UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2020.2021.
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☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to .
Commission File Number 1-12273
ROPER TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
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Delaware | | | 51-0263969 |
(State or other jurisdiction of incorporation or organization) | | | (I.R.S. Employer Identification No.) |
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6901 Professional Pkwy. East,, Suite 200 | | | |
Sarasota, | Florida | | 34240 |
(Address of principal executive offices) | | | (Zip Code) |
(941) 556-2601
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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Title of Each Class | | Trading Symbol(s) | | Name of Each Exchange On Which Registered |
Common Stock, $0.01 Par Value | | ROP | | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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☒ | Large accelerated filer | ☐ | Accelerated filer |
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☐ | Non-accelerated filer (Do not check if a smaller reporting company) | ☐ | Smaller reporting company |
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| | ☐ | Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
The number of shares outstanding of the registrant’s common stock as of April 24, 202030, 2021 was 104,396,635.105,239,028.
ROPER TECHNOLOGIES, INC.
REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 20202021
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Roper Technologies, Inc. and Subsidiaries
Condensed Consolidated Statements of Earnings (unaudited)
(in millions, except per share data)
| | | Three months ended March 31, | | | Three months ended March 31, | |
| | 2020 | | 2019 | | | 2021 | | 2020 | |
Net revenues | Net revenues | $ | 1,350.7 | | | $ | 1,287.2 | | | Net revenues | $ | 1,528.6 | | | $ | 1,350.7 | | |
Cost of sales | Cost of sales | 493.9 | | | 476.6 | | | Cost of sales | 534.8 | | | 493.9 | | |
Gross profit | Gross profit | 856.8 | | | 810.6 | | | Gross profit | 993.8 | | | 856.8 | | |
| Selling, general and administrative expenses | Selling, general and administrative expenses | 507.6 | | | 464.2 | | | Selling, general and administrative expenses | 593.3 | | | 507.6 | | |
Income from operations | Income from operations | 349.2 | | | 346.4 | | | Income from operations | 400.5 | | | 349.2 | | |
| Interest expense, net | Interest expense, net | 45.4 | | | 43.7 | | | Interest expense, net | 60.6 | | | 45.4 | | |
| Other income (expense), net | Other income (expense), net | 0.8 | | | (3.1) | | | Other income (expense), net | 27.0 | | | 0.8 | | |
Gain on disposal of business | — | | | 119.6 | | | |
| | Earnings before income taxes | Earnings before income taxes | 304.6 | | | 419.2 | | | Earnings before income taxes | 366.9 | | | 304.6 | | |
| Income taxes | Income taxes | 64.3 | | | 49.6 | | | Income taxes | 77.9 | | | 64.3 | | |
| Net earnings | Net earnings | $ | 240.3 | | | $ | 369.6 | | | Net earnings | $ | 289.0 | | | $ | 240.3 | | |
| Net earnings per share: | Net earnings per share: | | | Net earnings per share: | | |
Basic | Basic | $ | 2.30 | | | $ | 3.57 | | | Basic | $ | 2.75 | | | $ | 2.30 | | |
Diluted | Diluted | $ | 2.28 | | | $ | 3.53 | | | Diluted | $ | 2.73 | | | $ | 2.28 | | |
| Weighted average common shares outstanding: | Weighted average common shares outstanding: | | | Weighted average common shares outstanding: | | |
Basic | Basic | 104.3 | | | 103.6 | | | Basic | 105.0 | | | 104.3 | | |
Diluted | Diluted | 105.3 | | | 104.7 | | | Diluted | 106.0 | | | 105.3 | | |
|
See accompanying notes to Condensed Consolidated Financial Statements.
Roper Technologies, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income (unaudited)
(in millions)
| | | Three months ended March 31, | | | Three months ended March 31, | |
| | 2020 | | 2019 | | | 2021 | | 2020 | |
Net earnings | Net earnings | $ | 240.3 | | | $ | 369.6 | | | Net earnings | $ | 289.0 | | | $ | 240.3 | | |
| Other comprehensive income, net of tax: | Other comprehensive income, net of tax: | | | Other comprehensive income, net of tax: | | |
Foreign currency translation adjustments | Foreign currency translation adjustments | (128.2) | | | 28.7 | | | Foreign currency translation adjustments | 14.6 | | | (128.2) | | |
Total other comprehensive income, net of tax | (128.2) | | | 28.7 | | | |
Total other comprehensive income (loss), net of tax | | Total other comprehensive income (loss), net of tax | 14.6 | | | (128.2) | | |
| Comprehensive income | Comprehensive income | $ | 112.1 | | | $ | 398.3 | | | Comprehensive income | $ | 303.6 | | | $ | 112.1 | | |
See accompanying notes to Condensed Consolidated Financial Statements.
Roper Technologies, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (unaudited)
(in millions)
| | | March 31, 2020 | | December 31, 2019 | | March 31, 2021 | | December 31, 2020 |
ASSETS: | ASSETS: | | | | ASSETS: | | | |
| Cash and cash equivalents | Cash and cash equivalents | $ | 999.8 | | | $ | 709.7 | | Cash and cash equivalents | $ | 331.0 | | | $ | 308.3 | |
Accounts receivable, net | Accounts receivable, net | 712.2 | | | 791.6 | | Accounts receivable, net | 792.0 | | | 863.0 | |
Inventories, net | Inventories, net | 206.2 | | | 198.6 | | Inventories, net | 206.0 | | | 198.4 | |
Income taxes receivable | Income taxes receivable | 19.1 | | | 18.5 | | Income taxes receivable | 13.2 | | | 21.9 | |
Unbilled receivables | Unbilled receivables | 225.3 | | | 183.5 | | Unbilled receivables | 268.0 | | | 241.7 | |
Other current assets | Other current assets | 110.8 | | | 97.6 | | Other current assets | 129.2 | | | 119.0 | |
| Total current assets | Total current assets | 2,273.4 | | | 1,999.5 | | Total current assets | 1,739.4 | | | 1,752.3 | |
| Property, plant and equipment, net | Property, plant and equipment, net | 133.4 | | | 139.9 | | Property, plant and equipment, net | 134.6 | | | 140.6 | |
Goodwill | Goodwill | 10,732.5 | | | 10,815.4 | | Goodwill | 14,405.3 | | | 14,395.2 | |
Other intangible assets, net | Other intangible assets, net | 4,523.0 | | | 4,667.7 | | Other intangible assets, net | 7,066.8 | | | 7,206.9 | |
Deferred taxes | Deferred taxes | 95.0 | | | 95.6 | | Deferred taxes | 102.3 | | | 104.0 | |
Other assets | Other assets | 380.5 | | | 390.8 | | Other assets | 422.7 | | | 425.8 | |
| | Total assets | Total assets | $ | 18,137.8 | | | $ | 18,108.9 | | Total assets | $ | 23,871.1 | | | $ | 24,024.8 | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY: | LIABILITIES AND STOCKHOLDERS’ EQUITY: | | LIABILITIES AND STOCKHOLDERS’ EQUITY: | |
| Accounts payable | Accounts payable | $ | 180.8 | | | $ | 162.0 | | Accounts payable | $ | 190.9 | | | $ | 177.8 | |
Accrued compensation | Accrued compensation | 159.5 | | | 240.1 | | Accrued compensation | 234.0 | | | 286.1 | |
Deferred revenue | Deferred revenue | 827.5 | | | 831.8 | | Deferred revenue | 1,023.4 | | | 994.6 | |
Other accrued liabilities | Other accrued liabilities | 327.0 | | | 346.2 | | Other accrued liabilities | 448.5 | | | 457.0 | |
Income taxes payable | Income taxes payable | 268.9 | | | 215.1 | | Income taxes payable | 64.0 | | | 26.9 | |
| Current portion of long-term debt, net | Current portion of long-term debt, net | 602.4 | | | 602.2 | | Current portion of long-term debt, net | 502.1 | | | 502.0 | |
| Total current liabilities | Total current liabilities | 2,366.1 | | | 2,397.4 | | Total current liabilities | 2,462.9 | | | 2,444.4 | |
| Long-term debt, net of current portion | Long-term debt, net of current portion | 4,674.2 | | | 4,673.1 | | Long-term debt, net of current portion | 8,571.8 | | | 9,064.5 | |
Deferred taxes | Deferred taxes | 1,081.1 | | | 1,108.1 | | Deferred taxes | 1,571.6 | | | 1,562.5 | |
Other liabilities | Other liabilities | 425.1 | | | 438.4 | | Other liabilities | 499.1 | | | 473.6 | |
| Total liabilities | Total liabilities | 8,546.5 | | | 8,617.0 | | Total liabilities | 13,105.4 | | | 13,545.0 | |
| Commitments and contingencies (Note 9 ) | | |
Commitments and contingencies (Note 8) | | Commitments and contingencies (Note 8) | 0 | | 0 |
| Common stock | Common stock | 1.1 | | | 1.1 | | Common stock | 1.1 | | | 1.1 | |
Additional paid-in capital | Additional paid-in capital | 1,946.3 | | | 1,903.9 | | Additional paid-in capital | 2,138.9 | | | 2,097.5 | |
Retained earnings | Retained earnings | 8,003.1 | | | 7,818.0 | | Retained earnings | 8,776.0 | | | 8,546.2 | |
Accumulated other comprehensive loss | Accumulated other comprehensive loss | (341.0) | | | (212.8) | | Accumulated other comprehensive loss | (132.4) | | | (147.0) | |
Treasury stock | Treasury stock | (18.2) | | | (18.3) | | Treasury stock | (17.9) | | | (18.0) | |
Total stockholders’ equity | Total stockholders’ equity | 9,591.3 | | | 9,491.9 | | Total stockholders’ equity | 10,765.7 | | | 10,479.8 | |
| Total liabilities and stockholders’ equity | Total liabilities and stockholders’ equity | $ | 18,137.8 | | | $ | 18,108.9 | | Total liabilities and stockholders’ equity | $ | 23,871.1 | | | $ | 24,024.8 | |
See accompanying notes to Condensed Consolidated Financial Statements.
Roper Technologies, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (unaudited)
(in millions)
| | | Three months ended March 31, | | | Three months ended March 31, |
| | 2020 | | 2019 | | 2021 | | 2020 |
Cash flows from operating activities: | Cash flows from operating activities: | | | | Cash flows from operating activities: | | | |
Net earnings | Net earnings | $ | 240.3 | | | $ | 369.6 | | Net earnings | $ | 289.0 | | | $ | 240.3 | |
Adjustments to reconcile net earnings to cash flows from operating activities: | Adjustments to reconcile net earnings to cash flows from operating activities: | | Adjustments to reconcile net earnings to cash flows from operating activities: | |
Depreciation and amortization of property, plant and equipment | Depreciation and amortization of property, plant and equipment | 12.8 | | | 11.7 | | Depreciation and amortization of property, plant and equipment | 14.7 | | | 12.8 | |
Amortization of intangible assets | Amortization of intangible assets | 101.8 | | | 82.9 | | Amortization of intangible assets | 146.6 | | | 101.8 | |
Amortization of deferred financing costs | Amortization of deferred financing costs | 2.1 | | | 1.7 | | Amortization of deferred financing costs | 3.4 | | | 2.1 | |
Non-cash stock compensation | Non-cash stock compensation | 27.7 | | | 25.3 | | Non-cash stock compensation | 32.9 | | | 27.7 | |
| Gain on disposal of business, net of associated income tax | — | | | (89.6) | | |
Gain on sale of assets, net of tax | | Gain on sale of assets, net of tax | (21.6) | | | 0 | |
Income tax provision, excluding tax associated with gain on sale of assets | | Income tax provision, excluding tax associated with gain on sale of assets | 72.4 | | 64.3 |
Changes in operating assets and liabilities, net of acquired businesses: | Changes in operating assets and liabilities, net of acquired businesses: | | Changes in operating assets and liabilities, net of acquired businesses: | |
Accounts receivable | Accounts receivable | 69.1 | | | 88.9 | | Accounts receivable | 70.3 | | | 69.1 | |
Unbilled receivables | Unbilled receivables | (43.1) | | | (25.3) | | Unbilled receivables | (22.2) | | | (43.1) | |
Inventories | Inventories | (10.3) | | | (19.5) | | Inventories | (8.2) | | | (10.3) | |
Accounts payable and accrued liabilities | Accounts payable and accrued liabilities | (70.2) | | | (92.8) | | Accounts payable and accrued liabilities | (46.4) | | | (70.2) | |
Deferred revenue | Deferred revenue | 3.6 | | | 11.9 | | Deferred revenue | 60.5 | | | 3.6 | |
Income taxes, excluding tax associated with gain on disposal of business | 40.2 | | | (17.6) | | |
Cash tax paid for gain on disposal of business | — | | | (39.4) | | |
| Cash income taxes paid | | Cash income taxes paid | (17.8) | | | (24.1) | |
Other, net | Other, net | (10.1) | | | (17.5) | | Other, net | (14.0) | | | (10.1) | |
Cash provided by operating activities | Cash provided by operating activities | 363.9 | | | 290.3 | | Cash provided by operating activities | 559.6 | | | 363.9 | |
| Cash flows from (used in) investing activities: | Cash flows from (used in) investing activities: | | Cash flows from (used in) investing activities: | |
Acquisitions of businesses, net of cash acquired | Acquisitions of businesses, net of cash acquired | (2.8) | | | (3.2) | | Acquisitions of businesses, net of cash acquired | 0 | | | (2.8) | |
Capital expenditures | Capital expenditures | (7.9) | | | (15.8) | | Capital expenditures | (9.1) | | | (7.9) | |
Capitalized software expenditures | Capitalized software expenditures | (2.6) | | | (2.0) | | Capitalized software expenditures | (7.2) | | | (2.6) | |
Proceeds from (used in) disposal of businesses | Proceeds from (used in) disposal of businesses | (3.7) | | | 220.4 | | Proceeds from (used in) disposal of businesses | (0.1) | | | (3.7) | |
Proceeds from sale of assets | | Proceeds from sale of assets | 27.1 | | | 0 | |
| Other, net | — | | | (2.2) | | |
Cash provided by (used in) investing activities | Cash provided by (used in) investing activities | (17.0) | | | 197.2 | | Cash provided by (used in) investing activities | 10.7 | | | (17.0) | |
| Cash flows used in financing activities: | | |
Cash flows from (used in) financing activities: | | Cash flows from (used in) financing activities: | |
| Borrowings (payments) under revolving line of credit, net | Borrowings (payments) under revolving line of credit, net | — | | | (455.0) | | Borrowings (payments) under revolving line of credit, net | (495.0) | | | 0 | |
| Cash dividends to stockholders | Cash dividends to stockholders | (53.1) | | | (47.7) | | Cash dividends to stockholders | (58.8) | | | (53.1) | |
Proceeds from stock-based compensation, net | Proceeds from stock-based compensation, net | 12.1 | | | 22.0 | | Proceeds from stock-based compensation, net | 4.4 | | | 12.1 | |
Treasury stock sales | Treasury stock sales | 2.8 | | | 2.2 | | Treasury stock sales | 4.7 | | | 2.8 | |
| Other | Other | (0.5) | | | 14.2 | | Other | (0.5) | | | (0.5) | |
Cash used in financing activities | (38.7) | | | (464.3) | | |
Cash flows used in financing activities | | Cash flows used in financing activities | (545.2) | | | (38.7) | |
| Effect of foreign currency exchange rate changes on cash | Effect of foreign currency exchange rate changes on cash | (18.1) | | | 4.9 | | Effect of foreign currency exchange rate changes on cash | (2.4) | | | (18.1) | |
| Net increase in cash and cash equivalents | Net increase in cash and cash equivalents | 290.1 | | | 28.1 | | Net increase in cash and cash equivalents | 22.7 | | | 290.1 | |
| Cash and cash equivalents, beginning of period | Cash and cash equivalents, beginning of period | 709.7 | | | 364.4 | | Cash and cash equivalents, beginning of period | 308.3 | | | 709.7 | |
| Cash and cash equivalents, end of period | Cash and cash equivalents, end of period | $ | 999.8 | | | $ | 392.5 | | Cash and cash equivalents, end of period | $ | 331.0 | | | $ | 999.8 | |
See accompanying notes to Condensed Consolidated Financial Statements.
Roper Technologies, Inc. and Subsidiaries
Condensed Consolidated Statements of Changes in Stockholders’ Equity (unaudited)
(in millions)
| | | | Common stock | | Additional paid-in capital | | Retained earnings | | Accumulated other comprehensive loss | | Treasury stock | | Total stockholders’ equity |
| Balances at December 31, 2020 | | Balances at December 31, 2020 | $ | 1.1 | | | $ | 2,097.5 | | | $ | 8,546.2 | | | $ | (147.0) | | | $ | (18.0) | | | $ | 10,479.8 | |
| Net earnings | | Net earnings | — | | | — | | | 289.0 | | | — | | | — | | | 289.0 | |
Stock option exercises | | Stock option exercises | — | | | 19.2 | | | — | | | — | | | — | | | 19.2 | |
Treasury stock sold | | Treasury stock sold | — | | | 4.6 | | | — | | | — | | | 0.1 | | | 4.7 | |
Currency translation adjustments | | Currency translation adjustments | — | | | — | | | — | | | 14.6 | | | — | | | 14.6 | |
Stock-based compensation | | Stock-based compensation | — | | | 32.4 | | | — | | | — | | | — | | | 32.4 | |
Restricted stock activity | | Restricted stock activity | — | | | (14.8) | | | — | | | — | | | — | | | (14.8) | |
Dividends declared ($0.5625 per share) | | Dividends declared ($0.5625 per share) | — | | | — | | | (59.2) | | | — | | | — | | | (59.2) | |
Balances at March 31, 2021 | | Balances at March 31, 2021 | $ | 1.1 | | | $ | 2,138.9 | | | $ | 8,776.0 | | | $ | (132.4) | | | $ | (17.9) | | | $ | 10,765.7 | |
| | Common stock | | Additional paid-in capital | | Retained earnings | | Accumulated other comprehensive loss | | Treasury stock | | Total stockholders’ equity | | | | | | | | | | | | |
| Balances at December 31, 2019 | Balances at December 31, 2019 | $ | 1.1 | | | $ | 1,903.9 | | | $ | 7,818.0 | | | $ | (212.8) | | | $ | (18.3) | | | $ | 9,491.9 | | Balances at December 31, 2019 | $ | 1.1 | | | $ | 1,903.9 | | | $ | 7,818.0 | | | $ | (212.8) | | | $ | (18.3) | | | $ | 9,491.9 | |
| Adoption of ASC 326 | Adoption of ASC 326 | — | | | — | | | (1.7) | | | — | | | — | | | (1.7) | | Adoption of ASC 326 | — | | | — | | | (1.7) | | | — | | | — | | | (1.7) | |
Net earnings | Net earnings | — | | | — | | | 240.3 | | | — | | | — | | | 240.3 | | Net earnings | — | | | — | | | 240.3 | | | — | | | — | | | 240.3 | |
Stock option exercises | Stock option exercises | — | | | 22.9 | | | — | | | — | | | — | | | 22.9 | | Stock option exercises | — | | | 22.9 | | | — | | | — | | | — | | | 22.9 | |
Treasury stock sold | Treasury stock sold | — | | | 2.7 | | | — | | | — | | | 0.1 | | | 2.8 | | Treasury stock sold | — | | | 2.7 | | | — | | | — | | | 0.1 | | | 2.8 | |
Currency translation adjustments | Currency translation adjustments | — | | | — | | | — | | | (128.2) | | | — | | | (128.2) | | Currency translation adjustments | — | | | — | | | — | | | (128.2) | | | — | | | (128.2) | |
Stock-based compensation | Stock-based compensation | — | | | 27.6 | | | — | | | — | | | — | | | 27.6 | | Stock-based compensation | — | | | 27.6 | | | — | | | — | | | — | | | 27.6 | |
Restricted stock activity | Restricted stock activity | — | | | (10.8) | | | — | | | — | | | — | | | (10.8) | | Restricted stock activity | — | | | (10.8) | | | — | | | — | | | — | | | (10.8) | |
Dividends declared ($0.5125 per share) | Dividends declared ($0.5125 per share) | — | | | — | | | (53.5) | | | — | | | — | | | (53.5) | | Dividends declared ($0.5125 per share) | — | | | — | | | (53.5) | | | — | | | — | | | (53.5) | |
Balances at March 31, 2020 | Balances at March 31, 2020 | $ | 1.1 | | | $ | 1,946.3 | | | $ | 8,003.1 | | | $ | (341.0) | | | $ | (18.2) | | | $ | 9,591.3 | | Balances at March 31, 2020 | $ | 1.1 | | | $ | 1,946.3 | | | $ | 8,003.1 | | | $ | (341.0) | | | $ | (18.2) | | | $ | 9,591.3 | |
| | Balances at December 31, 2018 | $ | 1.1 | | | $ | 1,751.5 | | | $ | 6,247.7 | | | $ | (243.3) | | | $ | (18.5) | | | $ | 7,738.5 | | |
| | Net earnings | — | | | — | | | 369.6 | | | — | | | — | | | 369.6 | | |
Stock option exercises | — | | | 36.8 | | | — | | | — | | | — | | | 36.8 | | |
Treasury stock sold | — | | | 2.1 | | | — | | | — | | | 0.1 | | | 2.2 | | |
Currency translation adjustments | — | | | — | | | — | | | 28.7 | | | — | | | 28.7 | | |
Stock-based compensation | — | | | 24.3 | | | — | | | — | | | — | | | 24.3 | | |
Restricted stock activity | — | | | (14.8) | | | — | | | — | | | — | | | (14.8) | | |
Dividends declared ($0.4625 per share) | — | | | — | | | (47.9) | | | — | | | — | | | (47.9) | | |
Balances at March 31, 2019 | $ | 1.1 | | | $ | 1,799.9 | | | $ | 6,569.4 | | | $ | (214.6) | | | $ | (18.4) | | | $ | 8,137.4 | | |
See accompanying notes to Condensed Consolidated Financial Statements.
Roper Technologies, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
All currency and share amounts are in millions, except per share data
1. Basis of Presentation
The accompanying Condensed Consolidated Financial Statements for the three months ended March 31, 20202021 and 20192020 are unaudited. In the opinion of management, the accompanying unaudited Condensed Consolidated Financial Statements reflect all adjustments, which include only normal recurring adjustments, necessary to state fairly the financial position, results of operations, comprehensive income and cash flows of Roper Technologies, Inc. and its subsidiaries (“Roper,” the “Company,” “we,” “our” or “us”) for all periods presented. The December 31, 20192020 financial position data included herein was derived from the audited consolidated financial statements included in the Company’s 20192020 Annual Report on Form 10-K (“Annual Report”) filed on February 28, 202022, 2021 with the Securities and Exchange Commission (“SEC”) but does not include all disclosures required by U.S. generally accepted accounting principles (“GAAP”).
Roper’s management has made estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these Condensed Consolidated Financial Statements in conformity with GAAP. Actual results could differ from those estimates.
The results of operations for the three months ended March 31, 20202021 are not necessarily indicative of the results to be expected for the full year. You should read these unaudited Condensed Consolidated Financial Statements in conjunction with Roper’s audited consolidated financial statements and the notes thereto included in its Annual Report. Certain prior period amounts have been reclassified to conform to current period presentation.
On March 17, 2021, Roper completed the sale of a minority investment in Sedaru, Inc. for $27.1. The pretax gain on the sale was $27.1, which is reported in Other income/(expense), net in the Condensed Consolidated Statement of Earnings.
2. 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”) to the Accounting Standards Codification (“ASC”). The Company considers the applicability and impact of all ASUs. Any recent ASUs not listed below were assessed and determined to be either not applicable or are expected to have an immaterial impact on the Company’s results of operations, financial position or cash flows.
Recently Adopted Accounting Pronouncements
The Company adopted ASC Topic 326, Financial Instruments - Credit Losses (“ASC 326”), as of January 1, 2020 using the modified retrospective transition method. This ASU amends the impairment model to utilize an expected loss methodology in place of the incurred loss methodology for financial instruments, including trade receivables, and unbilled receivables. We recorded a noncash cumulative effect decrease to retained earnings of $1.7, net of income taxes, on our opening consolidated balance sheet as of January 1, 2020.
3. Weighted Average Shares Outstanding
Basic earnings per share were calculated using net earnings and the weighted average number of shares of common stock outstanding during the respective period. Diluted earnings per share were calculated using net earnings and the weighted average number of shares of common stock and potential common stock outstanding during the respective period. Potentially dilutive common stock consisted of stock options based upon the trading price of Roper’s common stock. The effects of potential common stock were determined using the treasury stock method. Weighted average shares outstanding are shown below:
| | | Three months ended March 31, | | | Three months ended March 31, | |
| | 2020 | | 2019 | | | 2021 | | 2020 | |
Basic shares outstanding | Basic shares outstanding | 104.3 | | | 103.6 | | | Basic shares outstanding | 105.0 | | | 104.3 | | |
Effect of potential common stock: | Effect of potential common stock: | | | Effect of potential common stock: | | |
Common stock awards | Common stock awards | 1.0 | | | 1.1 | | | Common stock awards | 1.0 | | | 1.0 | | |
Diluted shares outstanding | Diluted shares outstanding | 105.3 | | | 104.7 | | | Diluted shares outstanding | 106.0 | | | 105.3 | | |
For the three months ended March 31, 2020,2021, there were 1.3180.647 outstanding stock options that were not included in the determination of diluted earnings per share because doing so would have been antidilutive, as compared to 1.3811.318 outstanding stock options that would have been antidilutive in the respective 20192020 period.
4. Stock Based Compensation
The Roper Technologies, Inc. 2016 Incentive Plan (“2016 Plan”) is a stock-based compensation plan used to grant incentive stock options, nonqualified stock options, restricted stock, stock appreciation rights or equivalent instruments to Roper’s employees, officers, directors and consultants.
The following table provides information regarding the Company’s stock-based compensation expense:
| | | Three months ended March 31, | | | Three Months Ended March 31, | |
| | 2020 | | 2019 | | | 2021 | | 2020 | |
Stock-based compensation | Stock-based compensation | $ | 27.7 | | | $ | 25.3 | | | Stock-based compensation | $ | 32.9 | | | $ | 27.7 | | |
Tax effect recognized in net earnings | Tax effect recognized in net earnings | 5.8 | | | 5.3 | | | Tax effect recognized in net earnings | 6.9 | | | 5.8 | | |
Stock Options - In the three months ended March 31, 2021, 0.498 options were granted with a weighted average fair value of $94.69 per option. During the same period in 2020, 0.725 options were granted with a weighted average fair value of $62.02 per option. During the same period in 2019, 0.686 options were granted with a weighted average fair value of $67.61 per option. All options were issued with an exercise price equal to the closing price of Roper’s common stock on the date of grant, as required by the 2016 Plan.
Roper records compensation expense for employee stock options based on the estimated fair value of the options on the date of grant using the Black-Scholes option-pricing model. Historical data is used to estimate the expected price volatility, the expected dividend yield, the expected option life and the expected forfeiture rate. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for the estimated life of the option. The following weighted average assumptions were used to estimate the fair value of options granted during current and prior year periods using the Black-Scholes option-pricing model:
| | | Three months ended March 31, | | | Three months ended March 31, |
| | 2020 | | 2019 | | 2021 | | 2020 |
Risk-free interest rate (%) | Risk-free interest rate (%) | 0.83 | | | 2.44 | | Risk-free interest rate (%) | 0.94 | | | 0.83 | |
Expected option life (years) | Expected option life (years) | 5.64 | | 5.41 | Expected option life (years) | 5.61 | | 5.64 |
Expected volatility (%) | Expected volatility (%) | 20.18 | | | 19.24 | | Expected volatility (%) | 25.16 | | | 20.18 | |
Expected dividend yield (%) | Expected dividend yield (%) | 0.62 | | | 0.59 | | Expected dividend yield (%) | 0.56 | | | 0.62 | |
Cash received from option exercises for the three months ended March 31, 2021 and 2020 was $19.2 and 2019 was $22.9, and $36.8, respectively.
Restricted Stock Grants - During the three months ended March 31, 2021, the Company granted 0.207 shares with a weighted average grant date fair value of $404.14 per restricted share. During the same period in 2020, the Company granted 0.179
shares with a weighted average grant date fair value of $340.92 per restricted share. During the same period in 2019, the Company granted 0.258 shares with a weighted average grant date fair value of $309.02 per restricted share. All grants were issued at grant date fair value.
During the three months ended March 31, 2020, 0.0962021, 0.116 restricted shares vested with a weighted average grant date fair value of $248.05$311.33 per restricted share and a weighted average vest date fair value of $333.75$394.23 per restricted share.
Employee Stock Purchase Plan - Roper’s employee stock purchase plan allows(“ESPP”) previously allowed employees in the U.S. and Canada to designate up to 10% of eligible earnings to purchase Roper’s common stock at a 5% discount to the average closing price of the stock at the beginning and end of a quarterly offering period. Common stock sold to employees pursuant to the stock purchase plan may be either treasury stock, stock purchased on the open market, or newly issued shares.
We amended the ESPP effective July 1, 2020, which allows employees in the U.S. and Canada to designate up to 10% of eligible earnings to purchase Roper’s common stock at a 10% discount on the lower of the closing price of the stock on the first and last day of each quarterly offering period. Common stock sold to employees pursuant to the ESPP may be either treasury stock, stock purchased on the open market, or newly issued shares.
During both the three months ended March 31, 20202021 and 2019,2020, participants in the employee stock purchase planESPP purchased 0.013 and 0.008 shares of Roper’s common stock for total consideration of $2.8$4.7 and $2.2,$2.8, respectively. All shares were purchased from Roper’s treasury shares.
5. Inventories
The components of inventory were as follows:
| | | March 31, 2020 | | December 31, 2019 | | March 31, 2021 | | December 31, 2020 |
Raw materials and supplies | Raw materials and supplies | $ | 127.1 | | | $ | 125.1 | | Raw materials and supplies | $ | 134.0 | | | $ | 128.4 | |
Work in process | Work in process | 31.5 | | | 30.9 | | Work in process | 30.3 | | | 28.2 | |
Finished products | Finished products | 81.7 | | | 76.0 | | Finished products | 83.4 | | | 82.2 | |
Inventory reserves | Inventory reserves | (34.1) | | | (33.4) | | Inventory reserves | (41.7) | | | (40.4) | |
| $ | 206.2 | | | $ | 198.6 | | |
Inventories, net | | Inventories, net | $ | 206.0 | | | $ | 198.4 | |
6. Goodwill and Other Intangible Assets
The carrying value of goodwill by segment was as follows:
| | | Application Software | | Network Software & Systems | | Measurement & Analytical Solutions | | Process Technologies | | Total | | Application Software | | Network Software & Systems | | Measurement & Analytical Solutions | | Process Technologies | | Total |
Balances at December 31, 2019 | $ | 5,389.4 | | | $ | 3,933.5 | | | $ | 1,178.0 | | | $ | 314.5 | | | $ | 10,815.4 | | |
Balances at December 31, 2020 | | Balances at December 31, 2020 | $ | 8,802.3 | | | $ | 4,083.1 | | | $ | 1,190.8 | | | $ | 319.0 | | | $ | 14,395.2 | |
Additions | Additions | — | | | — | | | — | | | — | | | — | | Additions | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
| Other | Other | 0.7 | | | 0.3 | | | — | | | — | | | 1.0 | | Other | (4.0) | | | 0.7 | | | 0 | | | 0 | | | (3.3) | |
Currency translation adjustments | Currency translation adjustments | (22.1) | | | (43.3) | | | (12.4) | | | (6.1) | | | (83.9) | | Currency translation adjustments | 3.5 | | | 10.4 | | | (0.7) | | | 0.2 | | | 13.4 | |
Balances at March 31, 2020 | $ | 5,368.0 | | | $ | 3,890.5 | | | $ | 1,165.6 | | | $ | 308.4 | | | $ | 10,732.5 | | |
Balances at March 31, 2021 | | Balances at March 31, 2021 | $ | 8,801.8 | | | $ | 4,094.2 | | | $ | 1,190.1 | | | $ | 319.2 | | | $ | 14,405.3 | |
Other relates primarily to purchase accounting adjustments for acquisitions.
Other intangible assets were comprised of:
| | | Cost | | Accumulated amortization | | Net book value | | Cost | | Accumulated amortization | | Net book value |
Assets subject to amortization: | Assets subject to amortization: | | | | | | Assets subject to amortization: | | | | | |
Customer related intangibles | Customer related intangibles | $ | 4,955.4 | | | $ | (1,349.4) | | | $ | 3,606.0 | | Customer related intangibles | $ | 7,494.7 | | | $ | (1,703.8) | | | $ | 5,790.9 | |
Unpatented technology | Unpatented technology | 613.0 | | | (279.6) | | | 333.4 | | Unpatented technology | 942.8 | | | (363.9) | | | 578.9 | |
Software | Software | 172.2 | | | (111.5) | | | 60.7 | | Software | 172.4 | | | (127.4) | | | 45.0 | |
Patents and other protective rights | Patents and other protective rights | 12.0 | | | (8.0) | | | 4.0 | | Patents and other protective rights | 13.0 | | | (6.7) | | | 6.3 | |
Trade names | Trade names | 7.9 | | | (4.1) | | | 3.8 | | Trade names | 7.3 | | | (5.6) | | | 1.7 | |
Assets not subject to amortization: | Assets not subject to amortization: | | Assets not subject to amortization: | |
Trade names | Trade names | 659.8 | | | — | | | 659.8 | | Trade names | 784.1 | | | — | | | 784.1 | |
| Balances at December 31, 2019 | $ | 6,420.3 | | | $ | (1,752.6) | | | $ | 4,667.7 | | |
Balances at December 31, 2020 | | Balances at December 31, 2020 | $ | 9,414.3 | | | $ | (2,207.4) | | | $ | 7,206.9 | |
| Assets subject to amortization: | Assets subject to amortization: | | Assets subject to amortization: | |
Customer related intangibles | Customer related intangibles | $ | 4,915.5 | | | $ | (1,416.9) | | | $ | 3,498.6 | | Customer related intangibles | $ | 7,499.6 | | | $ | (1,817.2) | | | $ | 5,682.4 | |
Unpatented technology | Unpatented technology | 605.3 | | | (298.2) | | | 307.1 | | Unpatented technology | 943.3 | | | (392.4) | | | 550.9 | |
Software | Software | 171.8 | | | (115.5) | | | 56.3 | | Software | 172.5 | | | (131.3) | | | 41.2 | |
Patents and other protective rights | Patents and other protective rights | 11.8 | | | (7.9) | | | 3.9 | | Patents and other protective rights | 13.3 | | | (6.9) | | | 6.4 | |
Trade names | Trade names | 7.9 | | | (4.6) | | | 3.3 | | Trade names | 7.3 | | | (5.9) | | | 1.4 | |
Assets not subject to amortization: | Assets not subject to amortization: | | Assets not subject to amortization: | |
Trade names | Trade names | 653.8 | | | — | | | 653.8 | | Trade names | 784.5 | | | — | | | 784.5 | |
| Balances at March 31, 2020 | $ | 6,366.1 | | | $ | (1,843.1) | | | $ | 4,523.0 | | |
Balances at March 31, 2021 | | Balances at March 31, 2021 | $ | 9,420.5 | | | $ | (2,353.7) | | | $ | 7,066.8 | |
Amortization expense of other intangible assets was $100.7$145.4 and $82.6$100.7 during the three months ended March 31, 20202021 and 2019,2020, respectively.
An evaluation of the carrying value of goodwill and indefinite-lived intangibles is required to be performed on an annual basis and on 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.
In the first quarter of 2020, There have been no events or changes in facts and circumstances and general market declines from the coronavirus global pandemic (COVID-19) resulted in reduced expectations of near term future operating results. The Company considered these circumstances and the potential long-term impact on revenues and cash flows associated with its trade names and reporting units and determined that an indicator of possible impairment did not exist. While we have concluded that a triggering event did not occur during the quarter ended March 31, 2020, a prolonged COVID-19 pandemic could further impact the expectations of future operating results and assumptions that are significant enough thatwhich indicate an interim impairment review would be required. This is particularly true for the trade name associated with our lab software business, which had a fair value approximating its carrying value of $100.4 as of October 1, 2019, its most recent quantitative analysis.required in 2021. The Company will perform the annual analysis during the fourth quarter of 2020.2021.
7. Debt
On April 23, 2020, the Company entered into Amendment No. 2 to Credit Agreement (the “Amendment”) to the Credit Agreement dated September 23, 2016 among the Company, the lenders party thereto, JPMorgan Chase Bank, N.A., as administrative agent, and the other agents and parties thereto, as previously amended December 2, 2016 (the “Credit Agreement”). The Amendment modified our gross debt to EBITDA covenant to allow for the benefit of our cash balance to be included in the calculation, changing the covenant to a net debt to EBITDA ratio.
The Amendment amends the definition of Consolidated Total Leverage Ratio (as defined in the Credit Agreement) to be the ratio of (a)(i) Consolidated Total Debt (as defined in the Credit Agreement) minus (ii) the aggregate amount of Unrestricted Cash (as defined in the Credit Agreement) to (b) Consolidated EBITDA (as defined in the Credit Agreement). The Amendment also adds a condition to each extension of credit through December 31, 2020, that after giving effect to any such borrowing and intended use of such borrowing, the aggregate amount of Unrestricted Cash may not be greater than $1,250.
8. Fair Value of Financial Instruments
Roper’s debt at March 31, 20202021 included $5,300$8,000 of fixed-rate senior notes with the following fair values:
| | | | | |
$600 3.000% senior notes due 2020 | 601 | |
$500 2.800% senior notes due 2021 | 501508 | |
$500 3.125% senior notes due 2022 | 511518 | |
$300 0.450% senior notes due 2022 | 300 | |
$700 3.650% senior notes due 2023 | 721750 | |
$500 2.350% senior notes due 2024 | 492523 | |
$300 3.850% senior notes due 2025 | 323332 | |
$700 1.000% senior notes due 2025 | 689 | |
$700 3.800% senior notes due 2026 | 723778 | |
$700 1.400% senior notes due 2027 | 677 | |
$800 4.200% senior notes due 2028 | 860902 | |
$700 2.950% senior notes due 2029 | 681730 | |
$600 2.000% senior notes due 2030 | 574 | |
$1,000 1.750% senior notes due 2031 | 929 | |
The fair values of the senior notes are based on the trading prices of theeach series of notes, which the Company has determined to be Level 2 in the FASB fair value hierarchy.
9.
8. Contingencies
Roper, in the ordinary course of business, is the subject of, or a party to various pending or threatened legal actions, including product liability, intellectual property, data privacy and employment practices that, in general, are based upon claims of the kind that have been customarya nature consistent with those over the past several years and which the Company is vigorously defending.years. After analyzing the Company’s contingent liabilities on a gross basis and, based upon past experience with resolution of its product liability and employment practicessuch legal claims and the availability and limits of the primary, excess, and umbrella liability insurance coverages that are available with respect to pending claims, management believes that adequate provision has been made to cover any potential liability not covered by insurance, and that the ultimate liability, if any, arising from these actions should not have a material adverse effect on Roper’s consolidated financial position, results of operations or cash flows.
Roper’s subsidiary, Vertafore, Inc., has been named in 3 putative class actions, 2 in the U.S. District Court for the Southern District of Texas (Allen, et al. v. Vertafore, Inc., Case 4:20-cv-4139, filed December 4, 2020 and Masciotra, et al. v. Vertafore, Inc., originally filed on December 8, 2020 as Case 1:20-cv-03603 in the U.S. District Court for the District of Colorado and subsequently transferred), and 1 in the U.S. District Court for the Northern District of Texas (Mulvey, et al. v. Vertafore, Inc., Case 3:21-cv-00213-E, filed January 31, 2021). All 3 cases purport to represent approximately 27.7 million individuals who held Texas driver’s licenses prior to February 2019. In November 2020, Vertafore announced that as a result of human error, three data files were inadvertently stored in an unsecured external storage service that appears to have been accessed without authorization. The files, which included driver information for licenses issued before February 2019, contained Texas driver license numbers, as well as names, dates of birth, addresses and vehicle registration histories. The files did not contain any Social Security numbers or financial account information. The cases each seek recovery under the Driver’s Privacy Protection Act, 18 U.S.C. § 2721. Vertafore is vigorously defending the matters. In addition, Roper has been advised that the Texas Attorney General is investigating the data event.
Roper or its subsidiaries have been named defendants along with numerous industrial companies in asbestos-related litigation claims in certain U.S. states. No significant resources have been required by Roper to respond to these cases and Roper believes
it has valid defenses to such claims and, if required, intends to defend them vigorously. Given the state of these claims, it is not possible to determine the potential liability, if any.
10.
9. Business Segments
Net revenues and operating profit by segment are set forth in the following table:
| | | Three months ended March 31, | | | | | Three months ended March 31, | | |
| | 2020 | | 2019 | | Change % | | | 2021 | | 2020 | | Change % | |
Net revenues: | Net revenues: | | | | | | | Net revenues: | | | | | | |
Application Software | Application Software | $ | 405.1 | | | $ | 381.2 | | | 6.3 | % | | Application Software | $ | 576.6 | | | $ | 405.1 | | | 42.3 | % | |
Network Software & Systems | Network Software & Systems | 438.2 | | | 345.7 | | | 26.8 | % | | Network Software & Systems | 440.2 | | | 438.2 | | | 0.5 | % | |
Measurement & Analytical Solutions | Measurement & Analytical Solutions | 365.2 | | | 401.8 | | | (9.1) | % | | Measurement & Analytical Solutions | 381.0 | | | 365.2 | | | 4.3 | % | |
Process Technologies | Process Technologies | 142.2 | | | 158.5 | | | (10.3) | % | | Process Technologies | 130.8 | | | 142.2 | | | (8.0) | % | |
Total | Total | $ | 1,350.7 | | | $ | 1,287.2 | | | 4.9 | % | | Total | $ | 1,528.6 | | | $ | 1,350.7 | | | 13.2 | % | |
Gross profit: | Gross profit: | | | | | | Gross profit: | | | | | |
Application Software | Application Software | $ | 270.4 | | | $ | 253.4 | | | 6.7 | % | | Application Software | $ | 398.7 | | | $ | 270.4 | | | 47.4 | % | |
Network Software & Systems | Network Software & Systems | 293.2 | | | 239.0 | | | 22.7 | % | | Network Software & Systems | 299.4 | | | 293.2 | | | 2.1 | % | |
Measurement & Analytical Solutions | Measurement & Analytical Solutions | 214.6 | | | 231.2 | | | (7.2) | % | | Measurement & Analytical Solutions | 224.7 | | | 214.6 | | | 4.7 | % | |
Process Technologies | Process Technologies | 78.6 | | | 87.0 | | | (9.7) | % | | Process Technologies | 71.0 | | | 78.6 | | | (9.7) | % | |
Total | Total | $ | 856.8 | | | $ | 810.6 | | | 5.7 | % | | Total | $ | 993.8 | | | $ | 856.8 | | | 16.0 | % | |
Operating profit*: | Operating profit*: | | | | | | Operating profit*: | | | | | |
Application Software | Application Software | $ | 97.6 | | | $ | 91.4 | | | 6.8 | % | | Application Software | $ | 153.7 | | | $ | 97.6 | | | 57.5 | % | |
Network Software & Systems | Network Software & Systems | 138.7 | | | 125.3 | | | 10.7 | % | | Network Software & Systems | 135.5 | | | 138.7 | | | (2.3) | % | |
Measurement & Analytical Solutions | Measurement & Analytical Solutions | 114.0 | | | 118.1 | | | (3.5) | % | | Measurement & Analytical Solutions | 124.1 | | | 114.0 | | | 8.9 | % | |
Process Technologies | Process Technologies | 43.3 | | | 50.1 | | | (13.6) | % | | Process Technologies | 38.3 | | | 43.3 | | | (11.5) | % | |
Total | Total | $ | 393.6 | | | $ | 384.9 | | | 2.3 | % | | Total | $ | 451.6 | | | $ | 393.6 | | | 14.7 | % | |
Long-lived assets: | Long-lived assets: | | | | | | Long-lived assets: | | | | | |
Application Software | Application Software | $ | 85.1 | | | $ | 82.0 | | | 3.8 | % | | Application Software | $ | 126.7 | | | $ | 85.1 | | | 48.9 | % | |
Network Software & Systems | Network Software & Systems | 48.5 | | | 35.4 | | | 37.0 | % | | Network Software & Systems | 44.8 | | | 48.5 | | | (7.6) | % | |
Measurement & Analytical Solutions | Measurement & Analytical Solutions | 39.1 | | | 40.2 | | | (2.7) | % | | Measurement & Analytical Solutions | 35.4 | | | 39.1 | | | (9.5) | % | |
Process Technologies | Process Technologies | 21.0 | | | 22.0 | | | (4.5) | % | | Process Technologies | 19.5 | | | 21.0 | | | (7.1) | % | |
Total | Total | $ | 193.7 | | | $ | 179.6 | | | 7.9 | % | | Total | $ | 226.4 | | | $ | 193.7 | | | 16.9 | % | |
*Segment operating profit is before unallocated corporate general and administrative expenses; these expenses were $44.4$51.1 and $38.5$44.4 for the three months ended March 31, 20202021 and 2019,2020, respectively.
11.10. Revenues from Contracts
Disaggregated Revenue - We disaggregate our revenues into two categories: (i) software and related services; and (ii) engineered products and related services. Software and related services revenues are primarily derived from our Application Software and Network Software & Systems reportable segments. Engineered products and related services revenues are derived from all of our reportable segments except Application Software and comprise substantially all of the revenues generated in our Measurement & Analytical Solutions and Process Technologies reportable segments. See details in the table below.
| | | Three Months Ended March 31, | | | Three Months Ended March 31, | |
| | 2020 | | 2019 | | | 2021 | | 2020 | |
Software and related services | Software and related services | $ | 668.5 | | | $ | 576.8 | | | Software and related services | $ | 864.5 | | | $ | 668.5 | | |
Engineered products and related services | Engineered products and related services | 682.2 | | | 710.4 | | | Engineered products and related services | 664.1 | | | 682.2 | | |
Net revenues | Net revenues | $ | 1,350.7 | | | $ | 1,287.2 | | | Net revenues | $ | 1,528.6 | | | $ | 1,350.7 | | |
Remaining performance obligations - Remaining performance obligations represent the transaction price of firm orders for which work has not been performed and excludes unexercised contract options. As of March 31, 2020,2021, the aggregate amount of the transaction price allocated to remaining performance obligations was $3,543.4.$4,102.4. We expect to recognize revenue on
approximately 58%63% of our remaining performance obligations over the next 12 months (“Backlog”), with the remainder to be recognized thereafter.
Contract balances
| | | | | | | | | | | | | | | | | |
Balance Sheet Account | March 31, 2021 | | December 31, 2020 | | Change |
Unbilled receivables | $ | 268.0 | | | $ | 241.7 | | | $ | 26.3 | |
Contract liabilities - current (1) | (1,036.9) | | | (1,012.0) | | | (24.9) | |
Deferred revenue - non-current (2) | (76.4) | | | (43.1) | | | (33.3) | |
Net contract assets/(liabilities) | $ | (845.3) | | | $ | (813.4) | | | $ | (31.9) | |
| | | | | | | | | | | | | | | | | |
Balance Sheet Account | March 31, 2020 | | December 31, 2019 | | Change |
Unbilled receivables | $ | 225.3 | | | $ | 183.5 | | | $ | 41.8 | |
Contract liabilities - current (1) | (836.0) | | | (840.8) | | | 4.8 | |
Deferred revenue - non-current (2) | (32.6) | | | (33.2) | | | 0.6 | |
Net contract assets/(liabilities) | $ | (643.3) | | | $ | (690.5) | | | $ | 47.2 | |
(1) Consists of “Deferred revenue,” and billings in-excess of revenues (“BIE”). BIE is reported in “Other accrued liabilities” in our Condensed Consolidated Balance Sheets.
(2)The non-current portion of deferred revenue is included in “Other liabilities” in our Condensed Consolidated Balance Sheets.
The change in our net contract assets/(liabilities) from December 31, 20192020 to March 31, 20202021 was due primarily to the timing of payments and invoicing relating to Software-as-a-Service (“SaaS”) and post contract support (“PCS”) renewals, partially offset by the increase in unbilled receivables associated with timing of invoicing in our project-based businesses, most notably our Transcore business, and to a lesser extent the foreign exchange impact on our contract liability balances.business.
Most of the Company’s project-based contracts where the input method of revenue recognition is utilized are billed as work progresses in accordance with the contract terms and conditions, either at periodic intervals or upon achievement of certain milestones. Often this results in billing occurring after revenue recognition resulting in contract assets. The Company records contract liabilities when cash payments are received or due in advance of the Company’s performance relating primarily to Software-as-a-Service (“SaaS”)SaaS and post contract support (“PCS”)PCS renewals. Revenue recognized during the three months ended March 31, 2021 and 2020 that was included in the contract liability balance on December 31, 2020 and 2019 was $323.5.$459.1 and $323.5, respectively.
In order to determine revenues recognized in the period from contract liabilities, we allocate revenue to the individual deferred revenue or BIEbillings in-excess of revenues balance outstanding at the beginning of the year until the revenue exceeds that balance.
Impairment losses recognized on our accounts receivable and unbilled receivables were immaterial in the three months ended March 31, 2020.2021.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 20192020 (“Annual Report”) as filed on February 28, 202022, 2021 with the U.S. Securities and Exchange Commission (“SEC”) and the Notes to Condensed Consolidated Financial Statements included elsewhere in this report.
Information About Forward-Looking Statements
This report includes “forward-looking statements” within the meaning of the federal securities laws. In addition, we, or our executive officers on our behalf, may from time to time make forward-looking statements in reports and other documents we file with the SECU.S. Securities and Exchange Commission (“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 statements.” Forward-looking statements may be indicated by words or phrases such as “anticipate,” “estimate,” “plans,” “expects,” “projects,” “should,” “will,” “believes” or “intends” and similar words and phrases. These statements reflect management’s current beliefs and are not guarantees of future performance. They involve risks and uncertainties that could cause actual results to differ materially from those expressed or implied in any forward-looking statement. Such risks and uncertainties include the effects of the COVID-19 pandemic on our business, operations, financial results and liquidity, including the duration and magnitude of such effects, which will depend on numerous evolving factors that we cannot accurately predict or assess, including: the duration and scope of the pandemic;pandemic generally and in the geographical markets that we serve or in which we operate; the negative impact on global and regional markets, economies and economic activity; actions governments, businesses and individuals take in response to the pandemic; the effects of the pandemic, including all of the foregoing, on our employees, customers, suppliers, and business partners, and how quickly economies and demand for our products and services recover afterfollowing the pandemic subsides.pandemic.
Additional examples of forward-looking statements in this report include but are not limited to statements regarding operating results, the success of our operating plans, our expectations regarding our ability to generate cash and reduce debt and associated interest expense, profit and cash flow expectations, the prospects for newly acquired businesses to be integrated and contribute to future growth and our expectations regarding growth through acquisitions. Important assumptions relating to the forward-looking statements include, among others, demand for our products, the cost, timing and success of product upgrades and new product introductions, raw material costs, expected pricing levels, expected outcomes of pending litigation, competitive conditions and general economic conditions. These assumptions could prove inaccurate. Although we believe that the estimates and projections reflected in the forward-looking statements are reasonable, our expectations may prove to be incorrect. Important factors that could cause actual results to differ materially from estimates or projections contained in the forward-looking statements include but are not limited to:
•general economic conditions;
•difficulty making acquisitions and successfully integrating acquired businesses;
•any unforeseen liabilities associated with future acquisitions;
•limitations on our business imposed by our indebtedness;
•unfavorable changes in foreign exchange rates;
•failure to effectively mitigate cybersecurity threats;threats, including any litigation arising therefrom;
•failure to comply with new data privacy laws and regulations;regulations, including any litigation arising therefrom;
•difficulties associated with exports/imports and risks of changes to tariff rates;
•risks and costs associated with our international sales and operations;
•rising interest rates;
•product liability and insurance risks;
•increased warranty exposure;
•future competition;
•the cyclical nature of some of our markets;
•reduction of business with large customers;
•risks associated with government contracts;
•changes in the supply of, or price for, raw materials, parts and components;
•environmental compliance costs and liabilities;
•risks and costs associated with asbestos-related litigation;
•potential write-offs of our goodwill and other intangible assets;
•our ability to successfully develop new products;
•failure to protect our intellectual property;
•the effect of, or change in, government regulations (including tax);
•economic disruption caused by terrorist attacks, health crises (such as the COVID-19 pandemic) or other unforeseen geopolitical events; and
•the factors discussed in other reports filed with the SEC.SEC from time to time.
We believe these forward-looking statements are reasonable. However, you should not place undue reliance on any forward-looking statements, which are based on current expectations. Further, forward-looking statements speak only as of the date they are made, and we undertake no obligation to publicly update any of them in light of new information or future events.
Overview
Roper Technologies, Inc. (“Roper,” “we,” “us” or “our”) is a diversified technology company. We operate businesses that design and develop software (both license and SaaS) and engineered products and solutions for a variety of niche end markets.
We pursue consistent and sustainable growth in earnings and cash flow by emphasizing continuous improvement in the operating performance of our existing businesses and by acquiring other businesses that offer high value-added software, services, engineered products and solutions that we believe are capable of achieving growth and maintaining high margins. We compete in many niche markets and believe we are the market leader or a competitive alternative to the market leader in most of these markets.
Critical Accounting Policies
There were no material changes during the three months ended March 31, 20202021 to the items that we disclosed as our critical accounting policies and estimates in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report.
Recently Issued Accounting Standards
Information regarding new accounting pronouncements is included in Note 2 of the Notes to Condensed Consolidated Financial Statements.
Impact of COVID-19 on our Business
A novel strain of coronavirus (COVID-19) was first identified in December 2019, and subsequently declared a pandemic by the World Health Organization.
Our top priority during thisthe coronavirus (COVID-19) pandemic is on the health and safety of our employees.employees, customers and vendors. The leadership teams at our businesses werecontinue to be proactive in instituting safety measures that protect our employees, customers and vendors, while maintaining operational capabilities required to meet theirour customers’ needs. All our businesses with manufacturing facilities have been deemed essential businesses and remain operational, supplying our customers with critical products. Additionally, all of our businesses have beencontinue to be operational in their work-from-home environments.environments with limited disruption.
The spread of COVID-19 has caused us to modify our business practices, and we may take further actions as required by governmental and other regulatory authorities or as we determine to protect the safety or best interests of our employees, customers, suppliers and business partners. Some changes in business practices include, but are not limited to: restricting employee travel, developing social distancing plans for our employees, expanding the number of our associates who work from home, and cancelling physical participation in meetings, events and conferences.
The extent to which the COVID-19 pandemic impacts our business, results of operations and financial condition will depend on future developments, which are highly uncertain and are difficult to predict, including, but not limited to, the duration and spread of the outbreak, its severity, the actions to contain the virus and its variants including distribution and administration of available vaccines, and how quickly and to what extent normal economic and operating conditions can resume. As COVID-19 and its variants spread, particularly in countries with low vaccination rates, certain countries may experience more severe and lasting impacts from the pandemic. To the extent we have operations and/or customers in these countries, we may experience adverse impacts on our businesses located in such countries. For example, India is currently experiencing a severe outbreak of COVID-19. While most of our employees located in India are currently able to continue to operate in work-from-home environments, to the extent the outbreak intensifies or persists indefinitely it is difficult to predict how such outbreak may ultimately impact our businesses with employees and/or operations located in India.
While we did not experience a material impact on our results in the first quarter of 2020, COVID-19 has created significant uncertainty in the future economic outlook of our businesses.
We operate a diverse portfolio of businesses, and, as a result, our businesses are navigating through a diverse set of challenges. Some of the impacts our businesses are experiencing from COVID-19 include, but are not limited to:
•Our businesses have been unable to visit current and potential customers in order to solicit new business and/or provide necessary on-site implementation and training services, which has impacted our ability to obtain new business, and in some cases, effectively service existing business;
•Government restrictions on non-emergency hospital procedures may decrease (1) demand in our businesses that provide medical products used in non-emergency procedures and (2) revenue related to pharmaceutical utilization in post-acute healthcare settings;
•The unprecedented slowdown and/or shut down of global economy sectors and the related uncertain timeline to reopen and recover has created a weak demand environment for our businesses serving industrial and energy markets;
•Some of our customers, including those in the medical field, will likely delay payments to us while they are addressing the numerous challenges presented by COVID-19; such delays will impact the timing of our cash flow and our financial performance.
While our expectations for our operating results in 2020 have been lowered to reflect the new economic environment, our businesses are taking pragmatic cost countermeasures to manage profitability while continuing strategic investments for long term growth.
Our financial position remains strong with $1,000 of cash on-hand as of March 31, 2020 and an undrawn $2,500 revolving line of credit. Additionally, we expect our operating cash flow generation capability to continue due to our high levels of recurring revenue, high profitability, low capital expenditure requirements, and low working capital requirements. We believe that existing cash balances, together with funds generated from operations and amounts available under our credit facility, will be sufficient to finance our operations and meet our foreseeable cash requirements, including quarterly cash dividends and certain strategic acquisitions through at least the next twelve months.
Results of Operations
All currency amounts are in millions, percentages are of net revenues
General
Percentages may not sum due to rounding.
The following table sets forth selected information for the periods indicated.
| | | Three months ended March 31, | | | Three months ended March 31, | |
| | 2020 | | 2019 | | | 2021 | | 2020 | |
Net revenues: | Net revenues: | | | | | Net revenues: | | | | |
Application Software | Application Software | $ | 405.1 | | | $ | 381.2 | | | Application Software | $ | 576.6 | | | $ | 405.1 | | |
Network Software & Systems | Network Software & Systems | 438.2 | | | 345.7 | | | Network Software & Systems | 440.2 | | | 438.2 | | |
Measurement & Analytical Solutions | Measurement & Analytical Solutions | 365.2 | | | 401.8 | | | Measurement & Analytical Solutions | 381.0 | | | 365.2 | | |
Process Technologies | Process Technologies | 142.2 | | | 158.5 | | | Process Technologies | 130.8 | | | 142.2 | | |
Total | Total | $ | 1,350.7 | | | $ | 1,287.2 | | | Total | $ | 1,528.6 | | | $ | 1,350.7 | | |
Gross margin: | Gross margin: | | | | | Gross margin: | | | | |
Application Software | Application Software | 66.7 | % | | 66.5 | % | | Application Software | 69.1 | % | | 66.7 | % | |
Network Software & Systems | Network Software & Systems | 66.9 | | | 69.1 | | | Network Software & Systems | 68.0 | | | 66.9 | | |
Measurement & Analytical Solutions | Measurement & Analytical Solutions | 58.8 | | | 57.5 | | | Measurement & Analytical Solutions | 59.0 | | | 58.8 | | |
Process Technologies | Process Technologies | 55.3 | | | 54.9 | | | Process Technologies | 54.3 | | | 55.3 | | |
Total | Total | 63.4 | | | 63.0 | | | Total | 65.0 | | | 63.4 | | |
Selling, general and administrative expenses: | Selling, general and administrative expenses: | | | Selling, general and administrative expenses: | | |
Application Software | Application Software | 42.7 | % | | 42.5 | % | | Application Software | 42.5 | % | | 42.7 | % | |
Network Software & Systems | Network Software & Systems | 35.3 | | | 32.9 | | | Network Software & Systems | 37.2 | | | 35.3 | | |
Measurement & Analytical Solutions | Measurement & Analytical Solutions | 27.5 | | | 28.1 | | | Measurement & Analytical Solutions | 26.4 | | | 27.5 | | |
Process Technologies | Process Technologies | 24.8 | | | 23.3 | | | Process Technologies | 25.0 | | | 24.8 | | |
Total | Total | 34.3 | | | 33.1 | | | Total | 35.5 | | | 34.3 | | |
Segment operating margin: | Segment operating margin: | | | Segment operating margin: | | |
Application Software | Application Software | 24.1 | % | | 24.0 | % | | Application Software | 26.7 | % | | 24.1 | % | |
Network Software & Systems | Network Software & Systems | 31.7 | | | 36.2 | | | Network Software & Systems | 30.8 | | | 31.7 | | |
Measurement & Analytical Solutions | Measurement & Analytical Solutions | 31.2 | | | 29.4 | | | Measurement & Analytical Solutions | 32.6 | | | 31.2 | | |
Process Technologies | Process Technologies | 30.5 | | | 31.6 | | | Process Technologies | 29.3 | | | 30.5 | | |
Total | Total | 29.1 | | | 29.9 | | | Total | 29.5 | | | 29.1 | | |
Corporate administrative expenses | Corporate administrative expenses | (3.3) | | | (3.0) | | | Corporate administrative expenses | (3.3) | | | (3.3) | | |
Income from operations | Income from operations | 25.9 | | | 26.9 | | | Income from operations | 26.2 | | | 25.9 | | |
Interest expense, net | Interest expense, net | (3.4) | | | (3.4) | | | Interest expense, net | (4.0) | | | (3.4) | | |
| Other income (expense), net | Other income (expense), net | 0.1 | | | (0.2) | | | Other income (expense), net | 1.8 | | | 0.1 | | |
Gain on disposal of business | — | | | 9.3 | | | |
Earnings before income taxes | Earnings before income taxes | 22.6 | | | 32.6 | | | Earnings before income taxes | 24.0 | | | 22.6 | | |
Income taxes | Income taxes | (4.8) | | | (3.9) | | | Income taxes | (5.1) | | | (4.8) | | |
Net earnings | Net earnings | 17.8 | % | | 28.7 | % | | Net earnings | 18.9 | % | | 17.8 | % | |
Three months ended March 31, 20202021 compared to three months ended March 31, 20192020
Net revenues for the three months ended March 31, 20202021 increased by 4.9%13% as compared to the three months ended March 31, 2019.2020. The increase was the result of organic growth of 3.6%, and a net acquisition/divestiture contribution of 1.7%12% and a foreign exchange benefit of 1%, partially offset by a negative foreign exchange impactan organic decline of 0.4%1%.
In our Application Software segment, revenues were $576.6 in the first quarter of 2021 as compared to $405.1 in the first quarter of 2020, as compared to $381.2 in the first quarter of 2019, an increase of 6%42%. OrganicAcquisitions contributed 38%, organic revenues increased 5%2% and acquisitions accounted for 2% of our growth.foreign exchange contributed 1% to growth in the segment. The increase in organic revenues was due primarily to broad-based revenue growth across the segment, led byour businesses serving the healthcare and government contracting utilities and healthcaremarkets, partially offset by declines in our businesses serving the education markets. Gross margin increased to 69.1% in the first quarter of 2021 as compared to 66.7% in the first quarter of 2020 as compared to 66.5% in the first quarter of 2019 due primarily to operating leverage on higher revenues.the acquisition of Vertafore and favorable revenue mix across the segment. Selling, general and administrative (“SG&A”) expenses as a percentage of revenues increaseddecreased to 42.5% in the first quarter of 2021 as compared to 42.7% in the first quarter of 2020 as compareddue primarily to 42.5%operating leverage on organic revenue growth, partially offset by higher amortization of acquired intangibles from the Vertafore and EPSi acquisitions. The resulting operating margin was 26.7% in the first quarter of 2019 due primarily2021 as compared to revenue mix. The resulting operating margin was 24.1% in the first quarter of 2020 as compared to 24.0% in the first quarter of 2019.2020.
In our Network Software & Systems segment, revenues were relatively flat at $440.2 in the first quarter of 2021 as compared to $438.2 in the first quarter of 2020 as compared2020. Organic revenues decreased 2%, offset by growth in the segment due to $345.7contributions from acquisitions of 2% and foreign exchange of 1%. The decrease in organic revenues was primarily due to project timing and lower toll tag volumes in our toll and traffic business, partially offset by subscription growth at our SaaS businesses. Gross margin increased to 68.0% in the first quarter of 2019, an increase of 27%. Organic revenues increased 9% and acquisitions accounted for 18% of our growth. The growth in organic revenues was due to broad-based revenue growth across the segment, led by businesses serving the toll and traffic, logistics, and access management markets. Gross margin decreased2021 as compared to 66.9% in the first quarter of 2020 as compared to 69.1% in the first quarter of 2019 due primarily to revenue mix. SG&A expenses as a percentage of revenues increased to 37.2% in the first quarter of 2021 as compared to 35.3% in the first quarter of 2020 as compared to 32.9% in the first quarter of 2019 due primarily to the acquisitions completed in 2019, including amortization of acquired intangibles.revenue mix. As a result, operating margin was 30.8% in the first quarter of 2021 as compared to 31.7% in the first quarter of 2020 as compared to 36.2% in the first quarter of 2019.2020.
Our Measurement & Analytical Solutions segment revenues decreasedincreased by 9%4% to $381.0 in the first quarter of 2021 as compared to $365.2 in the first quarter of 2020 as compared to $401.8 in the first quarter of 2019.2020. Organic revenues increased 3%, more than offset by a decrease2% and foreign exchange contributed 2% to growth in revenue of 12% attributable to the disposal of (i) Princeton Instruments, Photometrics, Lumenera, and other brands (collectively, the “Imaging” businesses) on February 5, 2019 and (ii) Gatan, Inc. (“Gatan”) on October 29, 2019.segment. The growth in organic revenues was primarily due primarily to our medical products businesses, and to a lesser extentpartially offset by declines in our water meter technology business, partially offset by industrial business declines.due to restricted access to indoor meters located in the Northeast United States and Canada. Gross margin increased to 59.0% in the first quarter of 2021 as compared to 58.8% in the first quarter of 2020 as compared to 57.5% in the first quarter of 2019 due primarily to operating leverage on higher organic revenues.revenue mix. SG&A expenses as a percentage of revenues decreased to 26.4% in the first quarter of 2021 as compared to 27.5% in the first quarter of 2020 as compareddue primarily to 28.1%higher operating leverage on organic revenue growth. The resulting operating margin was 32.6% in the first quarter of 2019 due primarily2021 as compared to operating leverage on higher organic revenues and the sale of the Imaging and Gatan businesses. The resulting operating margin was 31.2% in the first quarter of 2020 as compared to 29.4% in the first quarter of 2019.2020.
Our Process Technologies segment revenues decreased by 10%8% to $130.8 in the first quarter of 2021 as compared to $142.2 in the first quarter of 2020 as compared to $158.5 in the first quarter of 2019.2020. Organic revenues decreased 10%, and the negativepartially offset by a foreign exchange impact was 1%contribution of 2%. The decrease in organicOrganic revenues wasdecreased due primarily to broad-based revenue declines across the segment led by lower demand at our businesses serving upstream oil and gas end markets. Gross margin increaseddecreased to 54.3% in the first quarter of 2021 as compared to 55.3% in the first quarter of 2020 as compared to 54.9% in the first quarter of 2019 due primarily to increased sales of higher margin productslower revenues across a number ofthe businesses. SG&A expenses as a percentage of revenues increased to 25.0% in the first quarter of 2021 as compared to 24.8% in the first quarter of 2020 as compared to 23.3% in the first quarter of 2019 due primarily to thelower operating leverage on organic revenue decline previously discussed.declines. As a result, operating margin was 29.3% in the first quarter of 2021 as compared to 30.5% in the first quarter of 2020 as compared to 31.6% in the first quarter of 2019.2020.
Corporate expenses increased to $51.1, or 3.3% of revenues, in the first quarter of 2021 as compared to $44.4, or 3.3% of revenues, in the first quarter of 2020 as compared to $38.5, or 3.0% of revenues, in the first quarter of 2019.2020. The dollar increase was due primarily to higher acquisition-related expense and stock compensation expense.related expenses, partially offset by lower acquisition related expenses.
Net interest expense was $60.6 for the first quarter of 2021 as compared to $45.4 for the first quarter of 2020 as compared to $43.7 for the first quarter of 2019 due to higher weighted average debt balances, partially offset by lower weighted average interest rates.
Other income, net, of $27.0 for the first quarter of 2021 was composed primarily of a gain on sale of minority investment of $27.1. Other income, net, of $0.8 for the first quarter of 2020 was composed primarily of foreign exchange gains at our non-U.S. based subsidiaries. Other expense, net of $3.1 for the first quarter of 2019 was composed primarily of foreign exchange losses at our non-U.S. subsidiaries.
Gain on disposal of business, of $119.6 in the first quarter of 2019 is the pretax gain recognized on the sale of the Imaging businesses, which closed February 5, 2019.subsidiaries
Income taxes as a percent of pretax earnings were relatively flat at 21.2% in the first quarter of 2021 as compared to 21.1% in the first quarter of 2020 as compared to 11.8% in the first quarter of 2019. The increase is due primarily to the recognition of a discrete tax benefit of $43.0 in the first quarter of 2019, in connection with a foreign restructuring plan allowing the future realization of net operating losses.2020.
Backlog is equal to our remaining performance obligations expected to be recognized within the next 12 months as discussed in Note 1110 of the Notes to Condensed Consolidated Financial Statements. Backlog increased 22%25% to $2,578.7 at March 31, 2021 as compared to $2,070.3 at March 31, 2020, organic growth was 3% and acquisitions contributed 22%.
as compared to $1,697.7 at March 31, 2019, organic growth was 20% and acquisitions contributed 8%, partially offset by a 6% decline related to the disposal of the Gatan and Imaging businesses.
| | | Backlog as of | | | Backlog as of |
| | March 31, | | | March 31, |
| | 2020 | | 2019 | | 2021 | | 2020 |
Application Software | Application Software | $ | 838.6 | | | $ | 769.3 | | Application Software | $ | 1,394.6 | | | $ | 838.6 | |
Network Software & Systems | Network Software & Systems | 877.9 | | | 518.9 | | Network Software & Systems | 814.4 | | | 877.9 | |
Measurement & Analytical Solutions | Measurement & Analytical Solutions | 236.3 | | | 288.1 | | Measurement & Analytical Solutions | 252.8 | | | 236.3 | |
Process Technologies | Process Technologies | 117.5 | | | 121.4 | | Process Technologies | 116.9 | | | 117.5 | |
Total | Total | $ | 2,070.3 | | | $ | 1,697.7 | | Total | $ | 2,578.7 | | | $ | 2,070.3 | |
Financial Condition, Liquidity and Capital Resources
All currency amounts are in millions
Selected cash flows for the three months ended March 31, 20202021 and 20192020 were as follows:
| | | Three months ended March 31, | | | Three months ended March 31, |
Cash provided by/(used in): | Cash provided by/(used in): | 2020 | | 2019 | Cash provided by/(used in): | 2021 | | 2020 |
Operating activities | Operating activities | $ | 363.9 | | | $ | 290.3 | | Operating activities | $ | 559.6 | | | $ | 363.9 | |
Investing activities | Investing activities | (17.0) | | | 197.2 | | Investing activities | 10.7 | | | (17.0) | |
Financing activities | Financing activities | (38.7) | | | (464.3) | | Financing activities | (545.2) | | | (38.7) | |
Operating activities - Net cash provided by operating activities increased by 25.4%54% to $559.6 in the three months ended March 31, 2021 as compared to $363.9 in the three months ended March 31, 2020, as compareddue primarily to $290.3higher net income net of non-cash expenses and growth in our software businesses, which generated cash from working capital in the quarter. Additionally, wins at our UK-based laboratory software business generated approximately $36 of accelerated cash payments in the quarter.
Investing activities - Cash provided by investing activities during the three months ended March 31, 20192021 is due primarily to (i) higher cash taxes paid during the first quarterproceeds from the sale of 2019, including $39.4 on the disposal of the Imaging businesses, and (ii) higher income from operations excluding non-cash charges.
Investing activities -a minority investment, partially offset by capital expenditures. Cash used in investing activities during the three months ended March 31, 2020 was primarily for capital expenditures. Cash from investing activities during the three months ended March 31, 2019 was primarily from the disposal of the Imaging businesses.
Financing activities - Cash used in financing activities for the three months ended March 31, 2021 was primarily due to net repayments on our unsecured credit facility and dividend payments. Cash used in financing activities during the three months ended March 31, 2020 was primarily due to dividend payments, partially offset by net proceeds from stock basedstock-based compensation. Cash used in financing activities during the three months ended March 31, 2019 was primarily due to net repayments on our unsecured credit facility and dividend payments, partially offset by proceeds from stock option exercises and other short term borrowings.
Effect of foreign currency exchange rate changes on cash - Cash and cash equivalents decreased during the three months ended March 31, 2021 by $2.4 due primarily to the strengthening of the U.S. dollar against the functional currencies of our European subsidiaries. Cash and cash equivalents decreased during the three months ended March 31, 2020 by $18.1 due primarily to the strengthening of the U.S. dollar against the functional currencies of our United Kingdom, European and Canadian subsidiaries. Cash and cash equivalents increased during the three months ended March 31, 2019 by $4.9 due primarily to the strengthening of functional currencies of our United Kingdom subsidiaries against the U.S. dollar.
We also continue to monitor government economic stabilization efforts and expect to participate in certain legislative provisions to improve our liquidity. We will defer approximately $320 of U.S. and state income tax payments from the second quarter to the third quarter of 2020. Approximately $200 of the deferred U.S. income tax payments are associated with the gain on sale of Gatan. Additionally, under the U.S. Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, we expect to defer the payment of approximately $54 of employer social security payroll taxes for the remainder of 2020 to be paid equally in the fourth quarters of 2021 and 2022.
Total debt at March 31, 20202021 consisted of the following:
| | | | | |
$600 3.000% senior notes due 2020 | $ | 600.0 | |
$500 2.800% senior notes due 2021 | 500.0 | |
$500 3.125% senior notes due 2022 | 500.0 | |
$300 0.450% senior notes due 2022 | 300.0 | |
$700 3.650% senior notes due 2023 | 700.0 | |
$500 2.350% senior notes due 2024 | 500.0 | |
$300 3.850% senior notes due 2025 | 300.0 | |
$700 1.000% senior notes due 2025 | 700.0 | |
$700 3.800% senior notes due 2026 | 700.0 | |
$700 1.400% senior notes due 2027 | 700.0 | |
$800 4.200% senior notes due 2028 | 800.0 | |
$700 2.950% senior notes due 2029 | 700.0 | |
$600 2.000% senior notes due 2030 | 600.0 | |
$1,000 1.750% senior notes due 2031 | 1,000.0 | |
Unsecured credit facility | 1,125.0 | |
Deferred finance costs | (30.6)(56.8) | |
Other | 7.25.7 | |
Total debt, net of deferred finance costs | 5,276.69,073.9 | |
Less current portion | 602.4502.1 | |
Long-term debt, net of deferred finance costs | $ | 4,674.28,571.8 | |
The interest rate on borrowings under our $2,500.0$3,000.0 unsecured credit facility is calculated based upon various recognized indices plus a margin as defined in the credit facility. At March 31, 2020,2021, there were no$1,125.0 outstanding borrowings under our unsecured credit facility. At March 31, 2020,2021, we had $7.2$5.7 of other debt in the form of short term borrowings, finance leases and several smaller facilities that allow for borrowings in various foreign locations to support our non-U.S. businesses and $68.6$67.1 of outstanding letters of credit.
Cash at our foreign subsidiaries at March 31, 20202021 increased to $336$296 as compared to $292$259 at December 31, 20192020 due primarily due to the cash generated at our foreign subsidiaries during the three months ended March 31, 2020.2021, partially offset by the repatriation of $107 during the quarter. We intend to repatriate substantially all historical and future unremitted foreign earnings.
We expect existing cash and cash equivalents,balances, together with cash generated by our operations and availabilityamounts available under our unsecured credit facility, as well as our expected ability to access the capital markets, will be sufficient to fund our operating requirements for the foreseeable future.
We were in compliance with all debt covenants related to our unsecured credit facility throughout the three months ended March 31, 2020.2021.
Net working capital (total current assets, excluding cash, less total current liabilities, excluding debt) was negative $490.1$552.4 at March 31, 20202021 as compared to negative $505.4$498.4 at December 31, 2019,2020, reflecting a increasedecrease in working capital due primarily to a decrease in accounts receivable, net and an increase in income taxes payable, partially offset by a decrease in accrued compensation resulting from the timing of payments and an increase in unbilled receivables, partially offset by a decrease in accounts receivable.payments. Consistent negative net working capital demonstrates Roper’s continued evolution and focus on asset-light business models. Total debt was $5,276.6$9,073.9 at March 31, 20202021 as compared to $5,275.3$9,566.5 at December 31, 2019.2020, due primarily to the net repayments under our unsecured credit facility. Our leverage is shown in the following table:
| | | | | | | | | | | |
| March 31, 2020 | | December 31, 2019 |
Total debt | $ | 5,276.6 | | | $ | 5,275.3 | |
Cash | (999.8) | | | (709.7) | |
Net debt | 4,276.8 | | | 4,565.6 | |
Stockholders’ equity | 9,591.3 | | | 9,491.9 | |
Total net capital | $ | 13,868.1 | | | $ | 14,057.5 | |
| | | |
Net debt / total net capital | 30.8 | % | | 32.5 | % |
| | | | | | | | | | | |
| March 31, 2021 | | December 31, 2020 |
Total debt | $ | 9,073.9 | | | $ | 9,566.5 | |
Cash | (331.0) | | | (308.3) | |
Net debt | 8,742.9 | | | 9,258.2 | |
Stockholders’ equity | 10,765.7 | | | 10,479.8 | |
Total net capital | $ | 19,508.6 | | | $ | 19,738.0 | |
| | | |
Net debt / total net capital | 44.8 | % | | 46.9 | % |
Capital expenditures were $9.1 for the three months ended March 31, 2021 as compared to $7.9 for the three months ended March 31, 2020 as compared to $15.82020. Capitalized software expenditures were $7.2 for the three months ended March 31, 2019. Capitalized software expenditures were2021 as compared to $2.6 for the three months ended March 31, 2020 as compared to $2.0 for the three months ended March 31, 2019.2020. We expect the aggregate of capital expenditures and capitalized software expenditures for the balance of the year to be comparable to prior years as a percentage of revenues.
On April 23, 2020, the Company entered into Amendment No. 2 to Credit Agreement (the “Amendment”) to the Credit Agreement dated September 23, 2016 among the Company, the lenders party thereto, JPMorgan Chase Bank, N.A., as administrative agent, and the other agents and parties thereto, as previously amended December 2, 2016 (the “Credit Agreement”). The Amendment modified our gross debt to EBITDA covenant to allow for the benefit of our cash balance to be included in the calculation, changing the covenant to a net debt to EBITDA ratio. This provides the Company further flexibility and capacity in executing on our pipeline of high quality acquisition opportunities.
The Amendment amends the definition of Consolidated Total Leverage Ratio (as defined in the Credit Agreement) to be the ratio of (a)(i) Consolidated Total Debt (as defined in the Credit Agreement) minus (ii) the aggregate amount of Unrestricted Cash (as defined in the Credit Agreement) to (b) Consolidated EBITDA (as defined in the Credit Agreement). The Amendment also adds a condition to each extension of credit through December 31, 2020, that after giving effect to any such borrowing and intended use of such borrowing, the aggregate amount of Unrestricted Cash may not be greater than $1,250.
There have been no material changes to our contractual obligations from those disclosed in our Annual Report other than the Amendment.
Off-Balance Sheet Arrangements
At March 31, 2020,2021, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
Outlook
Current geopolitical and economic uncertainties could adversely affect our business prospects. The COVID-19 pandemic has had, and willmay continue to have, an adverse impact on our business. A significant terrorist attack, other global conflict, or public health crisis could cause changes in world economies that would adversely affect us. It is impossible to isolate each of these potential factor’s future effects on current economic conditions.conditions or any of our businesses. It is also impossible to predict with any reasonable degree of certainty what or when any additional events may occur that also would similarly disrupt the economy and have an adverse impact on our businesses.
WeAlthough we maintain an active acquisition program; however, futureprogram we are currently focused on reducing debt. Future acquisitions will be dependent on numerous factors and it is not feasible to reasonably estimate if or when any such acquisitions will occur and what the impact will be on our business, financial condition and results of operations. Such acquisitions may be financed by the use of existing credit lines, future cash flows from operations, future divestitures, the proceeds from the issuance of new debt or equity securities or any combination of these methods.methods, the terms and availability of which will be subject to market and economic conditions generally.
We anticipate that our businesses will generate positive cash flows from operating activities, and that these cash flows will permit the reduction of currently outstanding debt in accordance with the repayment schedule. However, the rate at which we can reduce our debt during 20202021 (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 impact of the COVID-19 pandemic on our business prospects and the financial markets generally. None of these factors can be predicted with certainty.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See “Item 7A. Quantitative and Qualitative Disclosures about Market Risk” in our Annual Report. There were no material changes during the three months ended March 31, 2020.2021.
ITEM 4. CONTROLS AND PROCEDURES
As required by SEC rules, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q (“Evaluation Date”). This evaluation was carried out under the supervision and with the participation of our management, including our principal executive officer and principal financial officer. Based on this evaluation as of the Evaluation Date, these officers have concluded that the design and operation of our disclosure controls and procedures are effective.
Our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act are accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
There were no changes to our internal controls during the period covered by this Quarterly Report on Form 10-Q that materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Information pertaining to legal proceedings can be found in Note 98 of the Notes to Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q and is incorporated by reference herein.
ITEM 1A. RISK FACTORS
For informationInformation regarding factors that could affect our business, financial condition and results of operations, see the risk factors discussioncan be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Information About Forward-Looking Statements,” in Part 1 - Item 2 of this Form 10-Q and in Part 1 - Item 1A of our 2020 Annual Report on Form 10-K. See also “Information About Forward-Looking Statements” included in Part I, Item 2 of this Quarterly Report on Form 10-Q. We are providing the following information regarding changes that have occurred to the previously disclosed risk factors in our Form 10-K. Except for such additional information, we believe there have beenThere were no material changes fromduring the quarter ended March 31, 2021 to the risk factors previously disclosedreported in ourthe Company’s 2020 Annual Report on Form 10-K.
The extent to which the coronavirus (COVID-19) outbreak and measures taken in response thereto impact our business, results of operations and financial condition will depend on future developments, which are highly uncertain and are difficult to predict.
The novel strain of the coronavirus identified in China in late 2019 has spread across the globe and has resulted in governmental and other regulatory authorities implementing numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter in place orders, and shutdowns. These measures have impacted and may further impact our workforce and operations, as well as the work force, operations and financial prospects of our customers, suppliers and business partners. There is considerable uncertainty regarding such measures and potential future measures, such as restrictions on our access to our manufacturing facilities or on our support operations or workforce, or similar limitations for our customers, suppliers and business partners. The spread of COVID-19 has caused us to modify our business practices (including restricting employee travel, developing social distancing plans for our employees, expanding the number of our associates who work from home, and cancelling physical participation in meetings, events and conferences), and we may take further actions as may be required by governmental and other regulatory authorities or as we determine to protect the safety or best interests of our employees, customers, suppliers and business partners.
Some of the impacts our businesses are experiencing from COVID-19 include, but are not limited to:
•Our businesses have been unable to visit current and potential customers in order to solicit new business and/or provide necessary on-site implementation and training services, which has impacted our ability to obtain new business, and in some cases, effectively service existing business;
•Government restrictions on non-emergency hospital procedures may decrease (1) demand in our businesses that provide medical products used in non-emergency procedures and (2) revenue related to pharmaceutical utilization in post-acute healthcare settings;
•The unprecedented slowdown and/or shut down of global economy sectors and the related uncertain timeline to reopen and recover has created a weak demand environment for our businesses serving industrial and energy markets;
•Some of our customers, including those in the medical field, will likely delay payments to us while they are addressing the numerous challenges presented by COVID-19; such delays will impact the timing of our cash flow and our financial performance.
The extent to which the coronavirus outbreak impacts our business, results of operations and financial condition will depend on future developments, which are highly uncertain and are difficult to predict, including, but not limited to, the duration and spread of the outbreak, its severity, the actions to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume. Even after the COVID-19 outbreak has subsided, we may continue to experience materially adverse impacts to our business as a result of the virus’s global economic impact, including the availability of credit, adverse impacts on our liquidity and any recession that has occurred or may occur in the future.
There are no comparable recent events that provide guidance as to the effect of the spread of COVID-19 as a global pandemic may have on our customers, suppliers, vendors and other business partners, and, as a result, the ultimate impact of the outbreak is highly uncertain and subject to change. We do not yet know the full extent of the impacts on our business, our operations or the global economic and political environment as a whole. However, the effects could have a material impact on our results of operations and heighten many of our known risks described in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2019. In addition, the rapidly changing situation could give rise to additional risks or adverse
impacts of which we are not presently aware, such as the ability to complete acquisitions, the ability to obtain credit through the capital markets and/or through our revolving credit facility.
ITEM 6. EXHIBITS
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31.1 | | | | |
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31.2 | | | | |
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32.1 | | | | |
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101.INS | | XBRL Instance Document, filed herewith.Document. | |
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101.SCH | | XBRL Taxonomy Extension Schema Document, filed herewith.Document. | |
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101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document, filed herewith.Document. | |
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101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document, filed herewith.Document. | |
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101.LAB | | XBRL Taxonomy Extension Label Linkbase Document, filed herewith.Document. | |
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101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document, filed herewith.Document. | |
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104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). | |
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Roper Technologies, Inc.
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/S/ L. Neil Hunn | | President and Chief Executive Officer | May 6, 20205, 2021 |
L. Neil Hunn | | (Principal Executive Officer) | |
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/S/ Robert C. Crisci | | Executive Vice President and Chief Financial Officer | May 6, 20205, 2021 |
Robert C. Crisci | | (Principal Financial Officer) | |
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/S/ Jason Conley | | Vice President and ControllerChief Accounting Officer | May 6, 20205, 2021 |
Jason Conley | | (Principal Accounting Officer) | |