ROPER TECHNOLOGIES, INC.
FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 20172023
TABLE OF CONTENTS
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Information About Forward-Looking Statements
This Annual Report on Form 10-K ("(“Annual Report"Report”) includes and incorporates by reference "forward-looking statements"“forward-looking statements” within the meaning of the federal securities laws. In addition, we, or our executive officers on our behalf, may from time to time make forward-looking statements in reports and other documents we file with the U.S. Securities and Exchange Commission ("SEC"(“SEC”) or in connection with oral statements made to the press, potential investors, or others. All statements that are not historical facts are "forward-looking“forward-looking statements."” Forward-looking statements may be indicated by words or phrases such as "anticipate," "estimate," "plans," "expects," "projects," "should," "will," "believes" or "intends"“anticipate,” “estimate,” “plans,” “expects,” “projects,” “should,” “will,” “believes,” “intends,” and similar words and phrases. These statements reflect management'smanagement’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 expressedcontained or implied in any forward-looking statement.
Examples of forward-looking statements in this report include but are not limited to statements regarding operating results, the success of our operating plans, our expectations regarding our ability to generate cash and reduce debt and associated interest expense, profit and cash flow expectations, the prospects for newly acquired businesses to be integrated and contribute to future growth, and our expectations regarding growth through acquisitions. Important assumptions relating to the forward-looking statements include, among others, demand for our products, the cost, timing, and success of product upgrades and new product introductions, raw material costs, expected pricing levels, expected outcomes of pending litigation, competitive conditions, and general economic conditions. These assumptions could prove inaccurate. Although we believe that the estimates and projections reflected in the forward-looking statements are reasonable, our expectations may prove to be incorrect. Important factors that could cause actual results to differ materially from estimates or projections contained in the forward-looking statements include but are not limited to:
•general economic conditions;
•difficulty making acquisitions and successfully integrating acquired businesses;
•any unforeseen liabilities associated with future acquisitions;
•risks and costs associated with our international sales and operations;
•rising interest rates;
•limitations on our business imposed by our indebtedness;
•product liability, litigation, and insurance risks;
•future competition;
•reduction of business with large customers;
•risks associated with government contracts;
•changes in the supply of, or price for, labor, energy, raw materials, parts, and components;components, including as a result of impacts from the current inflationary environment, or supply chain constraints;
•potential write-offs of our goodwill and other intangible assets;
•our ability to successfully develop new products;
•failure to protect our intellectual property;
•unfavorable changes in foreign exchange rates;
•difficulties associated with exports/imports and risks of changes to tariff rates;
•increased warranty exposure;
•environmental compliance costs and liabilities;
•the effect of, or change in, government regulations (including tax);
•risks associated with the use of artificial intelligence;
•economic disruption caused by armed conflicts (such as the war in Ukraine and the conflict in the Middle East), terrorist attacks, including cybersecurity threats, health crises (such as the COVID-19 pandemic), or other unforeseen geopolitical events; and
•the factors discussed in Item 1A toof this Annual Report under the heading "Risk“Risk Factors."”
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PART I
ITEM 1. BUSINESS
All currency amounts are in millions unless specified
Our Business
Roper Technologies, Inc. ("(“Roper,"” the "Company," "we," "our"“Company,” “we,” “our,” or "us"“us”) is a diversified technology company. Roper has a proven, long-term, successful track record of compounding cash flow and shareholder value. We operate market leading businesses that design and develop vertical software (both license and software-as-a-service) and engineeredtechnology enabled products and solutions for a variety of defensible niche end markets.
We pursue consistent and sustainable growth in revenue, earnings, and cash flow by emphasizingenabling continuous improvement in the operating performance of our existing businesses and by acquiring other businesses that offer high value-added software, services, engineeredtechnology-enabled products, and solutions that we believe are capable of achieving growth and maintaining high margins. We compete in many defensible niche markets and believe we are the market leader or a competitive alternative to the market leader in most of these markets. In the last three years, we have deployed approximately $6,550 of capital toward acquisitions, including approximately $1,380 in 2023 for the acquisition of Syntellis Performance Solutions, a leading provider of Software-as-a-Service (“SaaS”) solutions for healthcare, financial institution, and higher education providers and approximately $3,750 in 2022 for the acquisition of Frontline, a leading provider of SaaS solutions for school administration. Additionally, we deployed approximately $1,420 toward other acquisitions, primarily bolt-on acquisitions to help build on the strategic position of several of our businesses. In January 2024, we announced that we reached a definitive agreement to acquire Procare Solutions, a leading provider of cloud-based software for the childcare market, for a purchase price of approximately $1,860. The transaction is expected to close in the first quarter of 2024, subject to regulatory approval and customary closing conditions. See Note 2 of the Notes to Consolidated Financial Statements included in this Annual Report for additional information.
On November 22, 2022, the Company completed the divestiture of a majority 51% equity stake in its industrial businesses, including its entire historical Process Technologies reportable segment and the industrial businesses within its historical Measurement & Analytical Solutions reportable segment, to Clayton, Dubilier & Rice, LLC. The businesses included in this transaction were Alpha, AMOT, CCC, Cornell, Dynisco, FTI, Hansen, Hardy, Logitech, Metrix, PAC, Roper Pump, Struers, Technolog, Uson, and Viatran (collectively “Indicor”). Following the sale of the majority stake, the Company retained a minority equity interest in Indicor. This transaction is referred to herein as the “Indicor Transaction.” As of December 31, 2023 and 2022, the Company held a 47.3% and 49.0% minority equity interest in Indicor, respectively. See Note 10 of the Notes to Consolidated Financial Statements included in this Annual Report for additional information on this minority equity interest.
During 2021, Roper entered into definitive agreements to divest our TransCore, Zetec, and CIVCO Radiotherapy businesses (“2021 Divestitures”). Roper completed the 2021 Divestitures by the end of the first quarter of 2022.
The aggregate of the 2021 Divestitures and the Indicor Transaction have greatly reduced the cyclicality and asset intensity of the Company. In addition, the Company has an increased mix of recurring revenue and a higher margin profile. The financial results for Indicor and the 2021 Divestitures are reported as discontinued operations for all periods presented. Unless otherwise noted, discussion within Part I relates to continuing operations. Information regarding discontinued operations is described further in Note 3 of the Notes to Consolidated Financial Statements included in this Annual Report.
We were incorporated on December 17, 1981 under the laws of the State of Delaware.
Market Share, Market Expansion, and Product Development
Leadership with Engineered ContentTechnology and Products for Niche Markets - – We maintain a leading position in many of our markets. We believe our market positions are attributable to the technical sophistication of our products and software, the applications expertise used to create our advancedhigh value products and systems,solutions for our customers, the underlying critical nature of our offerings, and the inherent customer intimacy of our distributionchosen niche markets. Our businesses realize growth from new and service capabilities. Our operating units growexisting customers in their businessesniche markets through successfully executing go-to-market strategies, developing new product developmentproducts and development of new applications, and services to satisfy customer needs. In addition, our operating units grow our customer base by expanding our access to customers and entering adjacent markets.delivering professional services.
Diversified End Markets and Geographic Reach - – We have a global presence, with sales to customers outside of the United States (“U.S.”) totaling $1.3 billion$873.4 in 2017.2023. Information regarding our international operations is set forth in Note 1314 of the Notes to Consolidated Financial Statements included in this Annual Report.
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Our BusinessReportable Segments
–Application Software - Aderant, CBORD, Clinisys, Data Innovations, Deltek, Frontline, IntelliTrans, PowerPlan, Strata, Vertafore
–Network Software - ConstructConnect, DAT, Foundry, iPipeline, iTradeNetwork, Loadlink, MHA, SHP, SoftWriters
–Technology Enabled Products - CIVCO Medical & Scientific Imaging, Industrial Technology and Energy Systems & Controls. Solutions, FMI, Inovonics, IPA, Neptune, Northern Digital, rf IDEAS, Verathon
Financial information about our businessreportable segments is presented in Note 1314 of the Notes to Consolidated Financial Statements included in this Annual Report.
Our RF Technology segment provides radio frequency identification ("RFID") communication technology and software solutions. ThisApplication Software segment had net revenues of $1.86 billion$3,186.9 for the year ended December 31, 2017,2023, representing 40.4%51.6% of our total net revenues. Below is a description of the products offered by businesses that comprise the Application Software segment:
CBORD – campus solutions software including access and cashless systems, and food and nutrition service management, serving primarily higher education and 3) preconstruction projecthealthcare markets along with software, services, and technologies for foodservice operations specializing in K-12.
Clinisys – diagnostic and laboratory information management software solutions.
Data Innovations – software solutions that enable enterprise management of hospitals and independent laboratories.
Deltek – enterprise software and information solutions for constructiongovernment contractors, professional services firms, and other project-based businesses.
Frontline – K-12 school administration software, connecting solutions for human capital management, student and special programs, and business operations, with powerful analytics to empower educators.
IntelliTrans – transportation management software and services to bulk and break-bulk commodity producers.
PowerPlan – financial and compliance management software and solutions to large complex companies in asset-intensive industries.
Strata – cloud-based financial analytics, performance management software, and data solutions used by healthcare providers, higher education, and financial institutions for financial planning, decision support, and continuous cost improvement.
Vertafore – cloud-based software to the property and casualty insurance industry, professionals.including agency management, compliance, workflow, and data solutions.
Network Software
Our Network Software segment had net revenues of $1,439.4 for the year ended December 31, 2023, representing 23.3% of our total net revenues. Below is a description of the products offered by businesses that comprise the Network Software segment:
ConstructConnect – cloud-based data, collaboration, and estimating automation software solutions to a network of pre-construction contractors.
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DAT – electronic marketplaces that connect 1) available capacity of trucking units with the available loads of freight to be moved from location to location throughout North America, 2)America.
Foundry – software technologies used to deliver visual effects and 3D content for the entertainment and digital design industries.
iPipeline – cloud-based software solutions for the life insurance and financial services industries.
iTradeNetwork – electronic marketplaces and supply chain software that connect food suppliers, distributors, and vendors, primarily in the perishable food sector and 3) construction industry professionals.sector.
MHA – health care markets. We also provide an integrated nutrition management solution used by food service customers.and software solutions to alternate site health care markets.
SHP – data analytics and benchmarking information for the post-acute healthcare provider marketplace.
Technology Enabled Products
Our Medical & Scientific Imaging segment offers products and software in medical applications, and high performance digital imaging products. For 2017, thisTechnology Enabled Products segment had net revenues of $1.41 billion,$1,551.5 for the year ended December 31, 2023, representing 30.6%25.1% of our total net revenues. Below is a description of the products offered by businesses that comprise the Technology Enabled Products segment:
CIVCO Medical ProductsSolutions – accessories focused on guidance and Software - We provide diagnosticinfection control for ultrasound procedures.
FMI – dispensers and laboratory softwaremetering pumps which are utilized in a broad range of applications requiring precision fluid control.
Inovonics – high-performance wireless sensor networks and solutions to healthcare providers and services and technologies to support the diverse and complex needs of alternate site health care providers who deliver services outside of an acute care hospital setting. We also manufacture and sell patient positioning devices and related software for use in radiation oncology and 3-D measurement technology in computer-assisted surgery, and we supply diagnostic and therapeutic disposable products used in ultrasound imaging for minimally invasive medical procedures. We design and manufacture a non-invasive instrument for portable ultrasound bladder volume measurement and a video laryngoscope designed to enable rapid intubation in difficult situations. In addition, we provide a cloud-based financial analytics and performance software platform to healthcare providers.
IPA – automated surgical scrub and industrial uses, which require high resolution and/or high speed digital video, including electron microscopy and spectroscopy applications. We sell these productslinen dispensing equipment for use within academic, government research, semiconductor, security and other end-user markets such as biological and material science. They are frequently incorporated into products by original equipment manufacturers ("OEMs").healthcare providers.
Northern Digital – optical and distribute water meter products serving the residential, commercialelectromagnetic precision measurement systems for medical and industrial waterapplications.
rf IDEAS – RFID card readers used in numerous identity access management markets, and several lines of automatic meter reading products and systems serving these markets.
Verathon – medical devices that enable airway management, including bronchoscopes and in pumping method employed, which allows for the movementvideo laryngoscopes, and application of a diverse range of low and high viscosity liquids, high solids content slurries and chemicals. Our pumps are used in end markets such as oil and gas, agricultural, water and wastewater, chemical and general industrial.
Materials and Suppliers
We believe most materials and supplies we use are readily available from numerous sources and suppliers throughout the world. However, some components and sub-assemblies are currently available from only a limited number of suppliers. Some high-performance componentssuppliers for digital imaging products can be in short supply and/or suppliers have occasional difficulty manufacturing such components to our specifications. Wewhich we regularly investigate and identify alternative sources where possible, and wepossible. We also believe these conditions equally affect our competitors. Supply shortages have
Remaining Performance Obligations and Backlog
Remaining performance obligations represent the transaction price of firm orders for which work has not had a material adverse effect onbeen performed, excluding unexercised contract options. As of December 31, 2023 and December 31, 2022, total remaining performance obligations were $4,612.6 and $4,214.0, respectively.
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Backlog is equal to our revenues although delays in shipments have occurred following such supply interruptions.
Distribution and Sales
Distribution and sales occur primarily through direct sales offices, manufacturers'manufacturers’ representatives, resellers, and distributors.
Governmental Regulations
We face extensive government regulation around the world relating to the development, manufacture, marketing, sale, and distribution of our software, services, and products. The following sections describe certain significant regulations to which we are subject, but these are not the only regulations with which our businesses must comply. For a description of risks related to the regulations that our businesses are subject to, please refer to “Item 1A. Risk Factors.”
Privacy and Data Security
We are subject to privacy and data security laws around the world that may impose operational burdens on our businesses. In 2018, the General Data Protection Regulation (“GDPR”) became effective in the European Union (“EU”) and United Kingdom (“UK”) and imposed restrictions on how companies use, process, and protect personal information. Additionally, repeated legal challenges to the way regulators implemented GDPR provisions relating to international data transfers have created additional operational burdens and legal risks for companies when transferring personal data back and forth from the EU to many other countries, most notably the U.S. and India. In the U.S., many states have adopted legislation that imposes restrictions similar (but not identical) to GDPR on companies conducting business or serving customers in those states. For example, in 2020 the California Consumer Privacy Act (“CCPA”) became effective and required companies to make disclosures to consumers about their data collection, use, and sharing practices; allowed consumers to exercise control over the use and sharing of their personal data; and provided a limited private right of action for data breaches. Changes to the CCPA which became effective in 2023 have added to the processing restrictions and notifications requirements – particularly when companies engage in online advertising. Virginia, Colorado, Connecticut, and Utah have passed similar legislation that became effective in 2023 and eight other states have passed similar legislation that will become effective in subsequent years. Canada (Quebec) and China have also significantly updated their privacy laws. The compliance and other burdens on our businesses imposed by these privacy laws and regulations may be substantial as we work to comply with differing legal and implementation requirements across multiple jurisdictions.
Healthcare Regulations
The manufacture, sale, lease, and service of medical diagnostic and surgical devices intended for commercial use are subject to extensive governmental regulation by the Food and Drug Administration (“FDA”) in the U.S. and by a variety of regulatory agencies in other countries for some of our businesses. Under the Federal Food, Drug, and Cosmetic Act, known as the FD&C Act, manufacturers of medical products and devices must comply with certain regulations governing the design, testing, manufacturing, packaging, servicing, and marketing of medical products. FDA product approvals may be withdrawn or suspended if compliance with regulatory standards is not maintained or if problems occur following initial marketing. We are also subject to a variety of federal, state, and foreign laws which broadly relate to our interactions with healthcare practitioners and other participants in the healthcare system, including, among others, anti-kickback law, and laws regulating the confidentiality of sensitive personal information and the circumstances under which such information may be released and/or collected, such as the Health Insurance Portability and Accountability Act of 1996, or HIPAA, the Health Information Technology for Economic and Clinical Health Act, or HITECH Act, and the GDPR.
Anti-Corruption and Anti-Bribery Laws and Regulations
We are subject to the U.S. Foreign Corrupt Practices Act (FCPA) and anti-corruption laws, and similar laws in foreign countries, such as the UK Bribery Act. Any violation of these laws by us or our agents or distributors could create substantial liability for us, subject our officers and directors to personal liability, and cause a loss of reputation in the market. Increased business in higher risk countries could subject us and our officers and directors to increased scrutiny and increased liability. In addition, becoming familiar with and implementing the infrastructure necessary to comply with laws, rules, and regulations applicable to new business activities and mitigating and protecting against corruption risks could be quite costly.
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Export Controls and Trade Policies
We are subject to numerous domestic and foreign regulations relating to our Medical & Scientific Imaging segmentoperations worldwide. In particular, our sales activities must comply with restrictions relating to the export of controlled technology and sales to denied or sanctioned parties contained in the U.S. Export Administration Regulations, U.S. International Traffic in Arms Regulations (ITAR), and sanctions administered by the Office of Foreign Assets Control of the U.S. Department of the Treasury (OFAC). Our businesses may also sells through value added resellers ("VARs")be impacted by additional domestic or foreign trade regulations ensuring fair trade practices, including trade restrictions, tariffs, and OEMs.sanctions.
Environmental Matters and Other Governmental RegulationRegulations
Our operations and properties are subject to laws and regulations relating to environmental protection, including those governing air emissions, water discharges, waste management, and workplace safety. We use, generate, and dispose of hazardous substances and waste in our operations and could be subject to material liabilities relating to the investigation and clean-up of contaminated properties and related claims. We are required to conform our operations and properties to these laws and adapt to regulatory requirements in all countries as these requirements change. In connection with our acquisitions, we may assume significant environmental liabilities, some of which we may not be aware of, or may not be quantifiable, at the time of acquisition. In addition, new laws and regulations, the discovery of previously unknown contamination, or the imposition of new requirements could increase our costs or subject us to new or increased liabilities.
Customers
Competition
Generally, our products and solutions face significant competition, usually fromalthough in certain niche markets there are a limited number of competitors. We believe that we are a leader in most of our markets, and no single company competes with us over a significant number of product lines. Competitors might be large or small in size, often depending on the size of the niche market we serve. We compete primarily on product quality, performance, innovation, technology, price, applications expertise, system and service flexibility, distribution channel access, and customer service capabilities.
In addition to trade secrets, including unpatented know-how and other intellectual property rights,like software source code, we own or license the rights under a number ofnumerous patents, trademarks, trade dress, and copyrights relating to certain of our products and businesses. We also employ various methods, including confidentiality and non-disclosure agreements with individuals and companies we do business with, including employees, distributors, representatives, independent contractors, and customers to protect our trade secrets and know-how.intellectual property. We believe none of our operating units are not substantially dependent on any single patent, trademark, copyright, or other item of intellectual property, including a trade secret, patent, trademark, trade dress, or groupcopyright.
Human Capital Management
Roper is a diversified technology company that utilizes a decentralized operating model across our many businesses which serve a diverse set of patents, trademarksend markets. Subject to oversight and guidance from Roper executive management, each business operates as an individual unit with its managers empowered to make day-to-day operating decisions, including decisions with respect to human capital management. As a result, apart from guidance with respect to: (i) compliance with legal and regulatory requirements or copyrights.corporate policies; and (ii) the implementation of compensation and benefit programs provided by corporate management, managers at individual businesses are the primary decision makers with respect to human capital management and development. Though our individual businesses are primarily responsible for these decisions, because of the importance of human capital to our enterprise, we provide guidance and share best practices on key aspects of selection, development, engagement, and diversity of talent within our workforce.
As of December 31, 2017,2023, we had 14,236 employees, with 9,425 locatedemployed approximately 16,800 people worldwide on a consolidated basis, of which approximately 10,900 were employed in the United States.U.S. and approximately 5,900 were employed outside of the U.S. Management believes that the Company’s employee relations are favorable. During the COVID-19 pandemic, most of our businesses implemented broad work-from-home initiatives. Many businesses have retained work-from-home flexibility for their employees and have implemented hybrid work-from-home and in-office arrangements.
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Outside of the U.S., we have some employees, particularly in Europe, that are represented by an employee representative organization, such as a union, works council, or employee association.
Roper has identified and implemented other human capital priorities, including providing competitive wages and benefits, and promoting a diverse and inclusive work environment. The Company is committed to increasing diversity and fostering an inclusive work environment that supports our large global workforce and helps us innovate for our customers. We have 187 employees who are subjectcontinue to collective bargaining agreements. We have not experienced any work stoppagesfocus on building a pipeline for talent to create more opportunities for workplace diversity and consider our relations with our employees to be good.support greater representation within the Company.
Available Information
All reports we file electronically with the SEC, including our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and our annual proxy statements, as well as any amendments to those reports, are accessible at no cost on our website at www.ropertech.com as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. These filings are also accessible on the SEC'sSEC’s website at www.sec.gov. You may also read and copy any material we file with the SEC at the SEC's Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Our Corporate Governance Guidelines; the charters of our Audit Committee, Compensation Committee, and Nominating and Governance Committee; and our Business Code of Ethics and StandardsConduct (the “Code of ConductConduct”) are also available on our website. Any amendment to the Business Code of Ethics and Standards of Conduct and any waiver applicable to our directors, executive officers, or senior financial officers will be posted on our website within the time period required by the SEC and the New YorkThe Nasdaq Stock ExchangeMarket (the "NYSE"“Nasdaq”). The information posted on our website is not incorporated into this Annual Report.
ITEM 1A. RISK FACTORS
Risks RelatingRelated to Our Business Operations
Our growth strategy includes acquisitions. We may not be able to identify suitable acquisition candidates, complete acquisitions, or integrate acquisitions successfully.
Our future rate of growth is highly dependent on our ability to acquire and successfully integrate new businesses. We intend to seek additional acquisition opportunities, both to expand into new markets and to enhance our position in existing markets. There are no assurances, however, that we will be able to successfully identify suitable candidates, negotiate appropriate terms, obtain financing on acceptable terms, complete proposed acquisitions, receive the necessary regulatory approvals, successfully integrate acquired businesses, or expand into new markets. Once acquired, operations may not achieve anticipated levels of revenues, profitability, or cash flows.
Acquisitions involve risks, including difficulties in the integration of the operations, technologies, services, and products of the acquired companies and the diversion of management’s attention from other business concerns. Although our management will endeavor to evaluate the risks inherent in any particular transaction, including but not limited to cybersecurity risks, there are no assurances that we will properly ascertain all such risks. Acquisitions may involve significant cash expenditures, debt incurrences, equity issuances, and expenses. Difficulties encountered with acquisitions may have a material adverse effect on our business, financial condition, and results of operations.
Our technology is important to our success, and our failure to protect this technology could put us at a competitive disadvantage.
Many of our products and services rely on proprietary technology; therefore, we believe that the development and protection of intellectual property rights through patents, copyrights, trade secrets, trademarks, confidentiality agreements, and other contractual provisions are important to the future success of our business. Despite our efforts to protect proprietary rights, unauthorized parties or competitors may copy or otherwise obtain and use our products or technology. Actions to enforce these rights may result in substantial costs and diversion of resources, and we make no assurances that any such actions will be successful.
Unfavorable changes in foreign exchange rates may harm our business.
Several of our operating companies have transactions and balances denominated in currencies other than the U.S. dollar. Most of these transactions and balances are denominated in British pounds, Canadian dollars, or euros. Sales by our operating companies whose functional currency is not the U.S. dollar represented 11% of our total net revenues for both the years ended December 31, 2023 and 2022. Unfavorable changes in exchange rates between the U.S. dollar and those currencies could reduce our reported net revenues and net earnings.
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We rely on information and technology, including third-party cloud computing platforms, for many of our business operations which could fail and cause disruption to our business operations.
Our business operations are dependent upon information technology networks and systems to securely transmit, process, and store electronic information and to communicate among our locations around the world and with clients and suppliers. A shutdown of, or inability to access, one or more of our facilities, a power outage, or a failure of one or more of our information technology, telecommunications, or other systems could significantly impair our ability to perform such functions on a timely basis. Our compliance, cyber and data privacy programs, cybersecurity technology, and risk management cannot eliminate all system risk. Cyberattacks, configuration or human error, insider threat, and/or other external hazards could result in the misappropriation of assets or sensitive information, corruption of data, or operational disruption.
We rely on third-party data centers and cloud platforms, such as Amazon Web Services, Google Cloud Platform, and Microsoft Azure to host certain enterprise and customer systems. Our ability to monitor such third parties’ security measures and the full impact of the systemic risk is limited. If any cloud platform that we use is unavailable to us for any reason, our customers may experience service interruptions, which could significantly impact our operations, reputation, business, and financial results. Failure of our systems or those of our third-party service providers, may result in interruptions in our service and loss of data or processing capabilities, all of which may cause a loss in customers, refunds of product fees, and/or material harm to our reputation and operating results.
Global cybersecurity threats are rapidly evolving and becoming increasingly more sophisticated and attacks to networks, platforms, systems, and endpoints can range from uncoordinated individual attempts to sophisticated and targeted measures known as advanced persistent threats, directed at the Company, its businesses, its customers, and/or its third-party service providers, including, but not limited to, cloud providers and providers of network management services. These may include such things as unauthorized access, phishing attacks, denial of service, data exfiltration and extortion, introduction of malware or ransomware, and other disruptive problems caused by threat actors. While we have experienced and expect to continue to experience these types of threats and incidents, none of them to date have been material to the Company.
We seek to deploy measures to protect, detect, respond, and recover from cybersecurity threats, including identity and access controls, employee training, data protection, vulnerability management, incident response, secure product development, continuous monitoring of our networks, platforms, endpoints, and systems, and maintenance of ransomware resilient backup and recovery capabilities. Our customers are increasingly requiring cybersecurity protections and mandating cybersecurity standards in our products and services, and we may incur additional costs to comply with such demands. Despite these efforts, we can make no assurances that we will be able to mitigate, detect, prevent, timely and adequately respond, or fully recover from the negative effects of cyberattacks or other security compromises, and such cybersecurity incidents, depending on their nature and scope, could potentially result in the misappropriation, destruction, corruption, or unavailability of critical data and confidential or proprietary information (our own or that of third parties) and the disruption of business operations. The potential consequences of a material cybersecurity incident include financial loss, reputational damage, damage to our IT systems, data loss, litigation with third parties, theft of intellectual property, fines, customer attrition, diminution in the value of our investment in research and development, and increased cybersecurity protection and remediation costs due to the increasing sophistication and proliferation of threats, which in turn could adversely affect our competitiveness and results of operations. Any imposition of liability, particularly liability that is not covered by insurance or is in excess of insurance coverage, could materially harm our operating results and financial condition.
Product liability, insurance risks, and increased insurance costs could harm our operating results.
Our business exposes us to product liability risks in the design, manufacture, and distribution of our products. We currently have product liability insurance; however, we may not be able to maintain our insurance at a reasonable cost or in amounts sufficient to adequately protect us against losses. We also maintain other insurance policies, including directors’ and officers’ liability insurance and cybersecurity insurance. We believe we have adequately accrued estimated losses, principally related to deductible amounts under our insurance policies, with respect to all product liability and other claims, based upon our past experience and available facts. However, a successful product liability or other claim or series of claims brought against us could have a material adverse effect on our business, financial condition, and results of operations. In addition, a significant increase in our insurance costs or the imposition of a liability that is not covered by insurance or is in excess of insurance coverage, could have an adverse impact on our operating results.
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Our operating results could be adversely affected by a reduction in business with our large customers.
In some of our businesses, we derive a significant amount of revenue from large customers. The loss or reduction of any significant contracts with any of these customers could reduce our net revenues and cash flows. Additionally, many of our customers are government entities. In many situations, government entities can unilaterally terminate or modify our existing contracts without cause and without penalty to the government agency.
We face intense competition. If we do not compete effectively, our business may suffer.
We face intense competition from numerous competitors in our various businesses. Our products compete primarily on the basis of product quality, performance, innovation, technology, price, applications expertise, system and service flexibility, distribution channel access, and established customer service capabilities. We may not be able to compete effectively on all of these fronts or with all of our competitors. Moreover, competition may require us to adjust prices to stay competitive. In addition, new competitors may emerge, and product lines may be threatened by new technologies or market trends that reduce the value of these product lines. To remain competitive, we must develop new products, respond to new technologies, and enhance our existing products in a timely manner.
Our indebtedness may affect our business and may restrict our operating flexibility.
As of December 31, 2017,2023, we had $5.2 billion$6,330.1 in total consolidated indebtedness. In addition, we had $1.2 billionapproximately $3,133 of undrawn availability under our seniorunsecured credit facility. Subject to restrictions contained in our credit facility, we may incur additional indebtedness in the future, including indebtedness incurred to finance acquisitions.
Our level of indebtedness and the debt servicing costs associated with that indebtedness could have importantsubstantial effects on our operations and business strategy. For example, our indebtedness could:
•limit our ability to borrow additional funds;
•limit our ability to complete future acquisitions;
•limit our ability to pay dividends;
•limit our ability to make capital expenditures;
•place us at a competitive disadvantage relative to our competitors, some of which have lower debt service obligations and greater financial resources; and
•increase our vulnerability to general adverse economic and industry conditions.
Our ability to make scheduled principal payments of, to pay interest on, or to refinance our indebtedness and to satisfy our other debt obligations will depend upon our future operating performance, which may be affected by factors beyond our control. In addition, there can be no assurance that future borrowings or equity financing will be available to us on favorable terms for the payment or refinancing of our indebtedness. If we are unable to service our indebtedness, our business, financial condition, and results of operations would be materially adversely affected.
Our credit facility contains covenants requiring us to achieve certain financial and operating results and maintain compliance with a specified financial ratios.ratio. Our ability to meet the financial covenants or requirements in our credit facility may be affected by events beyond our control, and we may not be able to satisfy such covenants and requirements. A breach of these covenants or our inability to comply with the financial ratios,ratio, tests, or other restrictions contained in our credit facility could result in an event of default under this facility. Upon the occurrence of an event of default under our credit facility, and the expiration of any grace periods, the lenders could elect to declare all amounts outstanding under the facility, together with accrued interest, to be immediately due and payable. If this were to occur, our assets may not be sufficient to fully repay the amounts due under this facility or our other indebtedness.
Our total assets reflect substantial intangible assets, primarily goodwill. At December 31, 2023, goodwill totaled $17,118.8 compared to $17,444.8 of total stockholders’ equity, and represented 61% of our total assets of $28,167.5. The goodwill results from our acquisitions, representing the excess purchase price over the fair value of the net identifiable assets acquired. We assess at least annually whether there has been an impairment in foreign exchangethe value of our goodwill and other indefinite-lived intangible assets. If future operating performance at one or more of our business units were to fall significantly below current levels, if competing or alternative technologies emerge, if discount rates may harmrise, or if business valuations decline, we could incur a non-cash
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charge to operating income. Any determination requiring the write-off of a significant portion of goodwill or unamortized intangible assets would negatively affect our results of operations, the effect of which could be material.
We depend on our ability to develop new products and software, and any failure to develop or market new products and software could adversely affect our business.
Changes in the supply of, or price for, raw materials, parts and components used in our products, or third-party services used in the years ended December 31, 2017delivery of our SaaS solutions could affect our business.
The availability and 2016, respectively. Unfavorableprices of raw materials, parts, and components are subject to curtailment or change due to, among other things, suppliers’ allocations to other purchasers, interruptions in production by suppliers, supply chain delays and disruptions, component shortages, changes in exchange rates, between the U.S. dollar and those currencies could significantly reduce our reported revenues and earnings.
Our operating results may be adversely impacted by the performance of Indicor, in which we own a significant portionminority interest.
In 2022, we divested a 51% majority equity stake in our industrial businesses to Clayton, Dubilier & Rice, LLC (“CD&R”) and retained a minority equity interest in the new parent entity, Indicor. Although we have certain limited consent, board representation, and other governance rights under existing contractual arrangements, we are a minority owner of Indicor and do not control its management, its policies, or the operation of its business, and have no further funding requirements associated with our net revenues. These sales accounted for 11%investment. As a result, our ability to realize the ultimate anticipated benefits of our net revenues for the year ended December 31, 2017transaction depends upon the operation and 12% formanagement of Indicor by CD&R and the year ended December 31, 2016. We areIndicor management team. In addition, Indicor is an industrial business that is subject to risks that are different than the risks associated with our existing businesses. Many of these risks are outside of CD&R’s or Indicor’s control and could limitmaterially impact Indicor’s business, financial condition, and results of operations. Moreover, CD&R may have economic or other business interests that are inconsistent with ours, and we may be unable to prevent strategic decisions that may adversely affect the value of our investment in Indicor. We have applied the fair value option to value our equity investment in Indicor. The assessment of fair value requires significant judgments to be made. Although we believe that our judgments and assumptions are reasonable, changes in estimates or the application of alternative assumptions could produce significantly different results. In the event of a decrease in fair value, we could incur non-cash charges within non-operating income with a corresponding reduction in the balance of our equity investment. See Note 10 of the Notes to Consolidated Financial Statements included in this Annual Report for additional information on this equity investment.
Divestitures or other dispositions could negatively impact our business.
Divestitures pose risks and challenges that could negatively impact our business. For example, when we decide to sell or otherwise dispose of a business or assets, we may be unable to do so on satisfactory terms within our anticipated timeframe or at all, and even after reaching a definitive agreement to sell or dispose of a business, the sale is typically subject to the satisfaction of pre-closing conditions which may not become satisfied. The consummation of any divestiture can be difficult, time-consuming, and costly, and we may not be able to successfully complete identified divestitures. They may also cause diversion of management time and focus away from operating our business. In addition, divestitures or other dispositions may have other adverse financial and accounting impacts, and disputes may arise with buyers or with partners in businesses in which we own a minority interest that could be difficult or costly to resolve.
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We use artificial intelligence in our business, and challenges with properly managing its use could result in reputational harm, competitive harm, and legal liability, and adversely affect our results of operations.
We incorporate artificial intelligence (“AI”) solutions into some of our platforms, offerings, services, and features, and these applications may become more important in our operations over time. Our competitors or other third parties may incorporate AI into their products more quickly or more successfully than us, which could impair our ability to exportcompete effectively and adversely affect our productsresults of operations. Additionally, if our AI applications are based on data, algorithms, or otherwise reduce the demand for these productsother inputs that are flawed, or if they assist in producing content, analyses, or recommendations that are or are alleged to be deficient, inaccurate, or biased, our foreign markets. Such risks include, without limitation, the following:
Risks Related to Government Regulations
Regulation of anyprivacy and data security may adversely affect sales of these events could reduce the foreign demand for our products or could limit our ability to export our products and therefore,services and result in increased compliance costs.
There has been, and likely will continue to be, increased regulation with respect to the collection, use, and handling of an individual’s personal and financial information. Regulatory authorities around the world have passed or are considering legislative and regulatory proposals concerning data protection, privacy, and data security. In the U.S., the states of Virginia, Colorado, Connecticut, Utah, Oregon, Texas, Montana, Delaware, Iowa, Tennessee, Indiana, and New Jersey have each passed comprehensive privacy legislation, and joined California (which further enhanced its existing privacy laws) in directly regulating the collection, use, and sharing of personal information. In addition, there has been an increased focus on industry-specific privacy laws, including in the financial, healthcare, and educational sectors. These statutes and regulations create civil penalties for violations, and in the case of California, creates a limited private right of action for data breaches, that increases the risk of data breach litigation. Absent a preemptive Federal privacy law, as more states pass privacy legislation, there is a strong possibility that we will be required to comply with a patchwork of inconsistent privacy regulations.
Globally, personal information collected within the European Union and United Kingdom remains subject to the GDPR, which is a UK and European Union-wide legal framework that governs data collection, use, and sharing of an individual’s personal data and creates a range of consumer privacy rights. GDPR provides significant penalties for non-compliance (up to 4% of global annual revenue) and EU data protection authorities have already issued significant fines.
The interpretation and application of consumer and data protection laws and industry standards in the U.S., Europe, and elsewhere can be uncertain and currently is in flux. Cloud-based solutions may be subject to further regulation, including data localization requirements and other restrictions limiting the international transfer of data. The operational and cost impact of these cannot be fully known at this time. In addition to the possibility of fines, the application of these existing laws in a manner inconsistent with our current data and privacy practices requires that we change our data and privacy practices, which could have a material negativean adverse effect on our futurebusiness and results of operations. Complying with these various laws could cause us to incur substantial costs or require us to change our business practices in a manner adverse to our business. Also, any new law or regulation imposing greater fees or taxes or restriction on the collection, use, or transfer of information or data internationally or over the Internet, could result in a decline in the use of our products and services and adversely affect our sales and earnings.results of operations. Finally, as we increasingly provide technological solutions, our customers and regulators will expect that we can demonstrate compliance with current data privacy and security regulations as well as new industry-developed standards, and our inability to do so may adversely impact sales of our solutions and services to certain customers. This isparticularly true for customers in highly-regulated industries, such as the healthcare industry and government contractors, and could result in regulatory actions, fines, and legal proceedings as well as negative impacts to our brand, reputation, and business.
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Expectations relating to environmental, social, and governance considerations expose the Company to potential liabilities, increased costs, reputational harm, and other adverse effects on the Company’s business.
Many governments, regulators, investors, employees, customers, and other stakeholders are focused on environmental, social, and governance (“ESG”) considerations relating to businesses, including climate change and greenhouse gas emissions, human capital, and diversity, equity, and inclusion. The Company makes statements about ESG goals and initiatives through information provided on its website, press statements, and other communications, including through its annual ESG Report. Responding to these ESG considerations and implementation of these goals and initiatives involves risks and uncertainties, including those described under “Information About Forward-Looking Statements,” requires investments, and is impacted by factors that may be outside of the Company’s control. In addition, some stakeholders may disagree with the Company’s goals and initiatives and the focus of stakeholders may change and evolve over time. Stakeholders also may have very different views on where environmental, social, and governance focus should be placed, including differing views of regulators in various jurisdictions in which we operate. Any failure, or perceived failure, by the Company to achieve its goals, further its initiatives, adhere to its public statements, comply with federal, state, or international ESG laws and regulations, or meet evolving and varied stakeholder expectations and standards could result in legal and regulatory proceedings against the Company and materially adversely affect the Company’s business, reputation, results of operations, financial condition, and stock price.
Risks Related to Economic and Political Conditions
Economic, political, and other risks associated with our international operations could adversely affect our business.
•adverse changes in a specific country'scountry’s or region'sregion’s political or economic conditions, particularly in emerging markets;
•oil price volatility;
•trade protection measures, tariffs, and import or export requirements;
•subsidies or increased access to capital for firms that are currently, or may emerge as, competitors in countries in which we have operations;
•partial or total expropriation;
•potentially negative consequences from changes in tax laws;
•difficulty in staffing and managing widespread operations;
•differing labor regulations;
•differing protection of intellectual property; and
•differing and unexpected changes in regulatory requirements.requirements, including any measures implemented to address data privacy and impacts of climate change.
Any business disruptions due to political instability, armed hostilities, incidents of terrorism, incidents of directed cyberattacks, public health crises, or extreme weather events or other natural disasters could adversely impact our financial performance.
If terrorist activity, armed conflict, directed cyberattacks, political instability, public health crises, such as epidemics or pandemics, or extreme weather events or other natural disasters occur in the U.S. or other locations, such events may negatively impact our operations, cause general economic conditions to deteriorate, or cause demand for our products to decline. A prolonged economic slowdown or recession could reduce the demand for our products, and therefore, negatively affect our future sales and profits. Any of these events could have a significant impact on our business, financial condition, or results of operations.
Our business, financial condition, and results of operations could be adversely affected by disruptions in the global economy caused by the conflict between Russia and Ukraine and the conflict in the Middle East.
The global economy has been negatively impacted by ongoing military conflict between Russia and Ukraine and the conflict in the Middle East. We have historically had limited operations and suppliers in these jurisdictions. Nevertheless, these military conflicts could have additional negative impacts on the global economy. Further escalation of geopolitical tensions, such as increased trade barriers, economic sanctions or restrictions on global trade, related to these military conflicts could result in, among other things, cyberattacks, supply disruptions, lower consumer demand, and changes to foreign exchange rates and financial markets, any of which may adversely affect our business and supply chain.
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General Risk Factors
The potential insolvency or financial distress of third parties could adversely impact our business and results of operations.
We are exposed to the risk that third parties to various arrangements who owe us money or goods and services, or who purchase goods and services from us, will not be able to perform their obligations or continue to place orders due to insolvency or financial distress. If third parties fail to perform their obligations under arrangements with us, we may be forced to replace the underlying commitments at current or above-market prices or on other terms that are less favorable to us. In such events, we may incur losses, or our results of operations, financial condition, or liquidity could otherwise be adversely affected.
Changes to our executive leadership team and any future loss of members of such team, and the resulting management transitions, could harm our operating results.
We have experienced significant changes to our executive leadership team in the past and may do so in the future. Leadership transitions and changes can be inherently difficult to manage and may cause uncertainty or disruption to our business or may increase the likelihood of turnover in key leadership positions. If we cannot effectively manage leadership transitions and changes, it could make it more difficult to successfully operate our business.
Legal proceedings to which we are, or may be, a party may adversely affect us.
We are currently, and may in the future become, subject to legal proceedings and commercial or contractual disputes. These are typically claims that arise in the normal course of business including, without limitation, commercial or contractual disputes with our suppliers or customers, intellectual property matters, data privacy matters, third party liability, including product liability claims, and employment claims.
A downgrade in the ratings of our debt could restrict our ability to access the debt capital markets and increase our interest costs.
Unfavorable changes in the ratings that rating agencies assign to our debt may ultimately negatively impact our access to the debt capital markets and increase the costs we incur to borrow funds. Additionally, our credit agreement includes increases in interest rates if the ratings for our debt are downgraded. Furthermore, an increase in the level of our indebtedness may increase our vulnerability to adverse general economic and industry conditions and may affect our ability to obtain additional financing.
ITEM 1B. UNRESOLVED STAFF COMMENTS |
None.
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ITEM 1C. CYBERSECURITY
Roper’s Cybersecurity Program
Roper maintains a global Cybersecurity Program that outlines required cybersecurity controls for all Roper businesses. Given the decentralized nature of Roper’s operating model, day-to-day management and implementation of the Cybersecurity Program and deployment of the program’s cybersecurity controls are managed locally by each of Roper’s 27 business units. In addition, because Roper’s businesses generally operate independently and maintain separate infrastructure and systems, the risk of an enterprise-wide cybersecurity incident is somewhat reduced. While cybersecurity technologies and implementation may differ based on the needs and risk profile of each individual business, Roper has also implemented cyber tools and managed services to centrally monitor certain aspects of the Cybersecurity Program.
The Cybersecurity Program is supervised by Roper’s Vice President of Cybersecurity, who has related experience including cybersecurity, IT, Cloud, and Security Compliance. The Vice President of Cybersecurity has obtained a B.S. in Management Information Systems, a Master’s in Business Administration, and a Master’s in Management Information Systems. She also maintains the following industry cybersecurity certifications: CISA, CISSP, GSEC, GCED, GSA, and a Boardroom Certified Qualified Technology Expert (QTE).
Roper deploys cybersecurity practices and tools across all of its businesses to protect data, maintain resilient operations, and limit the impact of cybercrime. We deploy a Managed Detection and Response (“MDR”) solution across all of our business units and our Corporate infrastructure designed to address the detection, response, and remediation effectiveness of cybersecurity threats. This solution is intended to provide real-time visibility of the endpoint footprint across the enterprise, including patch management and vulnerabilities, device encryption, and cybersecurity threats and detections.
The Cybersecurity Program includes controls designed to identify and perform diligence on third parties as they are leveraged by Roper’s businesses in their respective software code development processes or for other purposes that require third-party access to critical infrastructure. The controls include, as appropriate, regularly assessing management of access controls and the cybersecurity risks posed by third parties.
Roper performs cybersecurity risk assessments to assess compliance with mandated cybersecurity controls and to assess the likelihood and impact of specific cyberattacks. Cybersecurity risk assessments are periodically performed to assess the internal compliance with cybersecurity strategy and implementation of cybersecurity controls. Areas identified for enhancement and improvement are monitored and tracked to remediation by the Roper Cyber team, including the Vice President of Cybersecurity.
We maintain a centralized incident response process with a forensic partner on retainer. In addition, we have cybersecurity insurance policies in place. Roper maintains a Cybersecurity Incident Response Plan (“CSIRP”), which requires each Roper business to designate a Cybersecurity Incident Response Team (“CSIRT”) that is responsible for receiving, reviewing, and responding to cybersecurity incident reports and activities. Cybersecurity incidents are required to be promptly reported to Roper, and such incidents and their resolution are then closely monitored by Roper’s cybersecurity team. We work on security awareness with our employees throughout the year with cybersecurity training and simulated phishing campaigns to better identify and report unusual behavior and to mitigate the likelihood and impact of possible incidents.
Cybersecurity Governance
Our Board of Directors (the “Board”) has not delegated responsibility for cybersecurity matters to a committee. Rather, the Board believes that due to the importance and continually evolving nature of cybersecurity threats, all members of the Board should participate in the oversight of these topics. As a result, management briefs the Board on cybersecurity matters during regularly scheduled Board meetings. Roper’s Vice President of Audit Services also periodically briefs the Audit Committee on cybersecurity matters and related risks, as needed.
Roper has also established a Cyber Disclosure Committee chaired by the Vice President of Cybersecurity to track and evaluate cybersecurity incidents and to assess their potential impact on the organization. This process builds upon the CSIRP and provides a framework for Roper management to monitor potentially material cyber incidents. The Cyber Disclosure Committee reports its activities and findings, as appropriate, to the Chief Executive Officer, Chief Financial Officer, Principal Accounting Officer, and General Counsel, and, if appropriate, to the Board of Directors.
To date, management has not identified risks from cybersecurity incidents, including as a result of any previous cybersecurity incidents, that have materially affected or are reasonably likely to materially affect Roper, including its business strategy,
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results of operations, or financial condition. See “Item 1A. Risk Factors, We rely on information and technology, including third-party cloud computing platforms, for many of our business operations which could fail and cause disruption to our business operations.” above for more information. While we work to maintain our Cybersecurity Program, there can be no assurance that such actions will be sufficient to prevent cybersecurity incidents or mitigate all potential risks to such systems, networks, and data or those of our third-party providers.
ITEM 2. PROPERTIES
Our corporate offices, consisting of 29,00042,000 square feet of leased space, are located at 6901 Professional6496 University Parkway, East, Sarasota, Florida. We have 128 principalAs of December 31, 2023, we leased facilities throughout the United States and in various locations aroundinternationally including North America, Europe, and Asia-Pacific. Additionally, we owned two properties in the world to support our operations, of which 49 are manufacturing, assembly and testing facilities, and the remaining 79 locations provide sales, programming, service and administrative support functions.United States. We consider our facilities to be in good operating condition and adequate for their present use and believe we have sufficient capacity to meet our anticipated operating requirements.
| Office | Office & Manufacturing | |||
| Segment | Region | Leased | Leased | Owned |
| RF Technology | ||||
| U.S. | 1,163 | 108 | — | |
| Canada | 30 | — | — | |
| Europe | 82 | — | 16 | |
| Asia-Pacific | 116 | — | — | |
| Medical & Scientific Imaging | ||||
| U.S. | 325 | 275 | 120 | |
| Canada | — | 140 | — | |
| Europe | 68 | 28 | — | |
| Asia-Pacific | 21 | — | — | |
| Mexico | — | 43 | — | |
| Industrial Technology | ||||
| U.S. | 18 | 260 | 478 | |
| Canada | 36 | — | — | |
| Europe | 13 | 136 | 43 | |
| Asia-Pacific | 21 | — | — | |
| Mexico | — | 60 | — | |
| Energy Systems & Controls | ||||
| U.S. | — | 322 | — | |
| Canada | — | 56 | — | |
| Europe | 29 | 20 | 128 | |
| Asia-Pacific | — | 28 | 33 | |
ITEM 3. LEGAL PROCEEDINGS
Information pertaining to legal proceedings can be found in Note 1213 to the Consolidated Financial Statements included in this Annual Report, and is incorporated by reference herein.
ITEM 4. MINE SAFETY DISCLOSURES |
Not applicable.
Pursuant to General Instruction G(3) of Form 10-K, the following list of executive officers of the Company as of February 22, 2024 is included as an unnumbered Item in Part I of this report in lieu of being included in the Company’s Proxy Statement relating to the 2024 Annual Meeting of Shareholders.
L. Neil Hunn, 51, has served as President and Chief Executive Officer since August 2018. He previously served as Executive Vice President and Chief Operating Officer from 2017 to 2018. Mr. Hunn also served as Group Vice President of Roper’s medical segment from 2011 to 2018 and helped drive significant growth in the Company’s medical technology and application software businesses. In addition to his operating responsibilities at Roper, Mr. Hunn led the execution of the majority of the Company’s capital deployment since joining Roper. Prior to joining Roper, Mr. Hunn served 10 years as Executive Vice President and Chief Financial Officer at MedAssets, Inc., an Atlanta-based SaaS company, and as President of its revenue cycle technology businesses. He successfully led MedAssets’ initial public offering and the execution of several M&A transactions. Mr. Hunn also held roles at CMGI, an incubator of Internet businesses, and Parthenon Group, a strategy consulting firm. Mr. Hunn also serves as a director of Deere & Company.
Jason P. Conley, 48, has served as Executive Vice President and Chief Financial Officer since February 2023. Prior thereto, he served as Vice President and Chief Accounting Officer from 2021 to February 2023 and as Vice President and Controller from 2017 to 2021. He previously served as the Chief Financial Officer at Managed Health Care Associates, a Roper subsidiary, from 2013 to 2017. He also led the financial planning and investor relations activities for Roper from 2006 to 2013. Before joining Roper, Mr. Conley served in various finance and accounting leadership roles at Honeywell International and Deloitte.
John K. Stipancich, 55, has served as Executive Vice President, General Counsel and Corporate Secretary since 2018 and as Vice President, General Counsel and Corporate Secretary from 2016 to 2018. Prior to joining Roper, Mr. Stipancich was with Newell Brands Inc., a consumer products company, from 2004 to May of 2016. At Newell Brands he served as Executive Vice President and Chief Financial Officer from 2015 to 2016. Prior thereto, he served in a number of leadership roles at Newell Brands including General Counsel and Corporate Secretary, and Executive Leader of its operations in Europe, the Middle East, and Africa. Prior to his twelve years at Newell Brands, Mr. Stipancich served as Executive Vice President, General Counsel and Corporate Secretary for Evenflo Company and Assistant General Counsel for Borden, both KKR portfolio companies at the time. He started his legal career in the Cleveland office of the international law firm Squire Patton Boggs.
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PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock trades on the NYSENasdaq under the symbol "ROP". The table below sets forth the range of high and low sales prices for our common stock as reported by the NYSE as well as cash dividends declared during each of our 2017 and 2016 quarters.
| High | Low | Cash Dividends Declared | ||||||||||
| 2017 | 4th Quarter | $ | 267.83 | $ | 243.45 | $ | 0.4125 | |||||
3rd Quarter | 247.54 | 226.81 | 0.35 | |||||||||
2nd Quarter | 235.50 | 204.62 | 0.35 | |||||||||
1st Quarter | 214.44 | 183.74 | 0.35 | |||||||||
| 2016 | 4th Quarter | $ | 188.04 | $ | 167.91 | $ | 0.35 | |||||
3rd Quarter | 182.84 | 163.33 | 0.30 | |||||||||
2nd Quarter | 184.66 | 164.77 | 0.30 | |||||||||
1st Quarter | 187.56 | 158.89 | 0.30 | |||||||||
“ROP.” Based on information available to us and our transfer agent, we believe that as of February 16, 2018 there were 136approximately 213 record holders of our common stock.stock as of February 16, 2024.
Dividends – We have declared a cash dividend in each quarter since our February 1992 initial public offering and we have annually increased our dividend rate since our initial public offering. In December 2017,November 2023, our Board of Directors increased the quarterly dividend paid January 23, 20182024 to $0.4125$0.75 per share from $0.35$0.6825 per share, an increase of 18%10%. This is the twenty-fifththirty-first consecutive year in which Roperthe Company has increased its dividend. The timing, declaration, and payment of future dividends will be at the sole discretion of our Board of Directors and will depend upon our profitability, cash flows, financial condition, capital needs, future prospects, and other factors deemed relevant by our Board of Directors.
Performance Graph -– This performance graph shall not be deemed "filed"“filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"“Exchange Act”) or otherwise subject to the liabilities under that Section and shall not be deemed to be incorporated by reference into any of our filings under the Securities Act of 1933, as amended, or under the Exchange Act.
The following graph compares, for the five year period ended December 31, 2017,2023, the cumulative total stockholder return for our common stock, the Standard and Poor's& Poor’s 500 Stock Index (the "S“S&P 500"500”), and the Standard and Poor's& Poor’s 500 IndustrialsInformation Technology Index (the "S“S&P 500 Industrials"IT”). Measurement points are the last trading day of each of our fiscal years ended December 31, 2012, 2013, 2014, 2015, 20162018, 2019, 2020, 2021, 2022, and 2017.2023. The graph assumes that $100$100.00 was invested on December 31, 20122018 in our common stock, the S&P 500, and the S&P 500 IndustrialsIT and assumes the reinvestment of any dividends. The stock price performance on the following graph is not necessarily indicative of future stock price performance.
| 12/31/2018 | 12/31/2019 | 12/31/2020 | 12/31/2021 | 12/31/2022 | 12/31/2023 | ||||||||||||||||||||||||||||||
| Roper Technologies, Inc. | $ | 100.00 | $ | 133.66 | $ | 163.59 | $ | 187.60 | $ | 165.76 | $ | 210.38 | |||||||||||||||||||||||
| S&P 500 | 100.00 | 131.49 | 155.68 | 200.37 | 164.08 | 207.21 | |||||||||||||||||||||||||||||
| S&P 500 IT | 100.00 | 150.29 | 216.25 | 290.92 | 208.90 | 329.73 | |||||||||||||||||||||||||||||
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| 12/31/2012 | 12/31/2013 | 12/31/2014 | 12/31/2015 | 12/31/2016 | 12/31/2017 | ||||||||||||||||||
| Roper Technologies, Inc. | $ | 100.00 | $ | 124.89 | $ | 141.61 | $ | 172.94 | $ | 167.96 | $ | 239.15 | |||||||||||
| S&P 500 | 100.00 | 132.39 | 150.51 | 152.59 | 170.84 | 208.14 | |||||||||||||||||
| S&P 500 Industrials | 100.00 | 140.68 | 154.50 | 150.59 | 178.99 | 216.64 | |||||||||||||||||
The information set forth in Item 12 under the heading "Securities“Securities Authorized for Issuance under Equity Compensation Plans"Plans” is incorporated herein by reference.
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| As of and for the Years ended December 31, | |||||||||||||||||||
2017 (1) | 2016 (2) | 2015 (3) | 2014 (4) | 2013 (5) | |||||||||||||||
| Operations data: | |||||||||||||||||||
| Net revenues | $ | 4,607,471 | $ | 3,789,925 | $ | 3,582,395 | $ | 3,549,494 | $ | 3,238,128 | |||||||||
| Gross profit | 2,864,796 | 2,332,410 | 2,164,646 | 2,101,899 | 1,882,928 | ||||||||||||||
| Income from operations | 1,210,244 | 1,054,563 | 1,027,918 | 999,473 | 842,361 | ||||||||||||||
Net earnings (6) | 971,772 | 658,645 | 696,067 | 646,033 | 538,293 | ||||||||||||||
| Per share data: | |||||||||||||||||||
| Basic earnings per share | $ | 9.51 | $ | 6.50 | $ | 6.92 | $ | 6.47 | $ | 5.43 | |||||||||
| Diluted earnings per share | $ | 9.39 | $ | 6.43 | $ | 6.85 | $ | 6.40 | $ | 5.37 | |||||||||
| Dividends declared per share | $ | 1.4625 | $ | 1.2500 | $ | 1.0500 | $ | 0.8500 | $ | 0.6950 | |||||||||
| Balance sheet data: | |||||||||||||||||||
Working capital (7) | $ | (270,007 | ) | $ | 331,229 | $ | 897,919 | $ | 884,158 | $ | 730,246 | ||||||||
Total assets (8) | 14,316,413 | 14,324,927 | 10,168,365 | 8,400,185 | 8,169,120 | ||||||||||||||
Long-term debt, net of current portion (8) | 4,354,611 | 5,808,561 | 3,264,417 | 2,190,282 | 2,437,975 | ||||||||||||||
| Stockholders' equity | 6,863,564 | 5,788,865 | 5,298,947 | 4,755,360 | 4,213,050 | ||||||||||||||
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
All currency amounts are in millions unless specified
This item generally discusses our 2023 results compared to our 2022 results. Discussions of our 2022 results compared to our 2021 results can be found within Part II, Item 7 of our Annual Report on Form 10-K for the following discussion in conjunction with "Selected Financial Data" and our Consolidated Financial Statements and related notes included in this Annual Report.year ended December 31, 2022.
Overview
We pursue consistent and sustainable growth in revenue, earnings, and cash flow by emphasizingenabling continuous improvement in the operating performance of our existing businesses and by acquiring other carefully selected businesses. Our acquisitionsbusinesses that offer high value-added software, services, technology-enabled products and solutions that we believe are capable of achieving growth and maintaining high margins.
Discontinued Operations
On November 22, 2022, the Company completed the divestiture of a majority 51% equity stake in its industrial businesses, including its entire historical Process Technologies reportable segment and the industrial businesses within its historical Measurement & Analytical Solutions reportable segment, to Clayton, Dubilier & Rice, LLC. The businesses included in this transaction were Alpha, AMOT, CCC, Cornell, Dynisco, FTI, Hansen, Hardy, Logitech, Metrix, PAC, Roper Pump, Struers, Technolog, Uson, and Viatran (collectively “Indicor”). Following the sale of the majority stake, the Company retained a minority equity interest in Indicor. This transaction is referred to herein as the “Indicor Transaction.” See Note 10 of the Notes to Consolidated Financial Statements included in this Annual Report for additional information on this minority equity interest.
During 2021, Roper entered into definitive agreements to divest our TransCore, Zetec, and CIVCO Radiotherapy businesses (“2021 Divestitures”). Roper completed the 2021 Divestitures by the end of the first quarter of 2022.
The aggregate of the 2021 Divestitures and the Indicor Transaction have represented both additionsgreatly reduced the cyclicality and asset intensity of the Company. In addition, the Company has an increased mix of recurring revenue and a higher margin profile. The financial results for Indicor and the 2021 Divestitures are reported as discontinued operations for all periods presented. Unless otherwise noted, discussion within Management’s Discussion and Analysis of Financial Condition and Results of Operations relate to existing businessescontinuing operations. Information regarding discontinued operations is described further in Note 3 of the Notes to Consolidated Financial Statements included in this Annual Report.
Segment Reporting
The Company’s segment reporting structure is based on business model and new strategic platforms.delivery of performance obligations. The three reportable segments are as follows:
–Application Software - Aderant, CBORD, Clinisys, Data Innovations, Deltek, Frontline, IntelliTrans, PowerPlan, Strata, Vertafore
–Network Software - ConstructConnect, DAT, Foundry, iPipeline, iTradeNetwork, Loadlink, MHA, SHP, SoftWriters
–Technology Enabled Products - CIVCO Medical Solutions, FMI, Inovonics, IPA, Neptune, Northern Digital, rf IDEAS, Verathon
Financial information about our reportable segments is presented in Note 14 of the Notes to Consolidated Financial Statements included in this Annual Report.
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Application of Critical Accounting Policies
Our Consolidated Financial Statements are prepared in conformity with generally accepted accounting principles in the United States ("GAAP"(“GAAP”). A discussion of our significant accounting policies can also be found in the notesNotes to our Consolidated Financial Statements for the year ended December 31, 20172023 included in this Annual Report.
GAAP offers acceptable alternative methods for accounting for certain issues affecting our financial results, such as determining inventory cost, depreciating long-lived assets and recognizing revenue. WeOther than the changes as further described in Note 10 of our Notes to Consolidated Financial Statements with respect to the methodology used to value our equity investment in Indicor, we have not changed the application of acceptable accounting methods or the significant estimates affecting the application of these principles in the last three years in a manner that had a material effect on our financial statements.Consolidated Financial Statements.
The preparation of financial statements in accordance with GAAP requires the use of estimates, assumptions, judgments, and interpretations that can affect the reported amounts of assets, liabilities, revenues and expenses, the disclosure of contingent assets and liabilities, and other supplemental disclosures.
The development of accounting estimates is the responsibility of our management. Our management discusses those areas that require significant judgments with the Audit Committee of our Board of Directors. The Audit Committee has reviewed all financial disclosures in our annual filings with the SEC. Although we believe the positions we have taken with regard to uncertainties are reasonable, others might reach different conclusions and our positions can change over time as more information becomes available. If an accounting estimate changes, its effects are accounted for prospectively or through a cumulative catch upcatch-up adjustment.
Our most significant accounting uncertainties are encountered in the areas of accounts receivable collectibility, inventory valuation, future warranty obligations, revenue recognition (percentage-of-completion), income taxes, andvaluation of other intangible assets, goodwill and other indefinite-lived intangibles impairment analyses. These issues affect eachanalyses, and valuation of our business segments andequity interest in Indicor. Estimates are evaluated using a combination of historical experience, current conditions and relatively short-term forecasting.
Income taxes can be affected by estimates of whether and within which jurisdictions future earnings will occur and if, how, and when cash is repatriated to the U.S., combined with other aspects of an overall income tax strategy. Additionally, taxing jurisdictions could retroactively disagree with our tax treatment of certain items, and some historical transactions have income tax effects going forward. Accounting rules require these future effects to be evaluated using current laws, rules and regulations, each of which can change at any time and in an unpredictable manner. If there is a material change in the actual effective tax rates, the time period within which the underlying temporary differences become taxable or deductible, or if the tax law changes are unfavorable, there could be a resulting increase to income tax expense and the effective tax rate.
During 2017,2023, our effective income tax rate was 6.1%,21.5% as compared to the 2016our 2022 rate of 30.0%23.1%. The decrease2023 rate was due primarily tofavorably impacted by the recognition of a $215 million net income tax benefit associated with international legal entity restructuring combined with the non-recurrence of 2022 net tax expense associated with an internal restructuring plan related to the Tax Act as well as increased excess tax benefits related to equity compensation in 2017 as compared to 2016.Indicor Transaction. We expect the effective tax rate for 20182024 to be between approximately 21% and 23%to 22%.
We account for goodwill in a purchase business combination as the excess of the costpurchase price over the estimated fair value of the net identifiable assets acquired. Goodwill, which is not amortized, is tested for impairment on an annual basis in conjunction with our annual forecast process during the fourth quarter (or an interim basis if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value).
When testing goodwill for impairment, we have the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the estimated fair value of a reporting unit is less than its carrying amount. If we elect to perform a qualitative assessment and determine that an impairment is more likely than not, we are then required to perform the quantitative impairment test; otherwise, no further analysis is required. Under the qualitative assessment, we consider various qualitative factors, including macroeconomic conditions, relevant industry and market trends, cost factors, overall financial performance, other entity-specific events, and events affecting the reporting unit that could indicate a potential change in the fair value of our reporting unit or the composition of its carrying values. We also consider the specific future outlook for the reporting unit.
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We also may elect not to perform the qualitative assessment and, instead, proceed directly to the quantitative impairment test. The quantitative assessment utilizes both an equal weighted income approach (discounted cash flows)flow) and a market approach consisting(consisting of a comparable public company earnings multiples methodologymethodology) to estimate the fair value of a reporting unit. To determine the reasonableness of the estimated fair values, we review the assumptions to ensure that neither the income approach nor the market approach provides significantly different valuations. If the estimated fair value exceeds the carrying value, no further work is required and no impairment loss is recognized. If the carrying value exceeds the estimated fair value, a non-cash impairment loss is recognized in the amount of that excess.
Key assumptions used in the income and market approaches are updated when the analysis is performed for each reporting unit. VariousThe assumptions that have the most significant effect on the fair value calculations are utilized including forecastedthe projected revenue growth rates, future operating results, strategic plans, economic projections, anticipated future cash flows, the weighted-average cost of capital, comparable transactions, market datamargins, discount rates, terminal values, and earnings multiples. While we use reasonable and timely information to prepare our cash flow and discount rate assumptions, actual future cash flows or market conditions could differ significantly and could result in future non-cash impairment charges related to recorded goodwill balances.
Recently acquired reporting units generally represent a higher inherent risk of impairment, which typically decreases as the businesses are integrated into our enterprise. Negative industry or economic trends, disruptions to our business, actual results significantly below projections, unexpected significant changes or planned changes in the use of the assets, divestitures, and market capitalization declines may have a negative effect on the fair value of our reporting units.
impairment of goodwill was not likely in 31any of ourits reporting units and thus we werewas not required to perform a quantitative analysisassessment for these reporting units. For the remaining two reporting units the Company performed its quantitative analysis and concluded that the fair value of each of these two reporting units was substantially in excess of its carrying value, with no impairment indicated as of October 1, 2017.2023.
The assessment of fair value for impairment purposes requires significant judgments to be made by management. Although our forecasts are based on assumptions that are considered reasonable by management and consistent with the plans and estimates management uses to operate the underlying businesses, there is significant judgment in determining the expected results attributable to the businesses and/or reporting units. Changes in estimates or the application of alternative assumptions could produce significantly different results. No impairment resulted
The most significant identifiable intangible assets with definite useful economic lives recognized from our acquisitions are customer relationships. The fair value for customer relationships is determined as of the acquisition date using the excess earnings method. Under this methodology the fair value is determined based on the estimated future after-tax cash flows arising from the annual reviews performed in 2017.acquired customer relationships over their estimated lives after considering customer attrition and contributory asset charges. The assumptions that have the most significant effect on the fair value calculations are the customer attrition rates, projected customer revenue growth rates, margins, contributory asset charges, and discount rates. When testing customer relationship intangible assets for potential impairment, management considers historical customer attrition rates and projected revenues and profitability related to customers that existed at acquisition. In evaluating the amortizable life for customer relationship intangible assets, management considers historical customer attrition patterns.
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We evaluate whether there has been an impairment of identifiable intangible assets with definite useful economic lives, or of the remaining life of such assets, when certain indicators of impairment are present. In the event that facts and circumstances indicate that the cost or remaining period of amortization of any asset may be impaired, an evaluation of recoverability would be performed. If an evaluation is required, the estimated future gross, undiscounted cash flows associated with the asset would be compared to the asset'sasset’s carrying amount to determine if a write-down to fair value or a revision in the remaining amortization period is required.
As of December 31, 2023 and 2022, the Company held a 47.3% and 49.0% minority equity interest in Indicor, respectively. This equity interest provides us with the ability to exercise significant influence, but not control, over the investee. We elected to apply the fair value option as we believe this is the most reasonable method to value the equity investment. This investment is classified within Level 3 of the fair value hierarchy as valuation of the investment reflects management’s estimate of assumptions that market participants would use in pricing the asset. Any changes to the valuation estimates or assumptions, as described further in Note 10 of the Notes to Consolidated Financial Statements included in this Annual Report, could produce significantly different results. The fair value of our equity investment in Indicor is updated on a quarterly basis and its impact is reported as a component of “Equity investments activity, net” in our Consolidated Statement of Earnings.
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Results of Continuing Operations
All currency amounts are in millions unless specified, percentages are of net revenues
Percentages may not sum due to rounding.
The following table sets forth selected information for the years indicated. Dollar amounts are in thousandsindicated:
| Years ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Net revenues: | |||||||||||||||||
Application Software (1) | $ | 3,186.9 | $ | 2,639.5 | $ | 2,366.7 | |||||||||||
Network Software (2) | 1,439.4 | 1,378.5 | 1,223.8 | ||||||||||||||
| Technology Enabled Products | 1,551.5 | 1,353.8 | 1,243.3 | ||||||||||||||
| Total | $ | 6,177.8 | $ | 5,371.8 | $ | 4,833.8 | |||||||||||
| Gross margin: | |||||||||||||||||
| Application Software | 68.9 | % | 68.8 | % | 69.4 | % | |||||||||||
| Network Software | 85.1 | % | 84.6 | % | 84.1 | % | |||||||||||
| Technology Enabled Products | 57.1 | % | 56.9 | % | 59.2 | % | |||||||||||
| Total | 69.7 | % | 69.9 | % | 70.5 | % | |||||||||||
| Selling, general and administrative expenses: | |||||||||||||||||
| Application Software | 43.1 | % | 41.8 | % | 42.7 | % | |||||||||||
| Network Software | 41.2 | % | 43.2 | % | 45.1 | % | |||||||||||
| Technology Enabled Products | 23.7 | % | 23.8 | % | 25.7 | % | |||||||||||
| Total | 37.8 | % | 37.6 | % | 38.9 | % | |||||||||||
| Segment operating margin: | |||||||||||||||||
| Application Software | 25.8 | % | 27.1 | % | 26.8 | % | |||||||||||
| Network Software | 43.9 | % | 41.4 | % | 39.0 | % | |||||||||||
| Technology Enabled Products | 33.4 | % | 33.2 | % | 33.4 | % | |||||||||||
| Total | 31.9 | % | 32.3 | % | 31.6 | % | |||||||||||
Corporate administrative expenses (3) | (3.7) | % | (3.9) | % | (3.9) | % | |||||||||||
| Impairment of intangible assets | — | — | (2.0) | ||||||||||||||
| Income from operations | 28.2 | 28.4 | 25.7 | ||||||||||||||
| Interest expense, net | (2.7) | (3.6) | (4.8) | ||||||||||||||
| Equity investments activity, net | 2.7 | — | — | ||||||||||||||
| Other income (expense), net | — | (0.9) | 0.5 | ||||||||||||||
| Earnings before income taxes | 28.2 | 23.9 | 21.3 | ||||||||||||||
| Income taxes | (6.1) | (5.5) | (4.7) | ||||||||||||||
| Net earnings from continuing operations | 22.2 | % | 18.3 | % | 16.7 | % | |||||||||||
(1)Includes results from the acquisitions of American LegalNet, Inc. from December 30, 2021, Horizon Lab Systems, LLC from January 3, 2022, Common Cents Systems, Inc. from April 6, 2022, MGA Systems Holdings, Inc. from June 27, 2022, Common Sense Solutions, Inc. from July 12, 2022, viDesktop Inc. from August 19, 2022, TIP Technologies, Inc. from September 23, 2022, Frontline from October 4, 2022, Promium, L.L.C. from May 2, 2023, Syntellis from August 7, 2023, Replicon Inc. from August 21, 2023, and percentages areProPricer from December 26, 2023.
(2)Includes results from the acquisition of net revenues. Percentages may not foot due to rounding.Construction Journal, LTD. from December 21, 2021.
(3)Includes unallocated corporate general and administrative expenses and enterprise-wide stock-based compensation.
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| Years ended December 31, | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| Net revenues: | |||||||||||
RF Technology (1) | $ | 1,862,126 | $ | 1,210,264 | $ | 1,033,951 | |||||
Medical & Scientific Imaging (2) | 1,410,349 | 1,362,813 | 1,215,318 | ||||||||
Industrial Technology (3) | 783,707 | 706,625 | 745,381 | ||||||||
Energy Systems & Controls (4) | 551,289 | 510,223 | 587,745 | ||||||||
| Total | $ | 4,607,471 | $ | 3,789,925 | $ | 3,582,395 | |||||
| Gross margin: | |||||||||||
| RF Technology | 61.1 | % | 56.7 | % | 53.4 | % | |||||
| Medical & Scientific Imaging | 72.0 | 73.2 | 74.0 | ||||||||
| Industrial Technology | 50.6 | 50.6 | 49.8 | ||||||||
| Energy Systems & Controls | 57.4 | 57.1 | 58.1 | ||||||||
| Total | 62.2 | % | 61.5 | % | 60.4 | % | |||||
| Segment operating margin: | |||||||||||
| RF Technology | 25.7 | % | 30.8 | % | 30.2 | % | |||||
| Medical & Scientific Imaging | 34.5 | 35.0 | 36.4 | ||||||||
| Industrial Technology | 30.0 | 28.7 | 28.8 | ||||||||
| Energy Systems & Controls | 27.4 | 25.4 | 27.6 | ||||||||
| Total | 29.3 | % | 31.2 | % | 31.6 | % | |||||
| Corporate administrative expenses | (3.1 | )% | (3.4 | )% | (2.9 | )% | |||||
| Income from continuing operations | 26.3 | 27.8 | 28.7 | ||||||||
| Interest expense, net | (3.9 | ) | (2.9 | ) | (2.4 | ) | |||||
| Other income/(expense) | 0.1 | (0.1 | ) | 1.6 | |||||||
| Income from continuing operations before taxes | 22.5 | 24.8 | 28.0 | ||||||||
| Income taxes | (1.4 | ) | (7.4 | ) | (8.5 | ) | |||||
| Net earnings | 21.1 | % | 17.4 | % | 19.4 | % | |||||
Year Ended December 31, 2017 Compared2023 compared to the Year Ended December 31, 20162022
Net revenues for the year ended December 31, 20172023 were $4.61 billion$6,177.8 as compared to $3.79 billion$5,371.8 for the year ended December 31, 2016,2022, an increase of 21.6%15.0%. The increase wascomponents of revenue growth for the result of contributions from acquisitions of 16.3%, organic growth of 5.3% and no impact from foreign exchange.year ended December 31, 2023 were as follows:
| Application Software | Network Software | Technology Enabled Products | Roper | ||||||||||||||||||||||||||
| Total Revenue Growth | 20.7 | % | 4.4 | % | 14.6 | % | 15.0 | % | |||||||||||||||||||||
| Less Impact of: | |||||||||||||||||||||||||||||
| Acquisitions/Divestitures | 14.8 | — | — | 7.3 | |||||||||||||||||||||||||
| Foreign Exchange | — | (0.2) | (0.1) | (0.1) | |||||||||||||||||||||||||
| Organic Revenue Growth | 5.9 | % | 4.6 | % | 14.7 | % | 7.8 | % | |||||||||||||||||||||
In our RF TechnologyApplication Software segment, net revenues for the year ended December 31, 2017 increased by $651.9 million or 54% over the year ended December 31, 2016. Acquisitions accounted for 51% and organic revenues increased by 3%. The increase in organic revenues was due primarily2023 were $3,186.9 as compared to growth in our software businesses. Gross margin was 61.1%$2,639.5 for the year ended December 31, 2017 as compared to 56.7%2022. The growth of 5.9% in organic revenues was broad-based across the segment led by our businesses serving the government contracting, property and casualty insurance, acute healthcare, and legal markets. Gross margin remained relatively consistent at 68.9% for the year ended December 31, 2016, due primarily to an increased percentage of revenues from our software businesses, which have a higher gross margin. Selling, general and administrative ("SG&A") expenses as a percentage of revenues in the year ended December 31, 2017 increased to 35.3%,2023 as compared to 25.9% in the year ended December 31, 2016, due primarily to an increased percentage of revenues from our software businesses, which have a higher SG&A structure, including amortization of acquired intangibles. The resulting operating margin was 25.7% in 2017 as compared to 30.8% in 2016.
| 2017 | 2016 | change | ||||||||
| RF Technology | $ | 991,382 | $ | 991,212 | — | % | ||||
| Medical & Scientific Imaging | 467,836 | 423,616 | 10.4 | |||||||
| Industrial Technology | 110,841 | 65,259 | 69.8 | |||||||
| Energy Systems & Controls | 102,293 | 92,309 | 10.8 | |||||||
| Total | $ | 1,672,352 | $ | 1,572,396 | 6.4 | % | ||||
In our Technology Enabled Products segment, net revenues were $1,551.5 for the year ended December 31, 2023 as compared to $1,353.8 for the year ended December 31, 2022. The growth of 14.7% in organic revenues was broad-based across the segment led by our water meter technology business and medical products businesses. Gross margin increased to 57.1% in the year ended December 31, 2023, as compared to 56.9% in the year ended December 31, 2022, due primarily to operating leverage on higher organic revenues, partially offset by revenue mix. SG&A expenses as a percentage of net revenues increased to 38.2%remained relatively consistent at 23.7% in the year ended December 31, 20162023 as compared to 37.7%23.8% in the year ended December 31, 2015, due to a higher SG&A structure in our medical businesses. Operating2022. The resulting operating margin was 35.0%33.4% in the year ended December 31, 20162023 as compared to 36.4%33.2% in the year ended December 31, 2015.2022.
Corporate expenses increased by $24.7 million$17.5 to $127.5 million,$226.7, or 3.4%3.7% of net revenues, in 20162023 as compared to $102.8 million,$209.2, or 2.9%3.9% of net revenues, in 2015.2022. The dollar increase was due primarily to increased equityhigher compensation costs as a result of both an increase in the number of shares granted in the current year and increases in our common stock price and increased costs related to acquisitions.acquisition-related expenses.
Interest expense, increased $27.3 million,net, decreased $27.7, or 32.5%14.4%, for the year ended December 31, 20162023 as compared to the year ended December 31, 2015.2022. The increasedecrease was due primarily to higherlower weighted average fixed-rate debt balances to fund current year acquisitions as well asand higher average interest rates throughout 2016.income earned on our cash and cash equivalents.
Other expense, net, of $2.8 for the year ended December 31, 2023 was composed primarily of foreign exchange losses at our non-U.S. based companies,subsidiaries, partially offset in part by royalty income. a gain on the sale of non-operating assets.Other incomeexpense, net, of $58.7 million$50.1 for the
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year ended December 31, 20152022 was composed primarily of a legal settlement expense of $45.0 related to the $70.9 million gain from the divestiture of Abel Pumps (see Note 2 of the Notes to Consolidated Financial Statements included in this Annual Report), offset in part by a $9.5 million impairment charge on a minority investment. Berall v. Verathon patent litigation matter.
During 2016,2023, our effective income tax rate was 30.0%, which was 60 basis points lower than the 201521.5% as compared to our 2022 rate of 30.6%23.1%. The decrease2023 rate was due tofavorably impacted by the recognition of $15.3 million in excessa net tax benefits inbenefit associated with international legal entity restructuring combined with the current year in accordancenon-recurrence of 2022 net tax expense associated with an ASUinternal restructuring plan related to stock compensation adopted in the first quarter of 2016 (seeIndicor Transaction.
Backlog is equal to our remaining performance obligations expected to be recognized as revenue within the next 12 months as discussed within Note 1 of the Notes to Consolidated Financial Statements included in this Annual Report), as well as the non-recurrence of the 2015 taxable gain on the divestiture of Abel Pumps which was partially offset by discrete tax benefits from settlements of tax matters in 2015.
| 2016 | 2015 | change | ||||||||
| RF Technology | $ | 991,212 | $ | 538,877 | 83.9 | % | ||||
| Medical & Scientific Imaging | 423,616 | 373,213 | 13.5 | % | ||||||
| Industrial Technology | 65,259 | 68,002 | (4.0 | )% | ||||||
| Energy Systems & Controls | 92,309 | 90,365 | 2.2 | % | ||||||
| Total | $ | 1,572,396 | $ | 1,070,457 | 46.9 | % | ||||
| Backlog as of December 31, | |||||||||||||||||
| 2023 | 2022 | Change | |||||||||||||||
| Application Software | $ | 2,136.1 | $ | 1,796.3 | 18.9 | % | |||||||||||
| Network Software | 493.6 | 507.5 | (2.7) | % | |||||||||||||
| Technology Enabled Products | 526.9 | 608.8 | (13.5) | % | |||||||||||||
| Total | $ | 3,156.6 | $ | 2,912.6 | 8.4 | % | |||||||||||
Financial Condition, Liquidity, and Capital Resources
All currency amounts are in millions unless specified
Selected cash flows for the years ended December 31, 2017, 20162023 and 20152022 are as follows (in millions):follows:
| 2017 | 2016 | 2015 | |||||||||||
| Cash provided by/(used in): | |||||||||||||
| Cash provided by (used in) continuing operations from: | |||||||||||||
| Cash provided by (used in) continuing operations from: | |||||||||||||
| Cash provided by (used in) continuing operations from: | |||||||||||||
| Operating activities | |||||||||||||
| Operating activities | |||||||||||||
| Operating activities | $ | 1,234 | $ | 964 | $ | 929 | |||||||
| Investing activities | (210 | ) | (3,753 | ) | (1,698 | ) | |||||||
| Investing activities | |||||||||||||
| Investing activities | |||||||||||||
| Financing activities | (1,170 | ) | 2,805 | 996 | |||||||||
| Financing activities | |||||||||||||
| Financing activities | |||||||||||||
| Cash provided by (used in) discontinued operations | |||||||||||||
| Cash provided by (used in) discontinued operations | |||||||||||||
| Cash provided by (used in) discontinued operations | |||||||||||||
Operating activities -– The increase in cash provided by operating activities from continuing operations in 20172023 as compared to 2022 was due primarily to the reduction in cash taxes paid, predominantly as a result of cash taxes paid in the prior year in connection with the 2021 Divestitures and in 2016 was primarily due to increasedthe Indicor Transaction, and higher net earnings from continuing operations net of non-cash expenses and higher deferred revenue balances due to an increased percentage of revenue from software and other subscription based products. The increase in cash provided by operating activities in 2016 was offset in part by income tax payments in the first quarter of 2016 related to the gain on the sale of the Abel Pumps business in the fourth quarter of 2015. expenses.
Investing activities -– Cash used in investing activities from continuing operations during 2017, 2016 and 20152023 was primarily for business acquisitions.acquisitions, most notably Syntellis and Replicon. Cash received fromused in investing activities in 2015from continuing operations during 2022 was primarily proceeds from the sale of the Abel Pumps business.for business acquisitions, most notably Frontline, viGlobal, and MGA Systems.
Financing activities - Cash used in/provided by financing activities in all periods presented was primarily debt repayments/borrowings as well as dividends paid to stockholders.– Cash used in financing activities from continuing operations during 20172023 was primarily from the pay-downfor repayment at maturity of revolving debt$700.0 related to our senior notes and dividend payments, partially offset by net borrowings of $660 million$360.0 on our unsecured credit facility and the repaymentnet proceeds from stock-based compensation. Cash used in financing activities from continuing operations during 2022 was primarily for repayments of $400 millioncertain senior notes totaling $800.0, net repayments of senior notes.$470.0 on our unsecured credit facility, and dividend payments.
Discontinued operations – Cash provided by financing activities during 2016 was primarily from the issuance of $1.2 billion of senior notes and revolving debt borrowings for acquisitions.
Net working capital (current(total current assets, excluding cash, less total current liabilities, excluding debt) was a negative $140 million$1,196.6 at December 31, 20172023 compared to negative $25 million$1,053.7 at December 31, 2016,2022, due primarily to negative net working capital profiles assumed with our 2023 acquisitions, most notably Syntellis and Replicon, increased deferred revenues. This deferred revenue, and changes in income tax-related balances, partially offset by an increase is duein accounts receivable and the cash payment related to a higher percentagethe settlement of revenue from software and subscription-based services along with the impact of fair value purchase accounting resulting from 2016 acquisitions.Berall v. Verathon patent litigation matter. Consistent negative net working capital demonstrates Roper’s focus on asset-light business models.
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Total debt excluding unamortized debt issuance costs was $5.2 billion$6,360.2 at December 31, 2017 (43.0%2023 (26.7% of total capital) compared to $6.2 billion$6,700.3 at December 31, 2016 (51.8%2022 (29.5% of total capital). Our total debt decreased debt at December 31, 20172023 compared to December 31, 2016 was2022, due primarily to the pay-downrepayment at maturity of revolving debt$700.0 related to our senior notes, partially offset by net borrowings of $660 million and the repayment of $400 million of senior notes.$360.0 on our unsecured credit facility.
On September 23, 2016, weJuly 21, 2022, the Company entered into a five-year unsecured credit facility (the "2016 Facility"“Credit Agreement”) withamong Roper, the financial institutions from time to time party thereto, JPMorgan Chase Bank, N.A., as administrative agent, Bank of America, N.A. and a syndicate of lenders,Wells Fargo Bank, N.A., as syndication agents, and Mizuho Bank, Ltd., MUFG Bank, Ltd., PNC Bank, National Association, TD Bank, N.A., Truist Bank, and U.S. Bank, National Association, as documentation agents, which replaced ourthe previous $3,000.0 unsecured credit facility, dated as of July 27, 2012,September 2, 2020, as amended as of October 28, 2015 (the "2012 Facility").amended. The 2016 FacilityCredit Agreement comprises a five year $2.5 billionfive-year $3,500.0 revolving credit facility, which includes availability of up to $150 million$150.0 for letters of credit. WeThe Company may also, subject to compliance with specified conditions, request additional term loans or additional revolving credit commitments in an aggregate amount not to exceed $500 million. $500.0.
The 2016 Facility contains various affirmative and negative covenants which, among other things, limit our ability to incur new debt, enter into certain mergers and acquisitions, sell assets and grant liens, make restricted payments (includingCredit Agreement requires the payment of dividends on our common stock) and capital expenditures, or change our line of business. We also are subject to financial covenants which require us to limit our consolidated total leverage ratio andCompany to maintain a consolidated interest coverage ratio. The most restrictive covenant isTotal Debt to Total Capital Ratio (as defined in the consolidated total leverage ratio which is limitedCredit Agreement) of 0.65 to 3.51.00 or less. Borrowings under the Credit Agreement are prepayable at Roper’s option at any time in whole or in part without premium or penalty.
We were in compliance with all debt covenants related to 1.
At December 31, 2017,2023, we had $3.9 billion$6,000.0 of senior unsecured notes and $1.3 billion$360.0 of outstanding revolver borrowings. In addition, we had $3.1 million of other debt in the form of capital leases and several smaller facilities that allow for borrowings or the issuance of letters ofunder our unsecured credit in foreign locations to support our non-U.S. businesses.facility. We had $75.9 million$7.4 of outstanding letters of credit at December 31, 2017,2023, of which $33.1 million$6.6 was covered by our lending group, thereby reducing our revolving credit capacity commensurately.
We may redeem some or all of theseour senior unsecured notes at any time or from time to time, at 100% of their principal amount, plus a make-whole premium based on a spread to U.S. Treasury securities.
See Note 89 of the Notes to Consolidated Financial Statements included in this Annual Report for additional information regarding our unsecured credit facility and senior unsecured notes.
Cash and cash equivalents at our foreign subsidiaries at December 31, 20172023 totaled $592 million. The Tax Act included a one-time deemed mandatory repatriation tax on all undistributed foreign earnings, resulting in a charge of $110.7 million$148.3 as ofcompared to $234.0 at December 31, 2017.2022, a decrease of 36.6%. The Company will elect to pay the liability over 8 years. In addition, the introduction of a modified territorial taxation system resulted in a one-time estimated charge of $28.7 milliondecrease was primarily due to the Company’s change in its indefinite reinvestment assertion oncash repatriation of $250.8, partially offset by cash generated from foreign earnings. The Company now intendsoperations. We intend to distributerepatriate substantially all historical earnings subject to the deemed repatriation tax and has provided for deferred taxes related to the future state and foreign tax cost to repatriate. See Note 7 of the Notes to Consolidated Financial Statements included in this Annual Report for additional information regarding income taxes.earnings.
Capital expenditures of $48.8 million, $37.3 millionwere $68.0 and $36.3 million were incurred$40.1 during 2017, 20162023 and 2015,2022, respectively. Capitalized software expenditures were $40.0 and $30.2 during 2023 and 2022, respectively. Capital expenditures and capitalized software expenditures were relatively consistent as a percentage of $10.8 million, $2.8 million and $2.4 million were incurred during 2017, 2016 and 2015, respectively. The increasesannual net revenues in 20172023 as compared to 2016 was due primarily to our 2016 acquisitions.2022. In the future, we expect the aggregate of capital expenditures and capitalized software expenditures as a percentage of annual net revenues to be between 1.0% and 1.5%.
Contractual Cash Obligations and Other Commercial Commitments and Contingencies
All currency amounts are in millions
The following tables quantifytable quantifies our contractual cash obligations and commercial commitments at December 31, 2017 (in thousands).2023:
| Payments Due in Fiscal Year | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Contractual Cash Obligations 1 | Total | 2018 | 2019 | 2020 | 2021 | 2022 | Thereafter | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Contractual cash obligations 1 | Contractual cash obligations 1 | Payments due in fiscal year | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | 2024 | 2025 | 2026 | 2027 | 2028 | Thereafter | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total debt | $ | 5,170,009 | $ | 800,009 | $ | 500,000 | $ | 600,000 | $ | 1,770,000 | $ | 500,000 | $ | 1,000,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Senior note interest | 579,657 | 129,325 | 106,608 | 85,025 | 67,269 | 51,822 | 139,608 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Capital leases | 3,140 | 1,494 | 1,061 | 529 | 47 | 9 | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Operating leases | 272,285 | 61,109 | 49,563 | 42,109 | 35,473 | 26,014 | 58,017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Purchase obligations 2 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 6,025,091 | $ | 991,937 | $ | 657,232 | $ | 727,663 | $ | 1,872,789 | $ | 577,845 | $ | 1,197,625 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Amounts Expiring in Fiscal Year | |||||||||||||||||||||||||||
Other Commercial Commitments | Total Amount Committed | 2018 | 2019 | 2020 | 2021 | 2022 | Thereafter | ||||||||||||||||||||
| Standby letters of credit and bank guarantees | $ | 75,898 | $ | 28,614 | $ | 1,921 | $ | 723 | $ | 34,006 | $ | 10,351 | $ | 283 | |||||||||||||
1 We have excluded the liability for uncertain tax positions and certain other income tax liabilities resulting fromas we are not able to reasonably estimate the Tax Act considered "provisional."timing of the payments. See Note 78 of the Notes to Consolidated Financial Statements included in this Annual Report.
2 Represents minimum fixed price purchase commitments that are legally binding across Roper.
27
We believe that internally generated cash flows and the remaining availability under our unsecured credit facility will be adequate to finance normal operating requirements. Although we maintain an active acquisition program, any future acquisitions will be dependent on numerous factors and it is not feasible to reasonably estimate if or when any such acquisitions will occur and what the impact will be on our activities,business, financial condition, and results of operations. WeSuch acquisitions may also explore alternativesbe financed by the use of existing credit lines, future cash flows from operations, future divestitures, the proceeds from the issuance of new debt or equity securities, or any combination of these methods, the terms and availability of which will be subject to attract additional capital resources.market and economic conditions generally.
We anticipate that our businesses will generate positive cash flows from operating activities, and that these cash flows will permit the reduction of currently outstanding debt in accordance with the repayment schedule. However, the rate at which we can reduce our debt during 20182024 (and reduce the associated interest expense) will be affected by, among other things, the financing and operating requirements of any new acquisitions, and the financial performance of our existing companies.companies, and the financial markets generally. None of these factors can be predicted with certainty.
Recently Issued Accounting Standards
See Note 1 of the Notes to Consolidated Financial Statements included in this Annual Report for information regarding the effect of new accounting pronouncements on our consolidated financial statements.Consolidated Financial Statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to interest rate risks on our outstanding revolving credit facility borrowings, and to foreign currency exchange risks on our transactions and balances denominated in currencies other than the U.S. dollar. We are also exposed to equity market risks pertaining to the traded price of our common stock.
At December 31, 2017,2023, we had $3.9 billion$6,000.0 of fixed ratefixed-rate borrowings with interest rates ranging from 2.05%1.00% to 6.25%4.20%. At December 31, 2017,2023, the prevailing market rates for each of our long-term notes were between 0.05%was at least 0.3% but no more than 4.1% higher and 3.85% lower than the fixed rates on our debt instruments. Our unsecured credit facility contains a $2.5 billion$3,500.0 variable-rate revolver with $1.27 billion$360.0 of outstanding borrowings at December 31, 2017.2023.
Several of our businesses have transactions and balances denominated in currencies other than the U.S. dollar. Most of these transactions or balances are denominated in euros,British pounds, Canadian dollars, British pounds or Danish kroner.euros. Net revenues recognized by our companies whose functional currency wasis not the U.S. dollar were 17%approximately 11% of our total net revenues in 20172023 and 68%approximately 90% of these net revenues were recognized by our companies with a European functional currency.currency that is either the British pound, Canadian dollar, or euro. If these currency exchange rates had been 10% different throughout 20172023 compared to currency exchange rates actually experienced, the impact on our net earnings would have been approximately 1%.
We are exposed to equity price risk as it relates to the change in fair value of our equity investment in Indicor. This equity investment is accounted for under the fair value option with its fair value updated on a quarterly basis and its impact reported as a component of “Equity investments activity, net” in our Consolidated Statement of Earnings. A hypothetical 10% decrease in the fair value of our equity investment in Indicor based on the balance at December 31, 2023 would result in a non-cash charge within non-operating income of approximately $67.6. See Note 10 of the Notes to Consolidated Financial Statements included in this Annual Report for additional information on this equity investment.
The trading price of our common stock influences the valuation of stock award grants and the effects these grants have on our results of operations. The stock price also influences the computation of potentially dilutive common stock to determineused in the determination of diluted earnings per share. TheIn addition, the stock price also affects our employees'employees’ perceptions of programs that involve our common stock. We believe theThe quantification of the effects of these changing prices on our future earnings and cash flows is not readily determinable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
| Page | |||||
| Consolidated Financial Statements: | |||||
Report of Independent Registered Public Accounting Firm (PricewaterhouseCoopers | |||||
30
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Roper Technologies, Inc.:
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Roper Technologies, Inc. and its subsidiaries (the "Company"“Company”) as of December 31, 2017,2023 and 2016,2022, and the related consolidated statements of earnings, of comprehensive income, of stockholders'stockholders’ equity, and of cash flows for each of the three years in the period ended December 31, 2017,2023, including the related notes and financial statement schedule listed in the accompanying index(collectively(collectively referred to as the “consolidated financial statements”).We also have audited the Company'sCompany’s internal control over financial reporting as of December 31, 2017,2023, based on criteria established in Internal Control - Integrated Framework(2013)issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidatedfinancial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 20172023 and 2016, 2022, and the results oftheir its operations and theirits cash flows for each of the three years in the period endedDecember 31, 20172023 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2023, based on criteria established in Internal Control - Integrated Framework(2013)issued by the COSO.
Basis for Opinions
The Company'sCompany’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management'sManagement’s Report on Internal Control over Financial Reporting.Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company'sCompany’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB")(PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
As described in Management’s Report on Internal Control over Financial Reporting, management has excluded acquisitions completed in 2017four entities from its assessment of internal control over financial reporting as of December 31, 20172023 because they were acquired by the Company in purchase business combinations during 2017.2023. We have also excluded acquisitions completed in 2017these four entities from our audit of internal control over financial reporting. These acquisitions areentities, each of which is wholly-owned, subsidiaries whosecomprised, in the aggregate, total assets and total revenues excluded from management’s assessment and our audit of internal control over financial reporting representof less than 1% and approximately 2% of the related consolidated financial statement amountstotal assets and consolidated total revenues, respectively, as of and for the year ended December 31, 2017.2023.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
31
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Acquisition of Syntellis Parent, LLC – Valuation of Amortizable Customer Relationships
As described in Notes 1 and 2 to the consolidated financial statements, the Company acquired the outstanding membership interests of Syntellis Parent, LLC, the parent company of Syntellis Performance Solutions, LLC, on August 7, 2023, for a purchase price of $1,381 million. The acquired amortizable intangible assets include customer relationships of $529 million. The fair value for customer relationships is determined as of the acquisition date using the excess earnings method. Under this methodology, the fair value is determined based on the estimated future after-tax cash flows arising from the acquired customer relationships over their estimated lives after considering customer attrition and contributory asset charges. The assumptions that have the most significant effect on the fair value calculations are the customer attrition rates, projected customer revenue growth rates, margins, contributory asset charges, and discount rates.
The principal considerations for our determination that performing procedures relating to the valuation of amortizable customer relationships in connection with the acquisition of Syntellis Parent, LLC is a critical audit matter are (i) the significant judgment by management when developing the fair value estimate of the amortizable customer relationships; (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to the customer attrition rate, projected customer revenue growth rates, margins, contributory asset charges, and discount rate; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the acquisition accounting, including controls over management’s valuation of the acquired amortizable customer relationships and the development of the significant assumptions used by management related to the customer attrition rate, projected customer revenue growth rates, margins, contributory asset charges, and discount rate. These procedures also included, among others (i) reading the purchase agreement; (ii) testing management’s process for developing the fair value estimate of the amortizable customer relationships; (iii) evaluating the appropriateness of the excess earnings method; (iv) testing the completeness and accuracy of the underlying data used in the excess earnings method; and (v) evaluating the reasonableness of the significant assumptions used by management related to the customer attrition rate, projected customer revenue growth rates, margins, contributory asset charges, and discount rate. Evaluating management’s significant assumptions related to projected customer revenue growth rates and margins involved evaluating whether the assumptions used by management were reasonable considering (i) the current and historical performance of the acquired business; (ii) the consistency with external industry and market data; and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in evaluating (i) the appropriateness of the Company’s excess earnings method and (ii) the reasonableness of significant assumptions related to the customer attrition rate, contributory asset charges, and discount rate.
/S/s/ PricewaterhouseCoopers LLP
Tampa, Florida
February 23, 201822, 2024
We have served as the Company’s auditor since 2002.
ROPER TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands,millions, except per share data)
| 2017 | 2016 | ||||||
| Assets | |||||||
| Cash and cash equivalents | $ | 671,327 | $ | 757,200 | |||
| Accounts receivable, net | 641,662 | 619,854 | |||||
| Inventories, net | 204,933 | 181,952 | |||||
| Income taxes receivable | 24,365 | 31,679 | |||||
| Unbilled receivables | 143,634 | 129,965 | |||||
| Other current assets | 73,481 | 55,851 | |||||
| Total current assets | 1,759,402 | 1,776,501 | |||||
| Property, plant and equipment, net | 142,535 | 141,318 | |||||
| Goodwill | 8,820,313 | 8,647,142 | |||||
| Other intangible assets, net | 3,475,218 | 3,655,843 | |||||
| Deferred taxes | 30,726 | 30,620 | |||||
| Other assets | 88,219 | 73,503 | |||||
| Total assets | $ | 14,316,413 | $ | 14,324,927 | |||
| Liabilities and Stockholders' Equity | |||||||
| Accounts payable | $ | 171,073 | $ | 152,067 | |||
| Accrued compensation | 198,020 | 161,730 | |||||
| Deferred revenue | 566,447 | 488,399 | |||||
| Other accrued liabilities | 266,574 | 219,339 | |||||
| Income taxes payable | 26,351 | 22,762 | |||||
| Current portion of long-term debt, net | 800,944 | 400,975 | |||||
| Total current liabilities | 2,029,409 | 1,445,272 | |||||
| Long-term debt, net of current portion | 4,354,611 | 5,808,561 | |||||
| Deferred taxes | 829,657 | 1,178,205 | |||||
| Other liabilities | 239,172 | 104,024 | |||||
| Total liabilities | 7,452,849 | 8,536,062 | |||||
| Commitments and contingencies (Note 12) | |||||||
| Stockholders' equity: | |||||||
| Preferred stock, $0.01 par value per share; 1,000 shares authorized; none outstanding | — | — | |||||
| Common stock, $0.01 par value per share; 350,000 shares authorized; 104,379 shares issued and 102,493 outstanding at December 31, 2017 and 103,578 shares issued and 101,672 outstanding at December 31, 2016 | 1,044 | 1,036 | |||||
| Additional paid-in capital | 1,602,869 | 1,489,067 | |||||
| Retained earnings | 5,464,571 | 4,642,402 | |||||
| Accumulated other comprehensive loss | (186,214 | ) | (324,739 | ) | |||
| Treasury stock, 1,886 shares at December 31, 2017 and 1,906 shares at December 31, 2016 | (18,706 | ) | (18,901 | ) | |||
| Total stockholders' equity | 6,863,564 | 5,788,865 | |||||
| Total liabilities and stockholders' equity | $ | 14,316,413 | $ | 14,324,927 | |||
| As of December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Assets | |||||||||||
| Cash and cash equivalents | $ | 214.3 | $ | 792.8 | |||||||
| Accounts receivable, net | 829.9 | 724.5 | |||||||||
| Inventories, net | 118.6 | 111.3 | |||||||||
| Income taxes receivable | 47.7 | 61.0 | |||||||||
| Unbilled receivables | 106.4 | 91.5 | |||||||||
| Other current assets | 164.5 | 151.3 | |||||||||
| Total current assets | 1,481.4 | 1,932.4 | |||||||||
| Property, plant and equipment, net | 119.6 | 85.3 | |||||||||
| Goodwill | 17,118.8 | 15,946.1 | |||||||||
| Other intangible assets, net | 8,212.1 | 8,030.7 | |||||||||
| Deferred taxes | 32.2 | 55.9 | |||||||||
| Equity investments | 795.7 | 535.0 | |||||||||
| Other assets | 407.7 | 395.4 | |||||||||
| Total assets | $ | 28,167.5 | $ | 26,980.8 | |||||||
| Liabilities and Stockholders’ Equity | |||||||||||
| Accounts payable | $ | 143.0 | $ | 122.6 | |||||||
| Accrued compensation | 250.0 | 228.8 | |||||||||
| Deferred revenue | 1,583.8 | 1,370.7 | |||||||||
| Other accrued liabilities | 446.5 | 454.6 | |||||||||
| Income taxes payable | 40.4 | 16.6 | |||||||||
| Current portion of long-term debt, net | 499.5 | 699.2 | |||||||||
| Total current liabilities | 2,963.2 | 2,892.5 | |||||||||
| Long-term debt, net of current portion | 5,830.6 | 5,962.5 | |||||||||
| Deferred taxes | 1,513.1 | 1,676.8 | |||||||||
| Other liabilities | 415.8 | 411.2 | |||||||||
| Total liabilities | 10,722.7 | 10,943.0 | |||||||||
| Commitments and contingencies (Note 13) | |||||||||||
| Stockholders’ equity: | |||||||||||
| Preferred stock, $0.01 par value per share; 1.0 shares authorized; none outstanding | — | — | |||||||||
| Common stock, $0.01 par value per share; 350.0 shares authorized; 108.6 shares issued and 106.9 outstanding at December 31, 2023 and 107.9 shares issued and 106.1 outstanding at December 31, 2022 | 1.1 | 1.1 | |||||||||
| Additional paid-in capital | 2,767.0 | 2,510.2 | |||||||||
| Retained earnings | 14,816.3 | 13,730.7 | |||||||||
| Accumulated other comprehensive loss | (122.8) | (187.0) | |||||||||
| Treasury stock, 1.7 shares at December 31, 2023 and 1.8 shares at December 31, 2022 | (16.8) | (17.2) | |||||||||
| Total stockholders’ equity | 17,444.8 | 16,037.8 | |||||||||
| Total liabilities and stockholders’ equity | $ | 28,167.5 | $ | 26,980.8 | |||||||
See accompanying notes to consolidated financial statements.
Consolidated Financial Statements.
33
ROPER TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Dollar and share amounts in thousands,millions, except per share data)
| Years ended December 31, | Year ended December 31, | |||||||||||||||||||||||||||||||||
| 2017 | 2016 | 2015 | 2023 | 2022 | 2021 | |||||||||||||||||||||||||||||
| Net revenues | $ | 4,607,471 | $ | 3,789,925 | $ | 3,582,395 | ||||||||||||||||||||||||||||
| Cost of sales | 1,742,675 | 1,457,515 | 1,417,749 | |||||||||||||||||||||||||||||||
| Gross profit | 2,864,796 | 2,332,410 | 2,164,646 | |||||||||||||||||||||||||||||||
| Selling, general and administrative expenses | 1,654,552 | 1,277,847 | 1,136,728 | |||||||||||||||||||||||||||||||
| Selling, general and administrative expenses | ||||||||||||||||||||||||||||||||||
| Selling, general and administrative expenses | ||||||||||||||||||||||||||||||||||
| Impairment of intangible assets | ||||||||||||||||||||||||||||||||||
| Income from operations | 1,210,244 | 1,054,563 | 1,027,918 | |||||||||||||||||||||||||||||||
| Interest expense, net | 180,566 | 111,559 | 84,225 | |||||||||||||||||||||||||||||||
| Loss on extinguishment of debt | — | 871 | — | |||||||||||||||||||||||||||||||
| Other income/(expense), net | 5,045 | (1,481 | ) | 58,652 | ||||||||||||||||||||||||||||||
| Interest expense, net | ||||||||||||||||||||||||||||||||||
| Interest expense, net | ||||||||||||||||||||||||||||||||||
| Equity investments activity, net | ||||||||||||||||||||||||||||||||||
| Other income (expense), net | ||||||||||||||||||||||||||||||||||
| Earnings before income taxes | 1,034,723 | 940,652 | 1,002,345 | |||||||||||||||||||||||||||||||
| Earnings before income taxes | ||||||||||||||||||||||||||||||||||
| Earnings before income taxes | ||||||||||||||||||||||||||||||||||
| Income taxes | 62,951 | 282,007 | 306,278 | |||||||||||||||||||||||||||||||
| Income taxes | ||||||||||||||||||||||||||||||||||
| Income taxes | ||||||||||||||||||||||||||||||||||
| Net earnings from continuing operations | ||||||||||||||||||||||||||||||||||
| Earnings (loss) from discontinued operations, net of tax | ||||||||||||||||||||||||||||||||||
| Earnings (loss) from discontinued operations, net of tax | ||||||||||||||||||||||||||||||||||
| Earnings (loss) from discontinued operations, net of tax | ||||||||||||||||||||||||||||||||||
| Gain on disposition of discontinued operations, net of tax | ||||||||||||||||||||||||||||||||||
| Net earnings from discontinued operations | ||||||||||||||||||||||||||||||||||
| Net earnings | $ | 971,772 | $ | 658,645 | $ | 696,067 | ||||||||||||||||||||||||||||
| Net earnings | ||||||||||||||||||||||||||||||||||
| Net earnings | ||||||||||||||||||||||||||||||||||
| Earnings per share: | ||||||||||||||||||||||||||||||||||
| Net earnings per share from continuing operations: | ||||||||||||||||||||||||||||||||||
| Net earnings per share from continuing operations: | ||||||||||||||||||||||||||||||||||
| Net earnings per share from continuing operations: | ||||||||||||||||||||||||||||||||||
| Basic | $ | 9.51 | $ | 6.50 | $ | 6.92 | ||||||||||||||||||||||||||||
| Diluted | $ | 9.39 | $ | 6.43 | $ | 6.85 | ||||||||||||||||||||||||||||
| Weighted-average common shares outstanding: | ||||||||||||||||||||||||||||||||||
| Net earnings per share from discontinued operations: | ||||||||||||||||||||||||||||||||||
| Net earnings per share from discontinued operations: | ||||||||||||||||||||||||||||||||||
| Net earnings per share from discontinued operations: | ||||||||||||||||||||||||||||||||||
| Basic | ||||||||||||||||||||||||||||||||||
| Basic | ||||||||||||||||||||||||||||||||||
| Basic | 102,168 | 101,291 | 100,616 | |||||||||||||||||||||||||||||||
| Diluted | 103,522 | 102,464 | 101,597 | |||||||||||||||||||||||||||||||
| Net earnings per share: | ||||||||||||||||||||||||||||||||||
| Net earnings per share: | ||||||||||||||||||||||||||||||||||
| Net earnings per share: | ||||||||||||||||||||||||||||||||||
| Basic | ||||||||||||||||||||||||||||||||||
| Basic | ||||||||||||||||||||||||||||||||||
| Basic | ||||||||||||||||||||||||||||||||||
| Diluted | ||||||||||||||||||||||||||||||||||
| Weighted average common shares outstanding: | ||||||||||||||||||||||||||||||||||
| Weighted average common shares outstanding: | ||||||||||||||||||||||||||||||||||
| Weighted average common shares outstanding: | ||||||||||||||||||||||||||||||||||
| Basic | ||||||||||||||||||||||||||||||||||
| Diluted | ||||||||||||||||||||||||||||||||||
See accompanying notes to consolidated financial statements.
Consolidated Financial Statements.
34
ROPER TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
| Year ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Net earnings | $ | 1,384.2 | $ | 4,544.7 | $ | 1,152.6 | |||||||||||
| Other comprehensive income (loss), net of tax: | |||||||||||||||||
Foreign currency translation adjustments (1) | 64.2 | (3.9) | (36.1) | ||||||||||||||
| Total other comprehensive income (loss), net of tax | 64.2 | (3.9) | (36.1) | ||||||||||||||
| Comprehensive income | $ | 1,448.4 | $ | 4,540.8 | $ | 1,116.5 | |||||||||||
(1) In connection with the Indicor Transaction, we reclassified $142.6 of foreign currency translation adjustments to “Gain on disposition of discontinued operations, net of tax” during the year ended December 31, 2017, 2016 and 20152022.
| Years ended December 31, | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| Net earnings | $ | 971,772 | $ | 658,645 | $ | 696,067 | |||||
| Other comprehensive income, net of tax: | |||||||||||
| Foreign currency translation adjustments | 138,525 | (111,960 | ) | (139,789 | ) | ||||||
| Unrecognized pension gain | — | — | (1,063 | ) | |||||||
| Total other comprehensive income/(loss), net of tax | 138,525 | (111,960 | ) | (140,852 | ) | ||||||
| Comprehensive income | $ | 1,110,297 | $ | 546,685 | $ | 555,215 | |||||
See accompanying notes to consolidated financial statements.
Consolidated Financial Statements.
35
ROPER TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS'STOCKHOLDERS’ EQUITY
(in thousands,millions, except per share data)
| Common Stock | ||||||||||||||||||||||||||
| Shares | Amount | Additional paid-in capital | Retained earnings | Accumulated other comprehensive earnings | Treasury stock | Total stockholders' equity | ||||||||||||||||||||
| Balances at December 31, 2014 | 100,126 | $ | 1,021 | $ | 1,325,338 | $ | 3,520,201 | $ | (71,927 | ) | $ | (19,273 | ) | $ | 4,755,360 | |||||||||||
| Net earnings | — | — | — | 696,067 | — | — | 696,067 | |||||||||||||||||||
| Stock option exercises | 402 | 4 | 33,002 | — | — | — | 33,006 | |||||||||||||||||||
| Treasury stock sold | 18 | — | 2,710 | — | — | 179 | 2,889 | |||||||||||||||||||
| Currency translation adjustments, net of $6,658 tax | — | — | — | — | (139,789 | ) | — | (139,789 | ) | |||||||||||||||||
| Stock based compensation | — | — | 61,766 | — | — | — | 61,766 | |||||||||||||||||||
| Restricted stock activity | 324 | 3 | (14,697 | ) | — | — | — | (14,694 | ) | |||||||||||||||||
| Stock option tax benefit, net of shortfalls | — | — | 22,175 | — | — | — | 22,175 | |||||||||||||||||||
| Conversion of senior subordinated convertible notes | — | — | (11,032 | ) | — | — | — | (11,032 | ) | |||||||||||||||||
| Post-retirement benefit plan adjustments | — | — | — | — | (1,063 | ) | — | (1,063 | ) | |||||||||||||||||
| Dividends declared ($1.05 per share) | — | — | — | (105,738 | ) | — | — | (105,738 | ) | |||||||||||||||||
| Balances at December 31, 2015 | 100,870 | $ | 1,028 | $ | 1,419,262 | $ | 4,110,530 | $ | (212,779 | ) | $ | (19,094 | ) | $ | 5,298,947 | |||||||||||
| Net earnings | — | — | — | 658,645 | — | — | 658,645 | |||||||||||||||||||
| Stock option exercises | 372 | 4 | 27,970 | — | — | — | 27,974 | |||||||||||||||||||
| Treasury stock sold | 19 | — | 3,147 | — | — | 193 | 3,340 | |||||||||||||||||||
| Currency translation adjustments, net of $2,570 tax | — | — | — | — | (111,960 | ) | — | (111,960 | ) | |||||||||||||||||
| Stock based compensation | — | — | 77,860 | — | — | — | 77,860 | |||||||||||||||||||
| Restricted stock activity | 411 | 4 | (17,980 | ) | — | — | — | (17,976 | ) | |||||||||||||||||
| Stock option tax benefit, net of shortfalls | — | — | (8,081 | ) | — | — | — | (8,081 | ) | |||||||||||||||||
| Conversion of senior subordinated convertible notes | — | — | (13,111 | ) | — | — | — | (13,111 | ) | |||||||||||||||||
| Dividends declared ($1.25 per share) | — | — | — | (126,773 | ) | — | — | (126,773 | ) | |||||||||||||||||
| Balances at December 31, 2016 | 101,672 | $ | 1,036 | $ | 1,489,067 | $ | 4,642,402 | $ | (324,739 | ) | $ | (18,901 | ) | $ | 5,788,865 | |||||||||||
| Net earnings | — | — | — | 971,772 | — | — | 971,772 | |||||||||||||||||||
| Stock option exercises | 645 | 6 | 61,317 | — | — | — | 61,323 | |||||||||||||||||||
| Treasury stock sold | 20 | — | 4,003 | — | — | 195 | 4,198 | |||||||||||||||||||
| Currency translation adjustments, net of $4,899 tax | — | — | — | — | 138,525 | — | 138,525 | |||||||||||||||||||
| Stock based compensation | — | — | 81,324 | — | — | — | 81,324 | |||||||||||||||||||
| Restricted stock activity | 156 | 2 | (32,842 | ) | — | — | — | (32,840 | ) | |||||||||||||||||
| Dividends declared ($1.4625 per share) | — | — | — | (149,603 | ) | — | — | (149,603 | ) | |||||||||||||||||
| Balances at December 31, 2017 | 102,493 | $ | 1,044 | $ | 1,602,869 | $ | 5,464,571 | $ | (186,214 | ) | $ | (18,706 | ) | $ | 6,863,564 | |||||||||||
| Common stock | |||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Additional paid-in capital | Retained earnings | Accumulated other comprehensive loss | Treasury stock | Total stockholders’ equity | |||||||||||||||||||||||||||||||||||
| Balances at December 31, 2020 | 104.9 | $ | 1.1 | $ | 2,097.5 | $ | 8,546.2 | $ | (147.0) | $ | (18.0) | $ | 10,479.8 | ||||||||||||||||||||||||||||
| Net earnings | — | — | — | 1,152.6 | — | — | 1,152.6 | ||||||||||||||||||||||||||||||||||
| Stock option exercises | 0.5 | — | 104.7 | — | — | — | 104.7 | ||||||||||||||||||||||||||||||||||
| Cash settlement of share-based awards in connection with disposition of discontinued operations | — | — | (6.7) | — | — | — | (6.7) | ||||||||||||||||||||||||||||||||||
| Treasury stock sold | — | — | 14.7 | — | — | 0.4 | 15.1 | ||||||||||||||||||||||||||||||||||
| Currency translation adjustments, including tax benefit of $6.2 | — | — | — | — | (36.1) | — | (36.1) | ||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | 138.0 | — | — | — | 138.0 | ||||||||||||||||||||||||||||||||||
| Restricted stock activity | 0.1 | — | (40.4) | — | — | — | (40.4) | ||||||||||||||||||||||||||||||||||
| Dividends declared ($2.31 per share) | — | — | — | (243.2) | — | — | (243.2) | ||||||||||||||||||||||||||||||||||
| Balances at December 31, 2021 | 105.5 | $ | 1.1 | $ | 2,307.8 | $ | 9,455.6 | $ | (183.1) | $ | (17.6) | $ | 11,563.8 | ||||||||||||||||||||||||||||
| Net earnings | — | — | — | 4,544.7 | — | — | 4,544.7 | ||||||||||||||||||||||||||||||||||
| Stock option exercises | 0.5 | — | 110.0 | — | — | — | 110.0 | ||||||||||||||||||||||||||||||||||
| Cash settlement of share-based awards in connection with disposition of discontinued operations | — | — | (11.1) | — | — | — | (11.1) | ||||||||||||||||||||||||||||||||||
| Treasury stock sold | — | — | 13.9 | — | — | 0.4 | 14.3 | ||||||||||||||||||||||||||||||||||
| Currency translation adjustments, including tax benefit of $41.9 | — | — | — | — | (3.9) | — | (3.9) | ||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | 131.4 | — | — | — | 131.4 | ||||||||||||||||||||||||||||||||||
| Restricted stock activity | 0.1 | — | (41.8) | — | — | — | (41.8) | ||||||||||||||||||||||||||||||||||
| Dividends declared ($2.54 per share) | — | — | — | (269.6) | — | — | (269.6) | ||||||||||||||||||||||||||||||||||
| Balances at December 31, 2022 | 106.1 | $ | 1.1 | $ | 2,510.2 | $ | 13,730.7 | $ | (187.0) | $ | (17.2) | $ | 16,037.8 | ||||||||||||||||||||||||||||
| Net earnings | — | — | — | 1,384.2 | — | — | 1,384.2 | ||||||||||||||||||||||||||||||||||
| Stock option exercises | 0.6 | — | 146.5 | — | — | — | 146.5 | ||||||||||||||||||||||||||||||||||
| Treasury stock sold | — | — | 15.1 | — | — | 0.4 | 15.5 | ||||||||||||||||||||||||||||||||||
| Currency translation adjustments, including tax provision of $10.3 | — | — | — | — | 64.2 | — | 64.2 | ||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | 126.5 | — | — | — | 126.5 | ||||||||||||||||||||||||||||||||||
| Restricted stock activity | 0.2 | — | (31.3) | — | — | — | (31.3) | ||||||||||||||||||||||||||||||||||
| Dividends declared ($2.80 per share) | — | — | — | (298.6) | — | — | (298.6) | ||||||||||||||||||||||||||||||||||
| Balances at December 31, 2023 | 106.9 | $ | 1.1 | $ | 2,767.0 | $ | 14,816.3 | $ | (122.8) | $ | (16.8) | $ | 17,444.8 | ||||||||||||||||||||||||||||
See accompanying notes to consolidated financial statements.
Consolidated Financial Statements.
36
ROPER TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Year ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Cash flows from operating activities: | |||||||||||||||||
| Net earnings from continuing operations | $ | 1,368.4 | $ | 985.6 | $ | 805.3 | |||||||||||
| Adjustments to reconcile net earnings from continuing operations to cash flows from operating activities: | |||||||||||||||||
| Depreciation and amortization of property, plant and equipment | 35.4 | 37.3 | 44.0 | ||||||||||||||
| Amortization of intangible assets | 719.8 | 612.8 | 571.9 | ||||||||||||||
| Amortization of deferred financing costs | 9.9 | 11.8 | 13.5 | ||||||||||||||
| Non-cash stock compensation | 123.5 | 118.5 | 123.0 | ||||||||||||||
| Equity investments activity, net | (165.4) | — | — | ||||||||||||||
| Impairment of intangible assets | — | — | 94.4 | ||||||||||||||
| Gain on disposal of assets, net of associated income tax | — | — | (21.6) | ||||||||||||||
| Income tax provision, excluding tax associated with gain on disposal of assets | 374.7 | 296.4 | 221.1 | ||||||||||||||
| Changes in operating assets and liabilities, net of acquired businesses: | |||||||||||||||||
| Accounts receivable | (50.2) | 2.5 | (73.7) | ||||||||||||||
| Unbilled receivables | (7.5) | (11.1) | (16.4) | ||||||||||||||
| Inventories | (6.6) | (43.1) | (0.3) | ||||||||||||||
| Accounts payable | 18.2 | 21.3 | 16.0 | ||||||||||||||
| Other accrued liabilities | (1.0) | (7.6) | 27.0 | ||||||||||||||
| Deferred revenue | 93.9 | 52.9 | 162.2 | ||||||||||||||
| Cash taxes paid for gain on disposal of businesses | (32.5) | (953.8) | — | ||||||||||||||
| Cash income taxes paid, excluding tax associated with gain on disposal of businesses and assets | (423.4) | (498.9) | (273.9) | ||||||||||||||
| Other, net | (19.8) | (18.0) | (36.7) | ||||||||||||||
| Cash provided by operating activities from continuing operations | 2,037.4 | 606.6 | 1,655.8 | ||||||||||||||
| Cash provided by (used in) operating activities from discontinued operations | (2.3) | 128.0 | 356.1 | ||||||||||||||
| Cash provided by operating activities | 2,035.1 | 734.6 | 2,011.9 | ||||||||||||||
| Cash flows from (used in) investing activities: | |||||||||||||||||
| Acquisitions of businesses, net of cash acquired | (2,052.7) | (4,280.1) | (217.0) | ||||||||||||||
| Capital expenditures | (68.0) | (40.1) | (28.5) | ||||||||||||||
| Capitalized software expenditures | (40.0) | (30.2) | (29.7) | ||||||||||||||
| Distributions from equity investment | 32.5 | — | — | ||||||||||||||
| Proceeds from sale of assets | — | — | 27.1 | ||||||||||||||
| Other, net | (0.1) | (1.4) | (1.1) | ||||||||||||||
| Cash used in investing activities from continuing operations | (2,128.3) | (4,351.8) | (249.2) | ||||||||||||||
| Proceeds from disposition of discontinued operations | 2.0 | 5,561.8 | 115.6 | ||||||||||||||
| Cash used in investing activities from discontinued operations | — | (0.5) | (9.3) | ||||||||||||||
| Cash provided by (used in) investing activities | (2,126.3) | 1,209.5 | (142.9) | ||||||||||||||
| Cash flows from (used in) financing activities: | |||||||||||||||||
| Payments of senior notes | (700.0) | (800.0) | (500.0) | ||||||||||||||
| Borrowings (payments) under revolving line of credit, net | 360.0 | (470.0) | (1,150.0) | ||||||||||||||
| Debt issuance costs | — | (3.9) | — | ||||||||||||||
| Cash dividends to stockholders | (290.2) | (262.3) | (236.4) | ||||||||||||||
| Treasury stock sales | 15.5 | 14.3 | 15.1 | ||||||||||||||
| Proceeds from stock-based compensation, net | 115.2 | 68.2 | 64.3 | ||||||||||||||
| Other, net | — | (0.2) | (0.1) | ||||||||||||||
| Cash used in financing activities from continuing operations | (499.5) | (1,453.9) | (1,807.1) | ||||||||||||||
| Cash used in financing activities from discontinued operations | — | (11.4) | (6.4) | ||||||||||||||
| Cash used in financing activities | (499.5) | (1,465.3) | (1,813.5) | ||||||||||||||
| (Continued) | |||||||||||||||||
ROPER TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(in thousands)millions)
| Years ended December 31, | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| Cash flows from operating activities: | |||||||||||
| Net earnings | $ | 971,772 | $ | 658,645 | $ | 696,067 | |||||
| Adjustments to reconcile net earnings to cash flows from operating activities: | |||||||||||
| Depreciation and amortization of property, plant and equipment | 49,513 | 37,299 | 38,185 | ||||||||
| Amortization of intangible assets | 295,452 | 203,154 | 166,076 | ||||||||
| Amortization of deferred financing costs | 7,227 | 5,612 | 4,136 | ||||||||
| Non-cash stock compensation | 83,075 | 78,827 | 61,766 | ||||||||
| Gain on disposal of a business | — | — | (70,860 | ) | |||||||
| Gain on sale of assets | (9,393 | ) | — | — | |||||||
| Changes in operating assets and liabilities, net of acquired businesses: | |||||||||||
| Accounts receivable | (6,673 | ) | (20,734 | ) | 52,597 | ||||||
| Unbilled receivables | (13,493 | ) | (1,202 | ) | (21,844 | ) | |||||
| Inventories | (15,363 | ) | 6,353 | (1,150 | ) | ||||||
| Accounts payable and accrued liabilities | 73,333 | 20,176 | (8,392 | ) | |||||||
| Deferred revenue | 74,881 | 25,190 | 8,239 | ||||||||
| Income taxes | (256,971 | ) | (47,589 | ) | 3,069 | ||||||
| Other, net | (18,878 | ) | (1,946 | ) | 936 | ||||||
| Cash provided by operating activities | 1,234,482 | 963,785 | 928,825 | ||||||||
| Cash flows from investing activities: | |||||||||||
| Acquisitions of businesses, net of cash acquired | (153,736 | ) | (3,721,758 | ) | (1,762,883 | ) | |||||
| Capital expenditures | (48,752 | ) | (37,305 | ) | (36,260 | ) | |||||
| Capitalized software expenditures | (10,784 | ) | (2,801 | ) | (2,439 | ) | |||||
| Proceeds from disposal of a business | — | — | 105,624 | ||||||||
| Proceeds from sale of assets | 10,628 | 870 | 1,126 | ||||||||
| Other, net | (6,932 | ) | 8,138 | (3,500 | ) | ||||||
| Cash used in investing activities | (209,576 | ) | (3,752,856 | ) | (1,698,332 | ) | |||||
| Cash flows from financing activities: | |||||||||||
| Proceeds from senior notes | — | 1,200,000 | 900,000 | ||||||||
| Payment of senior notes | (400,000 | ) | — | — | |||||||
| Borrowings/(payments) under revolving line of credit, net | (660,000 | ) | 1,750,000 | 180,000 | |||||||
| Principal payments on convertible notes | — | (4,284 | ) | (4,006 | ) | ||||||
| Debt issuance costs | — | (17,266 | ) | (8,044 | ) | ||||||
| Cash dividends to stockholders | (142,753 | ) | (121,130 | ) | (100,334 | ) | |||||
| Treasury stock sales | 4,198 | 3,340 | 2,889 | ||||||||
| Stock award tax excess windfall benefit | — | — | 22,228 | ||||||||
| Proceeds from stock based compensation, net | 28,487 | 9,998 | 18,312 | ||||||||
| Redemption premium on convertible debt | — | (14,166 | ) | (13,126 | ) | ||||||
| Other | 51 | (1,229 | ) | (1,677 | ) | ||||||
| Cash provided by/(used in) financing activities | (1,170,017 | ) | 2,805,263 | 996,242 | |||||||
| Effect of exchange rate changes on cash | 59,238 | (37,503 | ) | (58,654 | ) | ||||||
| Net increase/(decrease) in cash and cash equivalents | (85,873 | ) | (21,311 | ) | 168,081 | ||||||
| Cash and cash equivalents, beginning of year | 757,200 | 778,511 | 610,430 | ||||||||
| Cash and cash equivalents, end of year | $ | 671,327 | $ | 757,200 | $ | 778,511 | |||||
| Supplemental disclosures: | |||||||||||
| Cash paid for: | |||||||||||
| Interest | $ | 175,021 | $ | 104,928 | $ | 79,225 | |||||
| Income taxes, net of refunds received | $ | 320,235 | $ | 329,596 | $ | 280,801 | |||||
| Noncash investing activities: | |||||||||||
| Net assets of businesses acquired: | |||||||||||
| Fair value of assets, including goodwill | $ | 177,276 | $ | 4,433,085 | $ | 1,876,984 | |||||
| Liabilities assumed | (23,540 | ) | (711,327 | ) | (114,101 | ) | |||||
| Cash paid, net of cash acquired | $ | 153,736 | $ | 3,721,758 | $ | 1,762,883 | |||||
| Year ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Effect of exchange rate changes on cash | 12.2 | (37.5) | (12.3) | ||||||||||||||
| Net increase (decrease) in cash and cash equivalents | (578.5) | 441.3 | 43.2 | ||||||||||||||
| Cash and cash equivalents, beginning of year | 792.8 | 351.5 | 308.3 | ||||||||||||||
| Cash and cash equivalents, end of year | $ | 214.3 | $ | 792.8 | $ | 351.5 | |||||||||||
| Supplemental disclosures: | |||||||||||||||||
| Cash paid for: | |||||||||||||||||
| Interest | $ | 201.9 | $ | 206.5 | $ | 222.2 | |||||||||||
| Non-cash investing activities: | |||||||||||||||||
| Net assets of businesses acquired: | |||||||||||||||||
| Fair value of assets, including goodwill | $ | 2,235.1 | $ | 4,891.8 | $ | 249.8 | |||||||||||
| Liabilities assumed | (182.4) | (611.7) | (32.8) | ||||||||||||||
| Cash paid, net of cash acquired | $ | 2,052.7 | $ | 4,280.1 | $ | 217.0 | |||||||||||
See accompanying notes to consolidated financial statements.
Consolidated Financial Statements.
37
ROPER TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years ended December 31, 2017, 20162023, 2022, and 20152021
(Dollar and share amounts in millions unless specified, except per share data)
(1) Summary of Accounting Policies
Basis of Presentation - – These financial statements present consolidated information for Roper Technologies, Inc. and its subsidiaries ("(“Roper,"” the "Company," "we," "our"“Company,” “we,” “our,” or "us"“us”). All significant intercompany accounts and transactions have been eliminated. Certain prior period amounts have been reclassified to conform to current period presentation.
Nature of the Business - – Roper is a diversified technology company. The Company operates market leading businesses that design and develop vertical software (both license and software-as-a-service) and engineeredtechnology enabled products and solutions for a variety of defensible niche markets.
Discontinued Operations – On November 22, 2022, the Company completed the divestiture of a majority 51% equity stake in its industrial businesses, including its entire historical Process Technologies reportable segment and the industrial businesses within its historical Measurement & Analytical Solutions reportable segment, to Clayton, Dubilier & Rice, LLC (“CD&R”). The businesses included in this transaction were Alpha, AMOT, CCC, Cornell, Dynisco, FTI, Hansen, Hardy, Logitech, Metrix, PAC, Roper Pump, Struers, Technolog, Uson, and Viatran (collectively “Indicor”). Following the sale of the majority stake, the Company retained a minority equity interest in Indicor. This transaction is referred to herein as the “Indicor Transaction.” See Note 10 for additional information on this minority equity interest.
During 2021, the Company signed definitive agreements to divest its TransCore, Zetec, and CIVCO Radiotherapy businesses, (“2021 Divestitures”). Roper completed the 2021 Divestitures by the end markets.of the first quarter of 2022.
The financial results for Indicor and the 2021 Divestitures are presented as discontinued operations for all periods presented. Unless otherwise noted, discussion within these Notes to Consolidated Financial Statements relates to continuing operations. Refer to Note 3 for additional information on discontinued operations.
Recent Accounting Pronouncements - – The Financial Accounting Standards Board ("FASB"(“FASB”) establishes changes to accounting principles under GAAP in the form of accounting standards updates ("ASUs"(“ASUs”) to the FASB'sFASB’s Accounting Standards Codification.Codification (“ASC”). The Company considers the applicability and impact of all ASUs. Any recent ASUs not listed below were assessed and either determined to be either not applicable or are expected to have an immaterial impact on the Company'sCompany’s results of operations, financial position, or cash flows.
Recently Adopted Accounting Pronouncements
In January 2017,October 2021, the FASB issued an update simplifyingto improve the testaccounting for goodwill impairment. This update, effective onacquired revenue contracts with customers in a prospective basis for goodwill impairment tests performed in fiscal years beginning after December 15, 2019, eliminates Step 2 from the goodwill impairment test. Under the amendmentsbusiness combination by promoting consistency in the update,recognition of an entity should perform its goodwill impairment testacquired contract liability and the subsequent revenue recognized by comparing the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. Early adoption is permitted for interim or annual impairment tests performed on testing dates after January 1, 2017. The Company elected to early adopt this standard for it's annual goodwill impairment testing during the fourth quarter of 2017.acquirer. The update did not have an impact on the Company's results of operations, financial position or cash flows.
Recently Released Accounting Pronouncements
In March 2016,November 2023, the FASB issued an update on stock compensation. The ASU simplifies several aspects of the accounting for employee share-based payment awards, including the accounting for income taxes, forfeitures, and statutory tax withholdingAccounting Standards Update No. 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures” (ASU 2023-07), which expands reportable segment disclosure requirements, as well as classification in the statement of cash flows.primarily through enhanced disclosures about significant segment expenses. This standardguidance is effective for annual reporting periods beginning after December 15, 2016. The Company elected to early adopt this standard on a prospective basis in the quarter ended March 31, 2016. The impact of the early adoption resulted in the following:
In April 2015,December 2023, the FASB issued an update providingAccounting Standards Update No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” (ASU 2023-09), which expands income tax disclosure requirements, including disaggregation of rate reconciliation table categories, disaggregation of earnings before income taxes and income tax expense information, and disaggregation of income taxes paid information, among other changes. This guidance to determine whether the fee paid by an entity for a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the software license element of the arrangement should be accounted for consistently with the acquisition of other software licenses. A cloud computing arrangement that does not include a software license should be accounted for as a service contract. The update is effective for annual periods beginning after December 15, 2015, and may be adopted prospectively or retrospectively. The Company adopted the update prospectively effective January 1, 2016. The update did not have a material impact on its results of operations, financial condition or cash flows.
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Significant Accounting Policies
Cash and Cash Equivalents - – Roper considers highly liquid financial instruments with remaining maturities at acquisition of three months or less to be cash equivalents. Roper had no$0.4 and $432.9 of cash equivalents at December 31, 20172023 and December 31, 2016.2022, respectively.
Contingencies - – Management continually assesses the probability of any adverse judgments or outcomes to its potential contingencies. Disclosure of the contingency is made if there is at least a reasonable possibility that a loss or an additional loss may have been incurred. In the assessment of contingencies as of December 31, 2017,2023, management concluded that there were no matters for which there was a reasonable possibility of a material loss. See Note 13 for additional information.
Earnings per Share - – Basic earnings per share werewas calculated using net earnings and the weighted-averageweighted average number of shares of common stock outstanding during the respective year. Diluted earnings per share werewas calculated using net earnings and the weighted-averageweighted average number of shares of common stock and potential common stock associated with stock options outstanding during the respective year. Potentially dilutive common stock consisted of stock options and the premium over the conversion price on Roper's senior subordinated convertible notes based upon the trading price of the Company's common stock. Effective January 1, 2016, Roper adopted the provisions of an accounting standards update on a prospective basis which increased the number of potentially dilutive stock options as there is no longer a tax benefit in the calculation of dilutive stock options. See the caption "Recent Accounting Pronouncements" elsewhere in this Note for additional information regarding the ASU.
The effects of potential common stock were determined using the treasury stock method (in thousands):method:
| Years ended December 31, | ||||||||
| 2017 | 2016 | 2015 | ||||||
| Basic weighted-average shares outstanding | 102,168 | 101,291 | 100,616 | |||||
| Effect of potential common stock: | ||||||||
| Common stock awards | 1,354 | 1,126 | 887 | |||||
| Senior subordinated convertible notes | — | 47 | 94 | |||||
| Diluted weighted-average shares outstanding | 103,522 | 102,464 | 101,597 | |||||
| Year ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Basic weighted average shares outstanding | 106.6 | 105.9 | 105.3 | ||||||||||||||
| Effect of potential common stock: | |||||||||||||||||
| Common stock awards | 0.8 | 0.9 | 1.2 | ||||||||||||||
| Diluted weighted average shares outstanding | 107.4 | 106.8 | 106.5 | ||||||||||||||
Equity Investments – As of December 31, 2023 and 2022, the Company held a 47.3% and 49.0% minority equity interest in Indicor, respectively. This equity interest provides us with the ability to exercise significant influence, but not control, over the investee. We elected to apply the fair value option as we believe this is the most reasonable method to value this equity investment. The fair value of our equity investment in Indicor is updated on a quarterly basis and its impact is reported as a component of “Equity investments activity, net” in our Consolidated Statement of Earnings. See Note 10 for additional information on this investment.
In 2023, the Company acquired an 18.2% limited partnership minority interest in CI Ultimate Holdings, L.P., the parent entity of Certinia Inc., which provides us with the ability to exercise significant influence, but not control, over the investee. This equity investment is accounted for under the equity method of accounting whereby our proportionate share of earnings or loss associated with the investment is reported as a component of “Equity investments activity, net” in our Consolidated Statement of Earnings with a corresponding change in the balance of our equity investment. Our proportionate share of loss associated with our investment in Certinia was $5.2 for the year ended December 31, 2023. The balance of our equity investment in Certinia, reported as a component of “Equity investments” in our Consolidated Balance Sheet, was $119.8 as of December 31, 2023.
Estimates - – The preparation of financial statements in conformity with generally accepted accounting principles in the United States ("GAAP")GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities. Actual results could differ from those estimates.
Foreign Currency Translation and Transactions - – Assets and liabilities of subsidiaries whose functional currency is not the U.S. dollar were translated at the exchange rate in effect at the balance sheet date, and revenues and expenses were translated at average exchange rates for the period in which those entities were included in Roper'sRoper’s financial results. Translation adjustments are reflected as a component ofwithin other comprehensive income. Foreign currency transaction gains and losses are recorded in the consolidated statementour Consolidated Statements of earnings as other income/Earnings within “Other income (expense)., net.” Foreign currency transaction lossesgains/(losses) were $1.4 million, $2.9 million and $0.7 millionnot material for the years ended December 31, 2017, 2016 and 2015.any periods presented.
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Goodwill and Other Intangibles - – Roper accounts for goodwill in a purchase business combination as the excess of the cost over the estimated fair value of net assets acquired. Business combinations can also result in other intangible assets being recognized. Amortization of intangible assets, if applicable, occurs over their estimated useful lives. Goodwill, which is not amortized, is tested for impairment on an annual basis (or an interim basis if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value). When testing goodwill for impairment, the Company has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the estimated fair value of a reporting unit is less than its carrying amount. If the Company elects to perform a qualitative assessment and determines that an impairment is more likely than not, then performance of the quantitative impairment test is required. The quantitative process utilizes both an income approach (discounted cash flows)flow) and a market approach consisting(consisting of a comparable public company earnings multiples methodologymethodology) to estimate the fair value of a reporting unit. To determine the reasonableness of the estimated fair values, the Company reviews the assumptions to ensure that neither the income approach nor the market approach provides significantly different valuations. If the estimated fair value exceeds the carrying value, no further work is required and no impairment loss is recognized. If the carrying value exceeds the estimated fair value, a non-cash impairment loss is recognized in the amount of that excess.
When performing the quantitative assessment, key assumptions used in the income and market methodologies are updated when the analysis is performed for each reporting unit. Various assumptions are utilized including forecasted operating results, strategic plans, economic projections, anticipated future cash flows, the weighted-average cost of capital, comparable transactions, market data and earnings multiples. The assumptions that have the most significant effect on the fair value calculations are the anticipatedprojected revenue growth rates, future cash flows,operating margins, discount rates, terminal values, and the earnings multiples. While the Company uses reasonable and timely information to prepare its discounted cash flow and discount rate assumptions,analysis, actual future cash flows or market conditions could differ significantly resulting in future impairment charges related to recorded goodwill balances.
As of the annual impairment test, Roper has 3322 reporting units with individual goodwill amounts ranging from zero$17.5 to $2.3 billion.$3,363.6. In 2017,2023, the Company performed its annual impairment test in the fourth quarter for all reporting units. The Company conducted its analysis qualitatively and assessed whether it was more likely than not that the respective fair value of these reporting units was less than the carrying amount. The Company determined that impairment of goodwill was not likely in 31any of its reporting units and thus was not required to perform a quantitative analysis for these reporting units. For the remaining two reporting units, the Company performed its quantitative analysis and concluded that the fair value of each of these two reporting units was substantially in excess of its carrying value, with no impairment indicated as of October 1, 2017.
Recently acquired reporting units generally represent a higher inherent risk of impairment, which typically decreases as the businesses are integrated into the enterprise. Negative industry or economic trends, disruptions to its business, actual results significantly below expected results, unexpected significant changes or planned changes in the use of the assets, divestitures, and market capitalization declines may have a negative effect on the fair value of Roper'sRoper’s reporting units.
The following events or circumstances, although not comprehensive, would be considered to determine whether interim testing of goodwill would be required:
•a significant adverse change in legal factors or in the business climate;
•an adverse action or assessment by a regulator;
•unanticipated competition;
•a loss of key personnel;
•a more-likely-than-not expectation that a reporting unit or a significant portion of a reporting unit will be sold or otherwise disposed of;
•the testing for recoverability under the Impairment or Disposal of Long-Lived Assets of a significant asset group within a reporting unit; and
•recognition of a goodwill impairment loss in the financial statements of a subsidiary that is a component of a reporting unit.
Business combinations can also result in other intangible assets being recognized. Amortization of intangible assets, if applicable, occurs over their estimated useful lives. Trade names that are determined to have an indefinite useful economic lifelives are not amortized, but are separately tested for impairment during the fourth quarter of the fiscal year or on an interim basis if an event occurs that indicates the fair value is more likely than not below the carrying value. Roper first qualitatively assesses whether the existence of events or circumstances leads to a determination that it is more likely than not that the estimated fair value of an indefinite-lived trade name is less than its carrying amount. If necessary, Roper conducts a quantitative review using the relief-from-royalty method. This methodology assumes that, in lieu of ownership, a third party would be willing to pay a royalty in order to exploit the related benefits of these assets. TheTo the extent the Company determines a fair value, of each trade name is determined by applyingthe inputs used represent a Level 3 fair value measurement in the FASB fair value hierarchy given that the inputs are unobservable. The assumptions that have the most significant effect on the fair value calculations are the royalty rate to a projection of net revenues discounted using a risk adjusted rate of capital.rates, projected revenue growth rates, discount rates, and terminal values. Each royalty rate is determined based on the profitability of the trade name to which it relates and observed market royalty rates. Revenue growth rates are determined after considering current and future economic
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conditions, recent sales trends, discussions with customers, planned timing of new product launches, or other variables. Trade names resulting from recent acquisitions generally represent the highest risk of impairment, which typically decreases as the businesses are integrated into Roper's enterprise.Roper.
During the fourth quarter of 2021, the Company determined that the use of the Sunquest trade name would be discontinued given the strategic action to merge the Sunquest business into our Clinisys business, both of which are reported in our Application Software reportable segment. Considering the planned merger and updated market comparisons, the royalty rate utilized in the quantitative impairment assessment of the trade name was 0.5% as compared to a royalty rate of 3.5% used in the prior year. The royalty rate reduction was the significant assumption that resulted in a non-cash impairment charge of $94.4 recognized as “Impairment of intangible assets” within our Consolidated Statement of Earnings.
The assessment of fair value for impairment purposes requires significant judgments to be made by management. Although forecasts are based on assumptions that are considered reasonable by management and consistent with the plans and estimates management uses to operate the underlying businesses, there is significant judgment in determining the expected results attributable to the reporting units.estimating future operating results. Changes in estimates or the application of alternative assumptions could produce significantly different results. No impairment resulted
The most significant identifiable intangible assets with definite useful economic lives recognized from our acquisitions are customer relationships. The fair value for customer relationships is determined as of the acquisition date using the excess earnings method. Under this methodology the fair value is determined based on the estimated future after-tax cash flows arising from the annualacquired customer relationships over their estimated lives after considering customer attrition and contributory asset charges. The assumptions that have the most significant effect on the fair value calculations are the customer attrition rates, projected customer revenue growth rates, margins, contributory asset charges, and discount rates. When testing performed in 2017.customer relationship intangible assets for potential impairment, management considers historical customer attrition rates and projected revenues and profitability related to customers that existed at acquisition. In evaluating the amortizable life for customer relationship intangible assets, management considers historical customer attrition patterns.
Roper evaluates whether there has been an impairment of identifiable intangible assets with definite useful economic lives, or of the remaining life of such assets, when certain indicators of impairment are present. In the event that facts and circumstances indicate that the cost or remaining period of amortization of any asset may be impaired, an evaluation of recoverability would be performed. If an evaluation is required, the estimated future gross, undiscounted cash flows associated with the asset would be
compared to the asset'sasset’s carrying amount to determine if a write-down to fair value or a revision in the remaining amortization period is required.
Impairment of Long-Lived Assets - – The Company determines whether there has been an impairment of long-lived assets, excluding goodwill and identifiableother intangible assets, that are determined to have indefinite useful economic lives, when certain indicators of impairment are present. In the event that facts and circumstances indicate that the cost or life of any long-lived assets may be impaired, an evaluation of recoverability would be performed. If an evaluation is required, the estimated future gross, undiscounted cash flows associated with the asset would be compared to the asset'sasset’s carrying amount to determine if a write-down to fair value or a revision to the remaining life is required. Future adverse changes in market conditions or poor operating results of underlying long-lived assets could result in losses or an inability to recover the carrying value of the long-lived assets that may not be reflected in the assets'assets’ current carrying value, thereby possibly requiring an impairment charge or acceleration of depreciation or amortization expense in the future.
Income Taxes - – The Company recognizes in the consolidated financial statementsConsolidated Financial Statements only those tax positions determined to be "more“more likely than not"not” of being sustained upon examination based on the technical merits of the positions. Interest and penalties related to unrecognized tax benefits are classified as a component of income tax expense.
The Company records a valuation allowance to reduce its deferred tax assets if, based on the weight of available evidence, both positive and negative, for each respective tax jurisdiction, it is more likely than not that some portion or all of such deferred tax assets will not be realized. Available evidence which is considered in determining the amount of valuation allowance required includes, but is not limited to, the Company’s estimate of future taxable income and any applicable tax-planningtax planning strategies.
Certain assets and liabilities have different bases for financial reporting and income tax purposes. Deferred income taxes have been provided for these differences at the enacted tax rates expected to be paid. See Note 78 for additional information regarding income taxes.
Inventories - – Inventories are valued at the lower of cost and net realizable value. Cost is determined using the first-in, first-out method. The Company writes down its inventory for estimated obsolescence or excess inventory equal to the difference between the cost of inventory and the estimated net realizable value based upon assumptions about future demand and market conditions.
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Product Warranties - – The Company sells certain of its products to customers with a product warranty that allows customers to return a defective product during a specified warranty period following the purchase in exchange for a replacement product, repair at no cost to the customer, or the issuance of a credit to the customer. The Company accrues its estimated exposure to warranty claims based upon current and historical product sales data, warranty costs incurred, and any other related information known to the Company.
Property, Plant and Equipment and Depreciation and Amortization - – Property, plant and equipment is stated at cost less accumulated depreciation and amortization. Depreciation and amortization are provided for using principally the straight-line method over the estimated useful lives of the assets as follows:
| Buildings | |||||
| Machinery and other equipment | |||||
Leasehold improvements are depreciated over the shorter of the remaining lease term or the useful life of the asset.
Research, Development and Development -Engineering – Research, development and development ("engineering (“R,&D"D&E”) costs include salaries and benefits, rents, supplies, and other costs related to products under development. Research and development or improvements to existing products. R,D&E costs are expensed in the periodas incurred and are included within selling, general and administrative expenses. R,D&E expenses totaled $281.1 million, $195.4 million$646.1, $529.8, and $164.2 million$484.8 for the years ended December 31, 2017, 20162023, 2022, and 2015,2021, respectively.
Revenue Recognition -– The reported results reflect the application of ASC 606 guidance. The amount of revenue recognized reflects the consideration which the Company recognizesexpects to be entitled to receive in exchange for these products and/or services. To achieve this principle, the Company applies the following five steps:
•identify the contract with the customer;
•identify the performance obligations in the contract;
•determine the transaction price;
•allocate the transaction price to performance obligations in the contract; and
•recognize revenue when allor as the Company satisfies a performance obligation.
Disaggregated Revenue –We disaggregate our revenues by reportable segment into four categories: (i) recurring revenue comprised of Software-as-a-Service (“SaaS”), annual term licenses, and software maintenance; (ii) reoccurring revenue comprised of transactional and volume-based fees related to software licenses; (iii) non-recurring revenue comprised of multi-year term and perpetual software licenses, professional services associated with software products and hardware sold with our software licenses; and (iv) product revenue. See details in the tables below:
| Year ended December 31, 2023 | ||||||||||||||||||||||||||
| Revenue stream | Application Software | Network Software | Technology Enabled Products | Total | ||||||||||||||||||||||
| Software related | ||||||||||||||||||||||||||
| Recurring | $ | 2,454.3 | $ | 1,039.5 | $ | 17.3 | $ | 3,511.1 | ||||||||||||||||||
| Reoccurring | 137.8 | 263.4 | — | 401.2 | ||||||||||||||||||||||
| Non-recurring | 594.8 | 136.5 | 1.5 | 732.8 | ||||||||||||||||||||||
| Total Software Revenue | 3,186.9 | 1,439.4 | 18.8 | 4,645.1 | ||||||||||||||||||||||
| Product Revenue | — | — | 1,532.7 | 1,532.7 | ||||||||||||||||||||||
| Total Revenue | $ | 3,186.9 | $ | 1,439.4 | $ | 1,551.5 | $ | 6,177.8 | ||||||||||||||||||
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| Year ended December 31, 2022 | ||||||||||||||||||||||||||
| Revenue stream | Application Software | Network Software | Technology Enabled Products | Total | ||||||||||||||||||||||
| Software related | ||||||||||||||||||||||||||
| Recurring | $ | 1,946.0 | $ | 981.4 | $ | 12.0 | $ | 2,939.4 | ||||||||||||||||||
| Reoccurring | 124.2 | 246.2 | — | 370.4 | ||||||||||||||||||||||
| Non-recurring | 569.3 | 150.9 | 1.2 | 721.4 | ||||||||||||||||||||||
| Total Software Revenue | 2,639.5 | 1,378.5 | 13.2 | 4,031.2 | ||||||||||||||||||||||
| Product Revenue | — | — | 1,340.6 | 1,340.6 | ||||||||||||||||||||||
| Total Revenue | $ | 2,639.5 | $ | 1,378.5 | $ | 1,353.8 | $ | 5,371.8 | ||||||||||||||||||
| Year ended December 31, 2021 | ||||||||||||||||||||||||||
| Revenue stream | Application Software | Network Software | Technology Enabled Products | Total | ||||||||||||||||||||||
| Software related | ||||||||||||||||||||||||||
| Recurring | $ | 1,708.0 | $ | 837.5 | $ | 7.8 | $ | 2,553.3 | ||||||||||||||||||
| Reoccurring | 111.4 | 249.5 | — | 360.9 | ||||||||||||||||||||||
| Non-recurring | 547.3 | 136.8 | 0.8 | 684.9 | ||||||||||||||||||||||
| Total Software Revenue | 2,366.7 | 1,223.8 | 8.6 | 3,599.1 | ||||||||||||||||||||||
| Product Revenue | — | — | 1,234.7 | 1,234.7 | ||||||||||||||||||||||
| Total Revenue | $ | 2,366.7 | $ | 1,223.8 | $ | 1,243.3 | $ | 4,833.8 | ||||||||||||||||||
We recognize revenue over time or at a point in time depending on our evaluation of when the customer obtains control over the promised products or services. For software arrangements that include multiple performance obligations, we allocate revenue to each performance obligation based on estimates of the following criteriaprice that we would charge the customer for each promised product or service if it were sold on a standalone basis. Software licenses may be combined with implementation/installation services as a single performance obligation if the implementation/installation significantly modifies or customizes the functionality of the software license.
Software and related services
•Recurring – consists primarily of SaaS subscriptions and post-contract support (“PCS”) which are met:recognized ratably over the contractual term and annual term software licenses which are generally recognized at a point in time.
•Non-recurring – consists primarily of perpetual, multi-year term software licenses, or installation/implementation services have been rendered;and associated hardware. Revenues from perpetual and multi-year term licenses are generally recognized at a point in time. Revenues from software implementation projects are generally recognized over time using the input method, utilizing the ratio of costs or labor hours incurred to total estimated costs or labor, as the measure of performance.
Payment for software licenses is generally required within 30 to 60 days of the seller's pricetransfer of control. Payment for PCS is generally required within 30 to 60 days of the buyercommencement of the service period, which is fixedprimarily offered to customers over a one-year timeframe. Payment terms do not contain a significant financing component. Payment for implementation/installation services that are recognized over time is typically commensurate with milestones defined in the contract, or determinable; andbillable hours incurred.
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Products
Revenue from product sales is reasonably assured.
Payment terms are generally 30 to 60 days from the transfer of control. Payment terms do not contain a significant financing component.
Accounts receivable, net– Accounts receivable, net includes amounts billed and currently due from customers. The amounts due are stated at their net estimated realizable value. Accounts receivable are stated net of an allowance for doubtful accounts and sales allowances of $22.2 and $16.6 at December 31, 2023 and 2022, respectively. We make estimates of expected allowance for doubtful accounts based upon our assessment of various factors, including historical experience, the age of the accounts receivable balances, changes to customer acceptance. Revenuescreditworthiness, and other factors that may affect our ability to collect from customers.
Unbilled receivables–Our unbilled receivablesinclude unbilled amounts typically resulting from sales under certain relatively long-term and relatively large-value constructionsoftware milestone billings associated with multi-year term license renewals and software projectsimplementations when the input method of revenue recognition is utilized and revenue recognized exceeds the amount billed to the customer, and right to payment is not solely due to the passage of time. Amounts may not exceed their net realizable value.
Deferred revenue –We record deferred revenue when cash payments are recognized under the percentage-of-completion method using the ratioreceived or due in advance of costs incurredour performance. Our deferred revenue relates primarily to total estimated costssoftware and related services. In most cases, we recognize deferred revenue ratably over time as the measureSaaS or PCS performance obligation is satisfied. The non-current portion of performance.deferred revenue is included in “Other liabilities” in our Consolidated Balance Sheets.
Our unbilled receivables and deferred revenue are reported in a net position on a contract-by-contract basis at the end of each reporting period. The net balances are classified as current or non-current based on expected timing of revenue recognition and billable milestones.
Deferred commissions –Our incremental direct costs of obtaining a contract, which consist of sales commissions primarily for our software sales, are deferred and amortized on a straight-line basis over the period of contract performance or a longer period, depending on facts and circumstances. We classify deferred commissions as current or non-current based on the expected timing of expense recognition. Where the amortization period would have been one year or less, we expense the associated incremental direct cost as incurred. The current and non-current portions of deferred commissions are included in “Other current assets” and “Other assets,” respectively, in our Consolidated Balance Sheets. At December 31, 2023 and 2022, the current portion of deferred commissions was $35.0 and $33.1, respectively, and the non-current portion of deferred commissions was $36.7 and $31.7, respectively. The Company recognized revenues$29.3, $30.7, and $27.2 of $249 million, $241 million and $253 millionexpense related to deferred commissions for the years ended December 31, 2017, 20162023, 2022, and 2015, respectively, using this method. Estimated losses2021, respectively.
Remaining performance obligations –Remaining performance obligations represent the transaction price of firm orders for which work has not been performed, excluding unexercised contract options. As of December 31, 2023, total remaining performance obligations were $4,612.6. We expect to recognize revenue on any projects areapproximately 68% of our remaining performance obligations over the next 12 months, with the remainder to be recognized as soon as such losses become known.thereafter.
Capitalized Software - – The Company accounts for capitalized software under applicable accounting guidance which, among other provisions, requires capitalization of certain internal-use software costs once certain criteria are met. Overhead, general and administrative, and training costs are not capitalized. Capitalized software balances, net of accumulated amortization, were $14.0 million$102.6 and $4.4 million$83.9 at December 31, 20172023 and 2016, respectively.2022, respectively, which are included in “Other assets” in our Consolidated Balance Sheets.
Stock-Based Compensation - – The Company recognizes expense for the grant date fair value of its employee stock awards on a straight-line basis (or, in the case of performance-based awards, on a graded basis) over the employee'semployee’s requisite service period (generally the vesting period of the award). The fair value of option awards is estimated using the Black-Scholes option valuation model.
(2) Business Acquisitions and DivestituresDispositions
Acquisitions
2023 Acquisitions –Roper completed four business acquisitions in the year ended December 31, 2017, with an aggregate purchase price of $152 million, net of cash acquired.2023. The results of operations of the acquired businesses did not have a material impact on Roper's consolidated results of operations.
The largest of the 20162023 acquisitions was Deltek Inc.Syntellis Parent, LLC (“Syntellis”), a global provider of enterprise software and information solutions for government contractors, professional services firms and other project-based businesses. Roper acquired 100% of the shares of Project Diamond Holdings Corp. (the parent company of Deltek)Syntellis Performance Solutions, LLC, a leading provider of cloud-based performance management and data solutions for healthcare, financial institutions, and higher education markets. Roper acquired the outstanding membership interests of Syntellis on December 27, 2016, inAugust 7, 2023, for a $2.8 billion all-cash transaction. Deltekpurchase price of $1,381, adjusted for cash acquired and certain liabilities assumed. Additionally, the purchase price contemplated a net present value tax benefit of approximately $135 which is expected to be utilized over the next 15 years. This acquisition has been integrated into our Strata business and its results are reported in the RF TechnologyApplication Software reportable segment.
The following table (in thousands) summarizes the fair values of the assets acquired and liabilities assumed at the date of acquisition.
| Accounts receivable | $ | 94,506 | |
| Other current assets | 37,558 | ||
| Identifiable intangibles | 972,000 | ||
| Goodwill | 2,234,549 | ||
| Other assets | 43,098 | ||
| Total assets acquired | 3,381,711 | ||
| Deferred revenue | 166,393 | ||
| Other current liabilities | 57,433 | ||
| Long-term deferred tax liability | 349,810 | ||
| Other liabilities | 7,935 | ||
| Net assets acquired | $ | 2,800,140 | |
Pro forma Year ended December 31, | |||||||
| 2016 | 2015 | ||||||
| Net revenues | $ | 4,268,052 | $ | 4,012,030 | |||
| Net income | 656,404 | 647,089 | |||||
| Earnings per share, basic | 6.48 | 6.43 | |||||
| Earnings per share, diluted | 6.41 | 6.37 | |||||
During the year ended December 31, 2016,2023, Roper completed five other acquisitions which were immaterial. The aggregatethree additional bolt-on acquisitions.
On May 2, 2023, Roper acquired the outstanding membership interests of Promium, L.L.C., a leading provider of laboratory information management systems in the environmental and water markets, for a purchase price of these acquisitions totaled $920 million$16.5. This acquisition has been integrated into our Clinisys business and its results are reported in the Application Software reportable segment.
On August 21, 2023, Roper acquired the assets of cash. Replicon Inc., a provider of time tracking software solutions for project and services centric organizations, for a purchase price of $447.5, adjusted for cash acquired and certain liabilities assumed. Additionally, the purchase price contemplated a net present value tax benefit of approximately $80 which is expected to be utilized over the next 15 years. This acquisition has been integrated into our Deltek business and its results are reported in the Application Software reportable segment.
On December 26, 2023, Roper acquired the issued and outstanding shares of Executive Business Services, Inc. (“ProPricer”), a leading provider of proposal pricing software solutions for government contractors and government agencies, for a purchase price of $79.5, adjusted for cash acquired and certain liabilities assumed. This acquisition is integrating into our Deltek business and its results are reported in the Application Software reportable segment.
The Company recorded $372 million$330.6 in goodwill, $15.4 assigned to trade names that are not subject to amortization, and $229.1 of other identifiable intangibles and $642 million in goodwill in connection with these three acquisitions. Supplemental pro forma information has not been providedThe amortizable intangible assets include customer relationships of $209.4 (16.9 year weighted average useful life) and technology of $19.7 (5.0 year weighted average useful life).
On August 4, 2023, Roper acquired an 18.2% limited partnership minority interest in CI Ultimate Holdings, L.P., the parent entity of Certinia Inc., a leading provider of professional services automation software, for $125.0. The Company’s investment is accounted for under the equity method of accounting whereby our proportionate share of earnings or loss associated with the investment is reported as a component of “Equity investments activity, net” in our Consolidated Statement of Earnings with a corresponding change in the balance of our equity investment which is reported as a component of “Equity investments” in our Consolidated Balance Sheet.
On January 22, 2024, Roper entered into an agreement to acquire Genesis Ultimate Holding Co., the parent company of Procare Software, LLC (“Procare”) for a purchase price of approximately $1,860, which contemplates a net present value tax benefit of approximately $110. Procare is a leading provider of cloud-based software for the management of early childhood education centers. This acquisition is expected to close in the first quarter of 2024.
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2022 Acquisitions –Roper completed seven business acquisitions did not have a material impact on Roper's consolidatedin the year ended December 31, 2022. The results of operations of the acquired businesses are included in Roper’s Consolidated Financial Statements from the date of each acquisition. Pro forma results of operations and the revenues and net earnings subsequent to the acquisition date for the acquisitions completed during 2022 have not been presented because the effects of the acquisitions, individually orand in aggregate.the aggregate, were not material to our financial results.
The largest of the 2022 acquisitions was Frontline Technologies Parent, LLC (“Frontline”), a leading provider of K-12 school administration software, connecting solutions for human capital management, student and special programs, and business operations with powerful analytics that empower educators. Roper acquired Frontline on October 4, 2022, for a purchase price of $3,738.0. The purchase price comprised an enterprise value of $3,725.0, adjusted for cash acquired and the settlement of certain liabilities. Additionally, the purchase price initially contemplated a net present value tax benefit of approximately $350. During the measurement period, the net present value tax benefit was revised upwards to approximately $500 associated with an increase in our tax basis. The revised net present value tax benefit is expected to be utilized over the next 15 years. The results of the following acquisitionsFrontline are reported in the Medical & Scientific Imaging segment:
The Company expensed transaction costsrecorded $2,197.6 in goodwill and $1,918.6 of $4.2 million related toother identifiable intangibles in connection with the acquisitions as corporate general and adminstrative expenses, as incurred.
During the $731 millionyear ended December 31, 2022, Roper completed six additional bolt-on acquisitions with an aggregate purchase price of intangible$578.8, net of cash acquired and debt assumed.
On January 3, 2022, Roper acquired the outstanding membership interests of Horizon Lab Systems, LLC, a provider of laboratory information management systems in the toxicology, environmental, public health, and agricultural markets. This acquisition has been integrated into our Clinisys business and its results are reported in the Application Software reportable segment.
On April 6, 2022, Roper acquired the issued and outstanding shares of Common Cents Systems, Inc. (ApolloLIMS), a provider of laboratory information management systems in the toxicology and public health markets. This acquisition has been integrated into our Clinisys business and its results are reported in the Application Software reportable segment.
On June 27, 2022, Roper acquired the issued and outstanding shares of MGA Systems Holdings, Inc., a leading provider of purpose-built insurance software for managing general agents. This acquisition has been integrated into our Vertafore business and its results are reported in the Application Software reportable segment.
On August 19, 2022, Roper acquired substantially all of the assets of viDesktop Inc. (“viGlobal”), a leading provider of end-to-end human resources management software used for recruiting and integration, productivity management, resource allocation, performance management, learning and development, and diversity and inclusion at professional services firms. This acquisition has been integrated into our Aderant business and its results are reported in the Application Software reportable segment.
During the third quarter of 2022, Roper acquired $51 million wasTIP Technologies, Inc. and Common Sense Solutions, Inc., which have been integrated into our Deltek business and their results are reported in the Application Software reportable segment.
The Company recorded $361.5 in goodwill, $9.5 assigned to trade names that are not subject to amortization.amortization, and $239.3 of other identifiable intangibles in connection with these six acquisitions. The remaining $680 million of acquiredamortizable intangible assets have a weighted-average useful life of 17 years. The intangible assets that make up that amount include customer relationships of $541 million (19$223.4 (18.2 year weighted-average useful life), unpatented technology of $100 million (8 year weighted-averageweighted average useful life) and softwaretechnology of $39 million (6$15.9 (4.9 year weighted-averageweighted average useful life).
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2021 Acquisitions –Roper completed seven business acquisitions in the year ended December 31, 2021 with an aggregate purchase price of Abel - $225.9, net of cash acquired and debt assumed. The results of operations of the acquired businesses are included in Roper’s Consolidated Financial Statements from the date of each acquisition. Pro forma results of operations and the revenues and net earnings subsequent to the acquisition date for the acquisitions completed during 2021 have not been presented because the effects of the acquisitions, individually and in the aggregate, were not material to our financial results.
During the first three quarters of 2021, Roper completed four acquisitions which were integrated into our Deltek business and their results are reported in the Application Software reportable segment.
On October 2, 2015,November 18, 2021, Roper acquired substantially all of the assets of Agency Zoom, LLC (“Agency Zoom”), a provider of sales, marketing, and service automation software solutions for insurance agencies. Agency Zoom was integrated into our Vertafore business and its results are reported in the Application Software reportable segment.
On December 21, 2021, Roper acquired a majority of the assets of The Construction Journal, LTD. (“Construction Journal”), a provider of selling, marketing, and licensing software solutions for the commercial construction industry. Construction Journal was integrated into our ConstructConnect business and its results are reported in the Network Software reportable segment.
On December 30, 2021, Roper acquired 100% of the shares of American LegalNet, Inc. (“ALN”), a provider of court forms, eFiling, calendaring, and docketing software solutions. ALN was integrated into our Aderant business and its results are reported in the Application Software reportable segment.
The Company recorded $138.8 in goodwill and $104.9 of other identifiable intangibles in connection with these seven acquisitions. The amortizable intangible assets include customer relationships of $94.6 (12.9 year weighted average useful life) and technology of $10.3 (5.3 year weighted average useful life).
Dispositions
On March 17, 2021, Roper completed the sale of Abel Pumps ("Abel")a minority investment in Sedaru, Inc. for $106 million (€95 million), net of cash divested.$27.1 in cash. The sale resulted in a pretax gain of $27.1, which is reported within “Other income (expense), net” in our Consolidated Statement of Earnings. In addition, we recognized income tax expense of $5.5 in connection with the sale, which is included within “Income taxes” in our Consolidated Statement of Earnings.
(3) Discontinued Operations
The Company concluded that the 2021 Divestitures and the Indicor Transaction each represented a strategic shift that had a major effect on the Company’s operations and financial results. These transactions have greatly reduced the cyclicality and asset intensity of the Company. In addition, the Company has an increased mix of recurring revenue and a higher margin profile. Accordingly, the financial results related to the 2021 Divestitures and Indicor are presented in our Consolidated Financial Statements as discontinued operations for all periods presented.
2021 Divestitures –During 2021, the Company signed definitive agreements to divest its TransCore, Zetec, and CIVCO Radiotherapy businesses as described below.
•On March 17, 2022, Roper closed on the divestiture was $70.9 million, which is reported as Other income/(expense), net on the consolidated statement of earnings.our TransCore business to an affiliate of Singapore Technologies Engineering Ltd, for approximately $2,680 in cash. The gainsale resulted in a pretax gain of $2,073.7 and income tax expense of $46 million as well$550.5, which are reported within “Gain on disposition of discontinued operations, net of tax” in our Consolidated Statement of Earnings for the year ended December 31, 2022. TransCore was previously included in the historical Network Software & Systems reportable segment.
•On January 5, 2022, Roper closed on the divestiture of our Zetec business to Eddyfi NDT Inc. for approximately $350 in cash. The sale resulted in a pretax gain of $255.3 and income tax expense of $60.9, which are reported within “Gain on disposition of discontinued operations, net of tax” in our Consolidated Statement of Earnings for the year ended December 31, 2022. Zetec was previously included in the historical Process Technologies reportable segment.
•On November 1, 2021, Roper closed on the divestiture of our CIVCO Radiotherapy business to an affiliate of Blue Wolf Capital Partners LLC, for approximately $120 in cash. The sale resulted in a pretax gain of $77.2 and income tax expense of $21.3, which are reported within “Gain on disposition of discontinued operations, net of tax” in our Consolidated Statement of Earnings for the year ended December 31, 2021. The CIVCO Radiotherapy business was previously included in the historical Measurement & Analytical Solutions reportable segment.
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The following table summarizes the major classes of revenues and expenses constituting net earnings from discontinued operations attributable to the TransCore, Zetec, and CIVCO Radiotherapy businesses:
| Year ended December 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Net revenues | $ | 100.4 | $ | 638.0 | |||||||
| Cost of sales | 71.2 | 372.9 | |||||||||
| Gross profit | 29.2 | 265.1 | |||||||||
Selling, general and administrative expenses (1) | 19.9 | 124.0 | |||||||||
| Income from operations | 9.3 | 141.1 | |||||||||
| Other income, net | 0.1 | 1.5 | |||||||||
Earnings before income taxes (2) | 9.4 | 142.6 | |||||||||
| Income taxes | (6.2) | 28.5 | |||||||||
| Earnings from discontinued operations, net of tax | 15.6 | 114.1 | |||||||||
Gain on disposition of discontinued operations, net of tax (3) | 1,717.5 | 55.9 | |||||||||
| Net earnings from discontinued operations | $ | 1,733.1 | $ | 170.0 | |||||||
(1) Includes stock-based compensation expense of $0.9 and $5.4 for the years ended December 31, 2022 and 2021, respectively. Stock-based compensation was previously reported as a futurecomponent of unallocated corporate general and administrative expenses.
(2) During the year ended December 31, 2022, there was no depreciation of property, plant and equipment or amortization of intangible assets given the asset classification as held for sale during the period. Depreciation and amortization was $5.2 for the year ended December 31, 2021.
(3) Includes expense of $4.5 and $0.9 associated with accelerated vesting of share-based awards for the years ended December 31, 2022 and 2021, respectively.
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Indicor – On November 22, 2022, Roper completed the divestiture of a majority 51% stake in Indicor to CD&R for approximately $2,604 in cash. The consideration was comprised of a cash distribution of approximately $1,775 funded by third-party indebtedness incurred by Indicor and approximately $829 related to the majority 51% equity stake. The Company retained an initial 49% minority equity interest. The sale resulted in a pretax gain of $2,046.0, which included $142.6 of foreign currency translation losses and $535.0 associated with the initial remaining 49% interest in Indicor (described further in Note 10). The Company recognized income tax benefitexpense of $11 million.$407.2 associated with the gain.
The yearfollowing table summarizes the major classes of revenues and expenses constituting net earnings from discontinued operations attributable to date pretax incomeIndicor:
| Year ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Net revenues | $ | — | $ | 916.1 | $ | 944.0 | |||||||||||
| Cost of sales | — | 432.1 | 434.2 | ||||||||||||||
| Gross profit | — | 484.0 | 509.8 | ||||||||||||||
Selling, general and administrative expenses (1) | 2.3 | 250.5 | 265.7 | ||||||||||||||
| Impairment of intangible assets | — | — | 5.1 | ||||||||||||||
| Income (loss) from operations | (2.3) | 233.5 | 239.0 | ||||||||||||||
| Other income (expense), net | — | (0.7) | 0.1 | ||||||||||||||
Earnings (loss) before income taxes (2) | (2.3) | 232.8 | 239.1 | ||||||||||||||
| Income taxes | 1.8 | 45.6 | 61.8 | ||||||||||||||
| Earnings (loss) from discontinued operations, net of tax | (4.1) | 187.2 | 177.3 | ||||||||||||||
| Gain on disposition of discontinued operations, net of tax | 19.9 | (3) | 1,638.8 | — | |||||||||||||
| Net earnings from discontinued operations | $ | 15.8 | $ | 1,826.0 | $ | 177.3 | |||||||||||
(1) Certain costs previously reported as a component of Abel was $5.9 millionunallocated corporate general and administrative expenses have been reclassified to discontinued operations. These costs primarily include stock-based compensation expense of $10.3 and $13.1 for the periodyears ended October 2, 2015. Abel was reported inDecember 31, 2022 and 2021, respectively.
(2) Includes depreciation and amortization of $6.4 and $18.2 for the Industrial Technology segment.years ended December 31, 2022 and 2021, respectively.
(3) Consists of adjustments subsequent to the sale primarily associated with income taxes.
(4) Inventories
The components of inventories at December 31 were as follows (in thousands):follows:
| 2023 | 2022 | ||||||||||
| Raw materials and supplies | $ | 57.6 | $ | 60.6 | |||||||
| Work in process | 28.7 | 24.9 | |||||||||
| Finished products | 41.8 | 31.3 | |||||||||
| Inventory reserves | (9.5) | (5.5) | |||||||||
| Inventories, net | $ | 118.6 | $ | 111.3 | |||||||
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| 2017 | 2016 | ||||||
| Raw materials and supplies | $ | 132,949 | $ | 113,632 | |||
| Work in process | 27,649 | 24,290 | |||||
| Finished products | 82,445 | 81,263 | |||||
| Inventory reserves | (38,110 | ) | (37,233 | ) | |||
| $ | 204,933 | $ | 181,952 | ||||
The components of property, plant and equipment at December 31 were as follows (in thousands):follows:
| 2017 | 2016 | 2023 | 2022 | ||||||||||||||||||
| Land | $ | 2,471 | $ | 2,404 | |||||||||||||||||
| Buildings | 90,683 | 88,201 | |||||||||||||||||||
| Buildings and leasehold improvements | |||||||||||||||||||||
| Machinery and other equipment | 226,320 | 221,325 | |||||||||||||||||||
| Computer equipment | 77,508 | 70,110 | |||||||||||||||||||
| Software | 62,387 | 54,451 | |||||||||||||||||||
| 459,369 | 436,491 | ||||||||||||||||||||
| Property, plant and equipment, gross | |||||||||||||||||||||
| Accumulated depreciation | (316,834 | ) | (295,173 | ) | |||||||||||||||||
| $ | 142,535 | $ | 141,318 | ||||||||||||||||||
| Property, plant and equipment, net | |||||||||||||||||||||
Depreciation and amortization expense related to property, plant and equipment was $49,513, $37,299$35.4, $37.3, and $38,185$44.0 for the years ended December 31, 2017, 20162023, 2022, and 2015,2021, respectively.
The carrying value of goodwill by segment was as follows (in thousands):follows:
| RF Technology | Medical & Scientific Imaging | Industrial Technology | Energy Systems & Controls | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balances at December 31, 2015 | $ | 1,993,299 | $ | 3,039,197 | $ | 374,033 | $ | 418,197 | $ | 5,824,726 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Application Software | Network Software | Technology Enabled Products | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balances at December 31, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Goodwill acquired | 2,710,223 | 166,768 | — | — | 2,876,991 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Currency translation adjustments | (15,118 | ) | (19,100 | ) | (10,055 | ) | (7,774 | ) | (52,047 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Reclassifications and other | (734 | ) | (1,794 | ) | — | — | (2,528 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balances at December 31, 2016 | $ | 4,687,670 | $ | 3,185,071 | $ | 363,978 | $ | 410,423 | $ | 8,647,142 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balances at December 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Goodwill acquired | 63,490 | — | — | 19,169 | 82,659 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Currency translation adjustments | 19,337 | 17,582 | 13,540 | 8,395 | 58,854 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Reclassifications and other | 28,394 | 3,264 | — | — | 31,658 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balances at December 31, 2017 | $ | 4,798,891 | $ | 3,205,917 | $ | 377,518 | $ | 437,987 | $ | 8,820,313 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balances at December 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Reclassifications and other during the year ended December 31, 2017 were due primarily2023 relates to taxpurchase accounting adjustments for 2016 acquisitions. Seeacquisitions and is composed primarily of measurement period adjustments of $56.2 to decrease goodwill and deferred tax liabilities in connection with the Frontline opening balance sheet. Refer to Note 2 for information regarding acquisitions.
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Other intangible assets were comprised of (in thousands):of:
| Cost | Accum. amort. | Net book value | ||||||||||||||||||||||||||||||||
| Assets subject to amortization: | ||||||||||||||||||||||||||||||||||
| Customer related intangibles | $ | 3,272,081 | $ | (712,718 | ) | $ | 2,559,363 | |||||||||||||||||||||||||||
| Unpatented technology | 462,152 | (144,025 | ) | 318,127 | ||||||||||||||||||||||||||||||
| Software | 184,761 | (56,882 | ) | 127,879 | ||||||||||||||||||||||||||||||
| Patents and other protective rights | 24,656 | (20,399 | ) | 4,257 | ||||||||||||||||||||||||||||||
| Trade names | 6,591 | (653 | ) | 5,938 | ||||||||||||||||||||||||||||||
| Assets not subject to amortization: | ||||||||||||||||||||||||||||||||||
| Trade names | 578,279 | — | 578,279 | |||||||||||||||||||||||||||||||
| In process research and development | 62,000 | — | 62,000 | |||||||||||||||||||||||||||||||
| Balances at December 31, 2016 | $ | 4,590,520 | $ | (934,677 | ) | $ | 3,655,843 | |||||||||||||||||||||||||||
| Cost | Accumulated amortization | Net book value | ||||||||||||||||||||||||||||||||
| Assets subject to amortization: | Assets subject to amortization: | |||||||||||||||||||||||||||||||||
| Customer related intangibles | $ | 3,355,232 | $ | (913,680 | ) | $ | 2,441,552 | |||||||||||||||||||||||||||
| Unpatented technology | 544,046 | (207,678 | ) | 336,368 | ||||||||||||||||||||||||||||||
| Software | 184,703 | (84,825 | ) | 99,878 | ||||||||||||||||||||||||||||||
| Patents and other protective rights | 26,090 | (22,729 | ) | 3,361 | ||||||||||||||||||||||||||||||
| Trade names | 6,635 | (1,731 | ) | 4,904 | ||||||||||||||||||||||||||||||
| Assets not subject to amortization: | Assets not subject to amortization: | |||||||||||||||||||||||||||||||||
| Trade names | 587,737 | — | 587,737 | |||||||||||||||||||||||||||||||
| In process research and development | 1,418 | — | 1,418 | |||||||||||||||||||||||||||||||
| Balances at December 31, 2017 | $ | 4,705,861 | $ | (1,230,643 | ) | $ | 3,475,218 | |||||||||||||||||||||||||||
| Balances at December 31, 2022 | ||||||||||||||||||||||||||||||||||
| Assets subject to amortization: | ||||||||||||||||||||||||||||||||||
| Assets subject to amortization: | ||||||||||||||||||||||||||||||||||
| Assets subject to amortization: | ||||||||||||||||||||||||||||||||||
| Customer related intangibles | ||||||||||||||||||||||||||||||||||
| Unpatented technology | ||||||||||||||||||||||||||||||||||
| Software | ||||||||||||||||||||||||||||||||||
| Patents and other protective rights | ||||||||||||||||||||||||||||||||||
| Assets not subject to amortization: | ||||||||||||||||||||||||||||||||||
| Assets not subject to amortization: | ||||||||||||||||||||||||||||||||||
| Assets not subject to amortization: | ||||||||||||||||||||||||||||||||||
| Trade names | ||||||||||||||||||||||||||||||||||
| Balances at December 31, 2023 | ||||||||||||||||||||||||||||||||||