passage of time that needs to happen in order for the revenue to be recognized. And so, as I mentioned on the call, it is – when you have a renewal, then – and then that's the point at which you hope the customer renews or they don't. And generally, they do at very high 90% renewal rates. And those renewals are time throughout the year. So as long as you maintain your recurring revenue, it's very, very steady. The deferred revenue continues to grow as the software businesses grow. A reminder, we're selling this software. It's really critical software systems across durable markets, like government contractors, mostly large enterprises to the customers. And so it's very, very steady. It gives you high levels of recurring revenue and high levels of cash flow. So we don't see any meaningful impact from that certainly in the short term.

Got it. And then I guess maybe on that guided decline for next quarter, it does sound like a big chunk of that is just push out of licensing and so on. But is there any impact from kind of the mix here moving much more towards license and service rather than perpetual just being down to 10% now kind of as you say?

Well, certainly, we expect the bucket of revenue of perpetual license revenue, the historical 10% number, that will be down. It will be impacted for the reasons that we talked about. The recurring won't be impacted in any meaningful way and the services backlog will work through the back -- the services teams to work through the backlog, as we've said. So I don't know if you have...

Yeah. And then, just, as you go through the guidance, keep in mind, we did increase the tax rate. So that's a big difference from prior guidance and if you're looking at last year versus this year. So the tax rate is a little bit higher. And then we are assuming relatively high deleveraging and process technologies, given all the declines there and that we're not assuming any sort of a rebound. And as Neil mentioned, we're taking specific cost actions as well that are flowing through. So those are all key drivers in the roll up.

Got it. Thanks, guys.

Thank you.

Our next question comes from Joe Giordano of Cowen. Please go ahead.

Hey, guys. Good morning.

Good morning.

Hey, Joe.

Hey, I apologize if you went through some of the stuff with kind of quadruple passing this morning a little bit. So for TransCore, I know you mentioned in the prepared remarks, you pushed some off into next year. I don't think that should be too surprising. But given some of the stuff that's been in the paper recently about necessary permits and issues with different government agencies, can you talk about what actually needs to happen before this is able to be before the actual hardware can be deployed?

Yes. The hardware is being deployed. The project is on track. It's on pace other than just pushing this $25 million in our planning assumptions into the Q1 of next year. What you may have read and what others have read is there – I think there is a distinct separation between the work that we're doing with our customer to put the infrastructure in, which is pacing for the reasons we said. It's now the revenue from this or the operating budget, not the capital budget because the MTA, obviously, revenues are way down, given what's going on. And then what happened – governmental process to enable and structure the tolling itself. That's going to happen at a very – in part of next year, but the infrastructure work continues, and that's our planning assumption. All the signals and all the discussions, as you can imagine, we stay very, very close with this customer, and we're in the same posture on that together with a customer.

So does – I guess, would that put potentially like to push on some of the recurring revenue associated with this if there's some issue with like a go-live so you get your deployment and then there could be like a delay in when stuff actually goes on?

Yes, it could. If we ultimately don't go in, then the maintenance part would not turn on would be our planning assumption there. But I think there's a pretty high level of interest by all parties to see this project turn on.

Yes. Okay. And then again, you probably went through this a little bit. But on the software backlog that you have, like can you just talk me through how you're thinking about that in terms of whether it's a six-month or a year? Like what do you – what are you modeling in, in terms of like companies being smaller and needing less licenses and stuff like that?

So well, there's a couple of different questions embedded there.

Yes. I know.

So first – but first of all, you have to go company by company. So really, all we're talking about in our comments where we see a meaningful headwind on the license activities at our application software business. We went company-by-company on the network side. The recurring nature, they'll be impacted, but doesn't have the license activity because they're all SaaS businesses there. So when you look at application software, it's really the combination of those companies there that are going to likely not have large new customer perpetual deals happen in this environment. The smaller products, the add-on projects, the upgrade projects, the increased functionality, the how do you turn on, do some SaaS conversions, right, during this process, during the current economic environment, the activity in the sales funnel suggests that's going to continue, but currently five or six weeks end of situation, we have to see how that continues. So that's on the license side. On the services side, the services work results from selling licenses. So there'll still be some of that. And then there's a fair amount of upgrades that happened. And actually, when times like this are actually a pretty decent time to upgrade systems, because you have maybe less people in the office and less user activity, so the IT staff to do what they need to do to get to a new version. Now we have to see if it actually plays out. But even if it doesn't, even if that has slowed, the services teams work off a six to 12-month services backlog of implementation, they basically have six to 12 months to replenish the backlog from new sales activities.

Perfect. So fair to say you're assuming that the big – like essentially like a zero and new big licensing and things like that for now.

Well, again, you've got to parse it out, right? It's very low large new logos assumed in the planning horizon. There is going to be some new licensing for the product add-ons. That's exactly right.

Okay. Fair enough. Thanks guys.

Yeah. Thank you.

Our next question comes from Alex Blanton of Clear Harbor Asset Management.

Good morning.

Alex, Good morning

Hey, Alex.

I hope you’re well.

Typically, during recessions, dominant companies like Roper gained market share, a lot of market share, in some cases, from weaker competitors. And it seems to me that, that would be true right now in spades. Could you comment on where you would expect the greatest cash effective Roper. You're gaining share from companies that get in trouble during this period.

I appreciate the question. No. It's a – we agree with your sentiment. History would suggest that's the case. When you have the operational readiness that we have, when you have the balance sheet that we have, when you have the cash flow that we have, sort of amount of those heartily needs allows us to very quickly pivot to play offense versus defense, and that's the posture that we're leaning, right? We also talked in our prepared remarks about our direct channel access. So we're talking across all of our businesses every day with our customers. Where the opportunities are, it's incrementally, and I don't – I mean, it's in all the businesses. I don't want to sort of call out one business there where there's a disproportionate opportunity, because it's a structural opportunity with our business model that we have across the 45 businesses. But we agree there is times to fulfill need right now when our competitors cannot fulfill a product that garners you sort of an opportunity to capture and keep that share of momentum building on that side of this thing. So we agree with the sentiment and we're alternatively leaning forward, but we've got to do that in a prudent way, given the current situation we all face.

Right. Then you mentioned that you keep in very close touch with your customers, so you can identify these opportunities when they arise.

That's correct.

I have one more question on your – on the acquisition outlook. You mentioned that there's a delay implementing some of the sellers, plans to sell the businesses, which is understandable. But could you characterize the backlog? You said it was a very full backlog or pipeline of acquisition opportunities. Could you expand on that a bit?

Sure. Sure.

Because you've got a highly talented…

Correct. There's always a lot of activity that happens in our pipeline. I've been here since 2011. For the first six or seven years is my responsibility to manage the pipeline, in addition to my operating responsibilities. And so just speaking over the whole time I've been here, there's a lot of activity. What we're specifically commenting on earlier is there was very late-stage activity. Under exclusivity, most terms agreed to most diligence done a few deals that we just decided it was prudent to pause and take stock of the current situation. So there's a late-stage pipeline. Now the things right behind that, most – every other process, sales process that was in the market has pulled for obvious reasons. And so we're going to have to lean into our knowledge of the existing sponsor relationships and relationships that we have to see if we can build funnel on a proprietary basis for the next couple of quarters. And only time will tell if we're going to be able to successfully do that. And then from that point, private equity business models need to return capital to their Limiteds, and we expect that to continue once the new reality of the valuation regime, the leverage regime, all sort of land on us all.

Okay. Thank you.

Thank you.

Our next question comes from Robert McCarthy of Stephens.

Thanks for fitting me guys. How are you doing today?

Great. Hope you are well?

Good. Yes, just expanding on kind of the private equity on the acquisition environment. Obviously, a situation where as Deane suggested, prices are coming down. But I mean, could you see a phenomenon here of – as private equity has a lot of businesses that are probably highly impacted more than what their risk characteristics would have suggested that you could provide the ATM on some decent deals where they could get an exit, so there could be a liquidity premium to getting something out, returning it to Limiteds and you could still pick off some decent businesses at some reasonable valuations? Do you think there's a path forward for that? And maybe just expand more broadly about your acquisition capacity in cancer?

Yes. So on the capacity side, it's going to – it's $2 billion to $3 billion right now very easily. We're going to be prudent in how we deploy that and always be very mindful of the current situation we're in. Relative to the first part of your question, I think it depends on the sponsor, right? If you talk to some of these very large, highly successful sponsors who have raised eight to 15 funds and returned three to 5x, might after their Limiteds are going to have a lot of patients with them as they work through this. So those assets and those portfolios, I think, waits a little longer. On the other hand, there's scores of more middle market sponsors that do not have that track record that probably exhibit the exact behavior that their outlying. And so only time will tell, but it's our job to identify those opportunities as they come up.

Thank you for that. And then I guess in terms of thinking about the longer-term opportunity with CBORD and also TransCore mean obviously, episodically, companies have been talking about changing the regime for not only payments but also access, particularly given the light of the pandemic. I mean, you're going to probably see a reconfiguration of security and access around motion as opposed to touch, just given the nature of sanitation and public hygiene, do you think that creates a bit of an opportunity for you in each of those businesses, or do you think it's a little bit too much of a nuance right now?

I think it does over the medium term, right? So there's the Seaboard, it's the work we've done with Apple for contactless sort of entry and security. I think also the way that in the near term, at least, universities are going to want to follow where the students are, and so we might be able to be assistants – assist them in that. TransCore, we talked about the concept of handing cash and getting change back is likely going to end here at some point. And then also, RFID is a business we all talk a whole lot about. We talked about in the quarter -- I mean, in the quarter, they had a very strong quarter. They're all about contactless reading for identity access, for instance, in hospitals and health systems for secure print, right? So how do you actually go to a printer and get your materials off without having to touch it. So they enable those sorts of solutions from a product perspective.

Thanks for your time.

Thank you.

That will end our question-and-answer session for this call. We would now like to turn the call back to Zack Moxcey for closing remarks.

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