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 endedDecember 31, 2021 ("Annual Report") as filed onFebruary 22, 2022 with theU.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 theSEC 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 any ongoing impacts of the COVID-19 pandemic on our business, operations, financial results and liquidity, which will depend on numerous evolving factors that we cannot accurately predict or assess, including: the duration and scope of the pandemic, new variants of the virus and the distribution and efficacy of vaccines; the impact of vaccine mandates on our workforce in certain jurisdictions; any 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 following the pandemic. 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, including any litigation arising therefrom; •failure to comply with new data privacy laws and 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, labor, energy, raw materials, parts and components, including as a result of impacts from the current inflationary environment, ongoing supply chain constraints or outbreaks of COVID-19; •environmental compliance costs and liabilities; •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); 17 -------------------------------------------------------------------------------- •economic disruption caused by armed conflicts (such as the war inUkraine ), terrorist attacks, health crises (such as the COVID-19 pandemic) or other unforeseen geopolitical events; and •the factors discussed in other reports we file with theSEC from time to time. 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 these statements in light of new information or future events.
Overview
Roper is a diversified technology company. We operate market leading businesses that design and develop vertical software and application-specific products for a variety of defensible niche markets. We pursue consistent and sustainable growth in revenue, earnings and cash flow by emphasizing continuous improvement in the operating performance of our businesses. In addition, we utilize a disciplined, analytical and process-driven approach to redeploy our excess free cash flow toward high-quality acquisitions.
Discontinued Operations
During 2021, the Company signed definitive agreements to divest our TransCore,Zetec and CIVCO Radiotherapy businesses. As ofMarch 31, 2022 , Roper has completed all three divestitures. The financial results of these businesses are classified as discontinued operations and certain prior period amounts have been reclassified to conform to current period presentation. Information regarding discontinued operations is included in Note 5 of the Notes to Condensed Consolidated Financial Statements.
Critical Accounting Policies
There were no material changes during the three months endedMarch 31, 2022 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
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 and its severity, the actions to contain the virus and its variants including the distribution, administration and efficacy of available vaccines, the impact of vaccine mandates on our workforce, and how quickly and to what extent normal economic and operating conditions can resume. As a result of the effects of the COVID-19 global pandemic our ability to obtain products or services from certain suppliers and to operate at certain locations have been and may continue to be impacted. If COVID-19 and its variants continue to 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. 18 -------------------------------------------------------------------------------- Results of Continuing Operations All currency amounts are in millions, percentages are of net revenues
Percentages may not sum due to rounding.
The following table sets forth selected information for the periods indicated. Three months ended March 31, 2022 2021 Net revenues: Application Software$ 631.5 $ 576.6 Network Software & Systems 368.7 314.2 Measurement & Analytical Solutions 392.4 369.6 Process Technologies 134.0 115.7 Total$ 1,526.6 $ 1,376.1 Gross margin: Application Software 69.3 % 69.1 % Network Software & Systems 82.0 81.6 Measurement & Analytical Solutions 55.5 59.0 Process Technologies 54.0 54.2 Total 67.5 68.0 Selling, general and administrative expenses: Application Software 41.8 % 42.5 % Network Software & Systems 42.6 45.3 Measurement & Analytical Solutions 25.9 26.2 Process Technologies 22.8 23.9 Total 36.2 37.2 Segment operating margin: Application Software 27.5 % 26.7 % Network Software & Systems 39.4 36.3 Measurement & Analytical Solutions 29.5 32.9 Process Technologies 31.2 30.3 Total 31.2 30.8 Corporate administrative expenses (3.7) (3.6) Income from operations 27.6 27.2 Interest expense, net (3.4) (4.4) Other income (expense), net (0.1) 2.0 Earnings before income taxes 24.0 24.8 Income taxes (5.2) (5.2) Net earnings from continuing operations 18.8 % 19.6 % 19
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Three months ended
Net revenues for the three months endedMarch 31, 2022 increased by 10.9% as compared to the three months endedMarch 31, 2021 . The components of revenue growth for the three months endedMarch 31, 2022 were as follows: Network Software & Measurement & Application Software Systems Analytical Solutions Process Technologies Roper Total Revenue Growth 9.5 % 17.3 % 6.2 % 15.9 % 10.9 % Less Impact of: Acquisitions/Divestitures 1.0 1.5 - - 0.8 Foreign Exchange (0.6) (0.3) (1.1) (1.7) (0.8) Organic Revenue Growth 9.1 % 16.1 % 7.3 % 17.6 % 10.9 % In our Application Software segment, revenues were$631.5 in the three months endedMarch 31, 2022 as compared to$576.6 in the three months endedMarch 31, 2021 . The growth of 9.1% in organic revenues was broad-based across the segment led by our businesses serving property and casualty insurance, government contracting, and acute healthcare markets. Gross margin increased to 69.3% in the three months endedMarch 31, 2022 as compared to 69.1% in the three months endedMarch 31, 2021 due primarily to operating leverage on higher organic revenues and revenue mix. SG&A expenses decreased as a percentage of revenue to 41.8% in the three months endedMarch 31, 2022 as compared to 42.5% in the three months endedMarch 31, 2021 due to operating leverage on higher organic revenues. The resulting operating margin was 27.5% in the three months endedMarch 31, 2022 as compared to 26.7% in the three months endedMarch 31, 2021 . In ourNetwork Software & Systems segment, revenues were$368.7 in the three months endedMarch 31, 2022 as compared to$314.2 in the three months endedMarch 31, 2021 . The growth of 16.1% in organic revenues was broad-based across the segment led by our network software businesses serving the freight match, media and entertainment and life insurance markets. Gross margin increased to 82.0% in the three months endedMarch 31, 2022 as compared to 81.6% in the three months endedMarch 31, 2021 due primarily to revenue mix. SG&A expenses decreased as a percentage of revenues at 42.6% in the three months endedMarch 31, 2022 as compared to 45.3% in the three months endedMarch 31, 2021 due primarily to operating leverage on higher organic sales combined with revenue mix. As a result, operating margin was 39.4% in the three months endedMarch 31, 2022 as compared to 36.3% in the three months endedMarch 31, 2021 . In our Measurement & Analytical Solutions segment, revenues were$392.4 in the three months endedMarch 31, 2022 as compared to$369.6 in the three months endedMarch 31, 2021 . The growth of 7.3% in organic revenues was primarily due to our water meter technology business and industrial businesses. Gross margin decreased to 55.5% in the three months endedMarch 31, 2022 as compared to 59.0% in the three months endedMarch 31, 2021 due primarily to higher material, component and freight costs as our businesses navigate the widespread global supply chain challenges. SG&A expenses as a percentage of revenues decreased to 25.9% in the three months endedMarch 31, 2022 as compared to 26.2% in the three months endedMarch 31, 2021 due primarily to revenue mix. The resulting operating margin was 29.5% in the three months endedMarch 31, 2022 as compared to 32.9% in the three months endedMarch 31, 2021 . In our Process Technologies segment, revenues were$134.0 in the three months endedMarch 31, 2022 as compared to$115.7 in the three months endedMarch 31, 2021 . The growth of 17.6% in organic revenues was broad-based across the segment led by a recovery in oil and gas markets. Gross margin decreased to 54.0% in the three months endedMarch 31, 2022 as compared to 54.2% in the three months endedMarch 31, 2021 due to primarily to revenue mix partially offset by higher operating leverage on organic revenues. SG&A expenses as a percentage of revenues decreased to 22.8% in the three months endedMarch 31, 2022 as compared to 23.9% in the three months endedMarch 31, 2021 due to operating leverage on higher organic revenues. As a result, operating margin was 31.2% in the three months endedMarch 31, 2022 as compared to 30.3% in the three months endedMarch 31, 2021 . Corporate expenses increased to$55.8 , or 3.7% of revenues, in the three months endedMarch 31, 2022 as compared to$49.8 , or 3.6% of revenues, in the three months endedMarch 31, 2021 . The dollar increase was due primarily to higher compensation and professional services expense. Net interest expense decreased to$52.6 for the three months endedMarch 31, 2022 as compared to$60.6 for the three months endedMarch 31, 2021 due to lower weighted average debt balances associated with our credit facility and fixed debt. 20 -------------------------------------------------------------------------------- Other expense, net, of$1.9 for the three months endedMarch 31, 2022 was composed primarily of a one-time charge associated with a transaction to transfer the remainder of our exposure related to asbestos claims to a third party, partially offset by foreign exchange gains at our non-U.S. based subsidiaries. Other income, net, of$27.1 for the three months endedMarch 31, 2021 was composed primarily of a gain on sale of minority investment of$27.1 . Income taxes as a percent of pretax earnings were 21.5% for the three months endedMarch 31, 2022 as compared to 20.9% for the three months endedMarch 31, 2021 . The rate was impacted by the timing of a tax benefit associated with an internal restructuring plan that occurred in the first quarter of 2021. Backlog is equal to our remaining performance obligations expected to be recognized within the next 12 months as discussed in Note 12 of the Notes to Condensed Consolidated Financial Statements. Backlog increased 28% to$2,718.0 atMarch 31, 2022 as compared to$2,131.6 atMarch 31, 2021 . Organic growth in backlog was 27% and acquisitions contributed 1%. Backlog as of March 31, 2022 2021 Application Software$ 1,567.5 $ 1,394.6 Network Software & Systems 476.5 382.1 Measurement & Analytical Solutions 508.8 248.5 Process Technologies 165.2 106.4 Total$ 2,718.0 $ 2,131.6
Financial Condition, Liquidity and Capital Resources All currency amounts are in millions
Selected cash flows for the three months endedMarch 31, 2022 and 2021 were as follows: Three months ended March 31, Cash provided by/(used in): 2022 2021 Continuing operations: Cash provided by operating activities $ 473.8$ 525.9 Cash (used in) provided by investing activities $ (67.8) $ 12.7 Cash used in financing activities $ (508.8)$ (544.8) Cash flows provided by discontinued operations$ 2,996.1
$ 31.3
Operating activities - Net cash provided by operating activities from continuing operations decreased by 10% to$473.8 in the three months endedMarch 31, 2022 as compared to$525.9 in the three months endedMarch 31, 2021 , due primarily to less cash provided by working capital associated with higher incentive compensation payments in the first quarter of 2022 associated with 2021 performance and approximately$36 of accelerated cash receipts in the first quarter of 2021 generated from ourUK -based laboratory software business. These decreases were partially offset by higher net income from continuing operations net of non-cash expenses. Investing activities - Cash used in investing activities from continuing operations during the three months endedMarch 31, 2022 is due to a business acquisition and capital expenditures. Cash provided by investing activities from continuing operations during the three months endedMarch 31, 2021 was due primarily to the proceeds from the sale of a minority investment, partially offset by capital expenditures. Financing activities - Cash used in financing activities from continuing operations for the three months endedMarch 31, 2022 was primarily due to repayments on our unsecured credit facility and dividend payments, partially offset by net proceeds from stock based compensation. Cash used in financing activities from continuing operations during the three months endedMarch 31, 2021 was primarily due to net repayments on our unsecured credit facility and dividend payments. Discontinued operations - Cash provided by discontinued operations for the three months endedMarch 31, 2022 was primarily due to proceeds from the sale of TransCore andZetec slightly offset by less cash provided by discontinued operations which was impacted by the timing of our divestiture activity. Cash provided by discontinued operations during the three months ended 21 --------------------------------------------------------------------------------March 31, 2021 was primarily due to net income net of non-cash expenses and cash provided by working capital primarily associated with the timing of payments related to accounts receivable. Effect of foreign currency exchange rate changes on cash - Cash and cash equivalents decreased during the three months endedMarch 31, 2022 by$7.3 due primarily to the strengthening of theU.S. dollar against the functional currencies of our European andUnited Kingdom subsidiaries partially offset by weakening of theU.S. dollar against our Canadian subsidiaries. Cash and cash equivalents decreased during the three months endedMarch 31, 2021 by$2.4 due primarily to the strengthening of theU.S. dollar against the functional currencies of our European subsidiaries.
Total debt at
$500 3.125% senior notes due 2022$ 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 - Deferred finance costs (45.9) Other 0.2
Total debt, net of deferred finance costs 7,454.3 Less current portion
799.5
Long-term debt, net of deferred finance costs
The interest rate on borrowings under our$3,000.0 unsecured credit facility is calculated based upon various recognized indices plus a margin as defined in the credit facility. AtMarch 31, 2022 , we had no outstanding borrowings under our unsecured credit facility and$20.3 of outstanding letters of credit. Cash at our foreign subsidiaries atMarch 31, 2022 increased to$394 as compared to$311 atDecember 31, 2021 due primarily to the cash generated at our foreign subsidiaries during the three months endedMarch 31, 2022 , partially offset by the repatriation of$29 during the three months endedMarch 31, 2022 . We intend to repatriate substantially all historical and future earnings. We expect existing cash balances, together with cash generated by our operations and amounts available under our credit facility, 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
22 -------------------------------------------------------------------------------- Net working capital (total current assets, excluding cash and current assets held for sale, less total current liabilities, excluding debt and current liabilities held for sale) decreased to negative$1,454.2 atMarch 31, 2022 as compared to negative$882.5 atDecember 31, 2021 primarily driven by an increase in income taxes payable associated with the divestitures of TransCore andZetec and a reduction in accounts receivable, partially offset by a decrease in accrued compensation. Consistent negative net working capital demonstrates Roper's continued evolution and focus on asset-light business models. Total debt was$7,454.3 atMarch 31, 2022 as compared to$7,921.8 atDecember 31, 2021 , due primarily to the net repayments under our unsecured credit facility. Our leverage on a continuing operations basis is shown in the following table: March 31, December 31, 2022 2021 Total debt$ 7,454.3 $ 7,921.8 Cash (3,237.5) (351.5) Net debt 4,216.8 7,570.3 Stockholders' equity 13,551.9 11,563.8 Total net capital$ 17,768.7 $ 19,134.1 Net debt / total net capital 23.7 % 39.6 % Capital expenditures were$7.1 for the three months endedMarch 31, 2022 as compared to$7.1 for the three months endedMarch 31, 2021 . Capitalized software expenditures were$7.5 for the three months endedMarch 31, 2022 as compared to$7.2 for the three months endedMarch 31, 2021 . 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.
Off-Balance Sheet Arrangements
At
Outlook
Current geopolitical and economic uncertainties could adversely affect our business prospects. The COVID-19 pandemic has had, and may continue to have, an adverse impact on our business. An armed conflict (such as the war inUkraine ), 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 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. We maintain an active acquisition program; however, 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, announced divestitures, future divestitures, the proceeds from the issuance of new debt or equity securities or any combination of these methods, the terms and availability of which will be subject to 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 (and reduce the associated interest expense) will be affected by, among other things, the financing and operating requirements of any new acquisitions, the financial performance of our existing 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. 23
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