Good morning and thank you all for joining us as we discuss the second quarter financial results for Roper Technologies. Joining me on the call this morning are Neil Hunn, President and Chief Executive Officer; Rob Crisci, Executive Vice President and Chief Financial Officer; Jason Conley, Vice President and Chief Accounting Officer; and Shannon O'Callaghan, Vice President of Finance. Earlier this morning, we issued a press release announcing our financial results. The press release also includes replay information for today's call. We prepared slides to accompany today's call, which are available through the webcast and are also available on our website. Now if you please turn to Page 2. We begin with our safe harbor statement. During the course of today's call, we will make forward-looking statements which are subject to risks and uncertainties as described on this page, in our press release and in our SEC filings. You should listen to today's call in the context of that information. And now please turn to Page 3. Today, we will discuss our results for the quarter primarily on an adjusted non-GAAP basis. During the quarter, Roper announced an agreement to sell a majority stake in our industrial businesses. Results for these businesses are reported as discontinued operations for all periods presented. Unless otherwise noted, the numbers shown in this presentation are on a continuing operations basis. For the second quarter, the difference between our GAAP results and adjusted results consists of the following items: amortization of acquisition-related intangible assets; purchase accounting adjustments to commission expense income tax restructuring expense associated with the pending sale of our industrial businesses. And lastly, we have adjusted our cash flow statement to exclude the cash taxes paid related to our 2021 divestitures. GAAP requires these payments to be classified as operating cash flow items even though they are related to the divestitures. Reconciliations can be found in our press release and in the appendix of this presentation on our website. And now if you please turn to Page 4, I'll hand the call over to Neil. After our prepared remarks, we will take questions from our telephone participants. Neil?

Thanks, Zack, and good morning, everyone. Thanks for joining us. This morning, we'll start by reviewing our second quarter highlights and financial results then we'll review our segment detail and our increase out for the year then get to your questions. Next slide, please. As we turn to Page 5, the main takeaways for today's call are first, we had another great quarter of operational and financial performance, and we're increasing our outlook for the year; second, during the quarter, we entered into an agreement to divest the majority stake of our industrial businesses; and third, we have north of $7 billion of available M&A firepower. Looking at the second quarter, we continue to be pleased with the quality of execution across our enterprise. This quarter is characterized by having very strong order activity and solid organic growth of 11%. Of particular importance, our growth was quite broad-based across our three segments. Consistent with our commentary during the last several quarters, not only did we grow nicely within the quarter, but the quality of the underlying businesses also improved as we saw our software recurring revenue base grow 12% on an organic basis. In addition to our strong software growth, our product businesses performed very well in the quarter, experiencing very high levels of demand and record levels of backlog. Once we complete the divestiture of the majority interest of our industrial businesses, the quality of our portfolio will be significantly improved across several dimensions. First, we will be meaningfully less cyclical with about 75% of our portfolio being software and the balance being medical and water products. Second, we'll have higher levels of recurring revenue with 80% of our software revenue being recurring in nature. Also, a large percentage of our product revenue is recurring in nature, such as Neptune's replacement demand and our medical product consumables. And third, we'll be even more asset-light given a vastly improved working capital profile one that generates a significant increasing amount of cash as we continue to grow. And finally, with the closing of our industrial divestiture, which we anticipate will occur later this year, we'll have north of $7 billion of M&A capacity. We are very active in the M&A markets, but also remain super patient and highly disciplined to ensure optimal deployment of our available capital. We are confident in our ability to deploy this capital wisely, which in turn will further improve both the quality and scale of our enterprise. We are proud of our operating team for their execution, a very solid quarter. Now let me turn the call to Rob, who will walk through our financial summary. Rob?

Thanks, Neil. Good morning, everyone. Turning to Page 6, here we want to briefly cover our Q2 performance compared to our guidance, including the industrial businesses now reported as part of discontinued operations due to the pending sale. On that apples-to-apples basis, our Q2 of $3.95 compares quite favorably to our guidance of $3.80 to $3.84, an $0.11 beat at the high end of our guidance, a very strong quarter. Next slide. Turning to Page 7 and covering the Q2 financial highlights. Here we will review some of the key financial metrics on a continuing operations basis which is our reporting basis for earnings and guidance moving forward. Total revenue increased 10% to $1.31 billion. Organic revenue increased 11% with strength across each of our three reporting segments. Application Software grew 7% organically as our two largest businesses, Deltek and Vertafore continue to perform very well. Network software grew 15% led by continued exceptional performance at our freight matching businesses. Finally, our new technology-enabled products segment grew 13% organically, aided by an excellent quarter from Neptune. EBITDA margin was 39.3%, resulting in EBITDA increasing 10% to $515 million. DEPS on a continuing ops basis was 3.43%, 16% higher than last year. Net working capital is now negative 17% of Q2 annualized revenue as a result of our higher quality portfolio. Q2 adjusted free cash flow was $252 million, which was 19% below prior year, but still represents a 17% three-year CAGR versus 2019. Notably, like many technology companies, our cash flow was negatively impacted by the Section 174 R&D capitalization change that took effect for 2022. We paid $49 million in Q2 related to Section 174, and we expect to pay an additional $50 million for Section 174 in the second half. Importantly, this tax law change only impacts the timing of when the taxes are due, and not the overall amount of tax owed or our tax rate. Additionally, in the quarter, we made tax payments related to the gains on the 2021 divestitures of TransCore, Zetec and CIVCO Radiotherapy. Per our normal convention, those payments have been adjusted out of our cash flow. Finally, we are very pleased to announce the completion of our new five-year $3.5 billion revolving credit facility. We are grateful for our bank group and their continued support, and I personally would like to thank Shannon O'Callaghan next to me for the excellent work in leading the process for Roper. So in summary, with a $3 billion cash balance, our new revolver in place, and the future proceeds from the closing of our industrial sale later this year, we are very well positioned for meaningful capital deployment. So with that, I'll turn it back over to Neil.

Thanks, Rob. Congrats to you and your team for upsizing and extending our revolver, especially in these market conditions. As we turn to Page 9, we summarize for you our go-forward portfolio of 26 businesses arrayed across three segments: application software, network software and tech-enabled products. In the 8-K issued a few weeks ago, we provided historical annual and quarterly financial disclosures on this segmented basis. Also for the first time, we're breaking down our revenues by type. As you see, 61% of our total revenue and 82% of our software revenues are recurring or reoccurring in nature. 74% of our total revenues are software-related. For several quarters, we've communicated how the quality of our revenue stream continues to improve. You can see this point well illustrated here. Our 11% organic growth is underpinned by a 12% growth in our software recurring revenue base. Further, you can see the breadth of the growth, growth in software and products. Our strategy for nearly two decades now has been to improve the quality of our enterprise, and this is clearly reflected on this page. We cannot be more excited for our future. Let's turn to Page 10 and walk through the 2Q highlights for our Application Software segment. Revenues here were $627 million, up 7% on an organic basis and EBITDA margins were 43.1%. Across this segment, we saw recurring revenue which is about 75% of the revenue for this segment increased 8% in the quarter. This recurring revenue growth is enabled by strong customer retention and continued migration to our SaaS delivery models. Across this group of companies, the financial strength was quite broad. As we highlight a few businesses, we'll start with Deltek. The Deltek team posted another great quarter of strength across all end market serves with particular strength in their construction contractor end market. In addition, Deltek continues to gain momentum, driving adoption to their cloud-based product offerings. Vertafore had an excellent quarter, which was highlighted by strong ARR bookings activity and revenue growth. Also during the quarter, we completed the acquisition of MGA Systems. This tuck-in acquisition enhances Vertafore's ability to compete and win in the managed general agent segment of the property and casualty insurance ecosystem. CliniSys and Data Innovations continue to exhibit strong demand and operational strength. CliniSys continued its market share gains in the U.K.; DI continues to demonstrate product market fit by gaining share of wallet across large health systems and the VA. Strata continues to be super solid for us. The acquisition of EPSI has been exceedingly strong as Strata has successfully lifted and shifted many EPSI customers to the Strata cloud-based offering. At the same time, Stratic continues to improve the legacy EPSI product release and support capability. We remain committed to meeting the EPSI and Strata customers where they are. Finally, Aderant continues to be a solid performer for Roper, extending their share gains in the large loss space. Aderant continues to see an acceleration of SaaS booking activity driving substantial increases in the recurring revenue base. Looking to the outlook for the second half of 2022 in this segment, we expect to see mid-single-digit growth for the balance of the year, driven by continued ARR momentum. Turning to Page 11, revenues in the quarter for our Network Software segment were $343 million, up 15% on an organic basis and EBITDA margins were strong at 52%. The 15% organic growth in this segment is underpinned by 19% growth in recurring revenue. As we dig into business-specific performance, our U.S. and Canadian freight matching businesses continued to be exceptional. The market conditions while slowing a touch on the carrier side of the network continue to be favorable. During the recent surge in transportation volumes, the market share of the ecosystem represented by the spot market increased as it became easier to transact volumes in the spot market compared to the contracted market. We believe this is a secular trend that DAT will benefit from over a multiyear arc. In addition, DAT continues to do a nice job of increasing revenue per user by both adding features and improving value capture. Finally, over a longer arc planning horizon, our freight matching businesses continue to be well positioned to enable the further digitization of the spot freight market. Moving to foundry, our software business that enables live-action filming and computer-generated graphics to be combined in a single frame continued their recent financial strength. Net retention is north of 110% and ARR grew double digits again. Foundry success is rooted in their fast-paced innovation capability and favorable long-term market conditions. ITrade, our network food supply chain business and our pipeline, our life insurance SaaS business that tech enables the quoting and underwriting processes, each had solid customer additions, which helped drive strong era growth in the quarter. Finally, our businesses, which focus on alternate site health care, namely skilled nursing, assisted living and home health grew nicely in the quarter despite their customers' growth being constrained by staffing shortages. Proud of the execution here. Turning to the outlook for the balance of the year, we expect to see mid-single-digit organic growth for this segment, driven by continued recurring revenue momentum and moderating growth for our freight match businesses. As we turn to Page 12, revenues in our tech-enabled products segment were $340 million, up 13% on an organic basis despite the very challenging supply chain environment. EBITDA margins for this segment were 34.9% in the quarter. Let's start with Neptune, which had record orders, revenue and quarter ending backlog. For a few quarters running, Neptune has been able to gain market share by being successful in keeping product lead times at industry-leading terms and releasing new products, both in terms of cellular connectivity and static meter reading technology. As a fun fact, Neptune turns 50 later this quarter and next year will mark our 20-year ownership anniversary, a great run so far with an even better forward view. Congrats, Hunn, to you and your team for building such a great company. Verathon, Northern Digital and each of our medical product franchises continue to see very strong ordering activity but were hampered by a variety of supply chain challenges during the quarter. That said, the teams are executing exceptionally well, and we remain confident in our ability to execute through these challenges. Looking over the horizon, each of our medical product businesses are benefactors of secular tailwinds, namely the increased demand for single-use devices and the aging of the population. As it relates to the outlook for the balance of the year, we expect to see high single-digit growth for this segment, underpinned by strong demand and backlog levels, but somewhat constrained by the current supply chain challenges. Now please turn to Page 14, and let's review our updated and increased outlook for the balance of the year. As a reminder, last quarter, we increased our adjusted DEPS guidance to be between $15.50 and $15.75, which included $2.30 from our industrial businesses. Given our agreement to divest our industrial businesses, we are removing the $2.30 million from our guidance model going forward. So on a new curtailing ops basis, our previous guidance equates to $13.20 to $13.45. Based on our strong Q2 and second half visibility, we're now increasing our continuing ops guidance to be between $13.46 and $13.62. Embedded in this guidance is full year organic growth of 8% to 9%, again, on a continuing ops basis. As we look to the third quarter, we're establishing DEPS guidance to be in the range of $3.42 and $3.46. Now our concluding comments and we'll get to your questions. As we turn to Page 15, we want to leave you with the same three points with which we started. First, we had a strong quarter of performance, and we're increasing the outlook for the full year. Second, we took strategic actions to invest a majority stake in our industrial businesses. And third, we have a tremendous amount of M&A firepower north of $7 billion. As it relates to our strong start, we grew revenues organically 11%, EBITDA 10% and DEPS 16%, and free cash flow has grown 17% on a three-year compounded basis. We are lifting our full year organic growth in DEPS guidance based on the factors outlined during the call, specifically strong recurring revenue growth and a record demand for our product businesses. Finally, we have reloaded our balance sheet and continue to have a highly active and engaged pipeline of M&A opportunities. We have north of $7 billion of M&A available firepower. As mentioned at the start of today's call, our high levels of activity are equally matched with our patience and discipline, and we remain confident in our ability to deploy this capital to further improve the quality and scale of our enterprise, just as we've done over the past two decades. Finally, kudos to Rob and Shannon and the finance team for increasing the size and term of our $3.5 billion revolver. As we turn to your questions, let us remind everyone that our strategy is the same: We compound cash flow by acquiring and growing niche market-leading technology businesses. This is what we've done for over 20 years and will continue to do so. In addition, our value creation and governance model remains unchanged. We operate a portfolio of market-leading businesses and defensible niches. Each of our businesses has high levels of recurring revenue, strong margins and compete based on customer intimacy, which yields highly resilient organic growth rates. We operate a highly decentralized operational structure that focuses on long-term business building. Our culture sets a very high bar for performance and focuses on continually improving. We are all paid to grow, which reinforces our culture of transparency, nimbleness and humility. Finally, we redeployed the vast majority of our capital to acquire the next great business. We do this with a centralized corporate resource team in a highly disciplined, thoughtful and analytical manner. This strategy, unchanged, delivers compounded and superior long-term shareholder value. So thanks for joining us this morning. And with that, let's open it up to your questions.

Yes, thank you. We will now begin the question-and-answer portion of the call. The first question comes from Deane Dray with RBC Capital Markets.

Congrats on the first earnings report under the new look, Roper.

No, thank you.

If we could start, I really like the new breakout on revenue on Page 9 as well as Page 19 in the appendix, which shows you the same information broken out by segment. How do you expect that mix to change over the next couple of years, especially in the conversion and migration to SaaS?

Yes, Deane. The 54% line on Page 9 represents both the on-premise maintenance and the SaaS. The migration will occur within that line. As this happens, we expect an uplift from the on-prem maintenance to the SaaS because it delivers more value. Thus, you will see a long-term multi-year benefit in that area, but the conversion will take place within that single line.

Yes, on working capital, the 17% represents the current rate. I believe there is potential for improvement. We anticipate that as our software businesses continue to expand, they will generate more cash, leading to greater negative working capital over time. Regarding the 174, it will amount to a total headwind of $100 million for this year, averaging around $25 million per quarter. We make two tax payments in the second quarter, which is why it was $49 million in that quarter. There has been much discussion around this issue. If the law changes, we could potentially recover that money. Essentially, it pertains to the same deductions over time, but you now have to wait to access those deductions.

So I wanted to talk about the new segment a little bit in the medical products. Talk seeing if you could break out some of the supply chain impacts on margins the revenue gating aspect and any abnormal kind of levels of backlog, how you'd characterize that, how let's think about it.

Yes. So the performance was very good. So we're certainly, like everyone else who sells products, have some supply chain issues. I mean backlog is I think, double if you look where we are this year versus the same time last year. So there's plenty of opportunity to continue to grow the revenue. A little bit of margin impact. We think that gets a little bit better in the second half. I think our business has done a great job of pushing through price. And so that takes some time to start to sell the products at a higher price versus the cost, so I think that's a little bit better over time. But everyone is managing it really, really well. So, we feel really good about our operations.

Okay. And for a follow-up, if you look at Slide 12, the tech-enabled products, the EBITDA margins are down about 5.5 points Q2 this year versus 2020 second quarter. Just can you talk just conceptually about that bridge, what that gap represents?

Yes, 2020 was an exception due to the significant Verathon quarter during the peak of COVID. This was when Verathon experienced exceptional growth as we were combating the virus. I believe that 2019 represents a more typical margin scenario, but we expect those margins to improve over time.

I wanted to discuss pricing a bit. Is there a basis like CPI for the price escalators in SaaS? Is it half a CPI? Can you provide some insight into how you approach pricing and the related considerations?

Yes. When it comes to software, capturing price and value is somewhat different than with physical products. In software, subscription and maintenance costs are generally linked to the Consumer Price Index plus a small adjustment. We have been able to see price increases. Additionally, price is inherently part of the software business's growth strategy each year. Customers are accustomed to accepting price increases, and with inflation and higher interest rates, we expect slightly higher prices. The trade-off is that costs in the software sector are rising due to increasing labor wages, but this occurs over a longer period and is less volatile compared to product businesses. Therefore, we typically see a favorable alignment between rising labor costs and pricing in our software operations.

Is there a difference in pricing when considering recurring versus non-recurring? I was a bit confused by your answer, perhaps because I only had one cup of coffee, but is there a difference? You mentioned that you provide more value and can charge a bit more, but could you explain it in simpler terms?

I apologize for any confusion earlier. There are two main issues we need to address. Regarding pricing for software, a well-managed software company raises prices for both the initial software and its maintenance together. This avoids the problem some companies have where they only increase the maintenance price, leaving the initial software price unchanged. Our approach keeps both prices aligned. Dean's question was about the relationship between on-premise maintenance, which we receive once perpetual software is delivered, and the shift to SaaS. As we transition customers from on-premise to our cloud services, we provide increased value by hosting the application, ensuring security, and updating customers to the latest versions to take advantage of new features. This reduces the operational challenges clients face with software management. Because of the added value of SaaS, we can often capture double the recurring revenue compared to previous arrangements. This highlights the value of migrating to the cloud, in contrast to what happens during a price increase for software.

We're currently around 75% subscription and 25% maintenance. We're largely operating in the cloud. Over time, approximately $200 million in license revenue will shift to the subscription revenue that Neil referred to. However, this transition takes time and is dependent on the customers. Overall, I believe this reflects positively on our recurring revenue.

Thank you. And the next question comes from Joe Giordano with Cowen.

So now you've gone through the GIG code change and all this. I'm just curious, Neil, Rob, what's your initial kind of conversations were with the new cohort of investors that you'll likely talk to now? And what were some of the things that maybe some initial pushback you're getting from them some things that they like and how have those discussions kind of overall have gone so far?

I would say that the GICS code change hasn't caused an immediate shift in our discussions. It's actually more of a gradual evolution. We attended a software conference where we had several discussions, and they were largely similar to the conversations we have with our existing shareholders. We talked about our business model, our flywheel, the associated risks, and the sustainability of our approach. There was some dialogue about growth and the cash flow aspects of the business, as well as the mix between recurring and non-recurring revenue, but overall, the questions remained consistent.

I was just saying a lot of excitement, right? Because I think as we said at that conference, we were at intra-quarter that we're the fourth largest application software company, I think, in the S&P 500. And a lot of these analysts are just getting to know us, and I think they're really excited when they look at our past and our future prospects. So we're excited to expand to a new shareholder race while, of course, also making sure that our current shareholder base is continually happy with their investment in Roper.

When considering mergers and acquisitions, does the divestment create a significant internal change within DRI that makes it more challenging to identify new companies that meet the necessary criteria? I assume that removing the industrial businesses affects the competitive ratio positively or negatively, depending on how you view it. There may have previously been businesses that could enhance Roper's profile, but now those might not qualify. Is that correct, or is this concern not significant enough?

It's not significant enough to be concerned about, but let me explain why. For nearly 11 years, we've been focused on the same group of targets, which are excellent asset-light software businesses. That's the group we're currently assessing. It's not about becoming even more asset-light; it's about maintaining our current level of asset-lightness. This is why there is a large pool of targets available.

Thank you. And the next question comes from Allison Poliniak with Wells Fargo.

On that network software business, understanding that freight matching sort of the growth and sort of the moderation there, could you maybe talk to the balance of the businesses in that segment in terms of the overall combined? Is it mid- to high single-digit growth? I'm just trying to understand the impact that the freight match had on it.

Yes, most of the businesses in that segment are normally sort of mid-single-digit organic businesses that occasionally do higher than that, very rarely do lower than that. And so, I think as you get into the second half of the year, those are sort of doing what they do, and then you just have a little bit of moderation in the freight matching growth.

And then just kind of pulling on to that last M&A question, certainly, the software is a focus in terms of M&A. What about tech-enabled products? Is there anything you guys are kind of looking at that we may be clear that hurdle or is it sort of off the table there at this point?

No, it's definitely not off the table. It has not been off the table. We just haven't actioned anything there in quite a while. So if it's an asset-light tech-enabled product business that is a leader in a small market, the competitive forces are stable, sort of all of our criteria, then it's definitely something we would look at.

Thank you. And the next question comes from Julian Mitchell with Barclays.

Maybe I just wanted to ask a couple of questions on the software business. First off, in terms of freight match, help us understand the cyclicality of that business. There's been a lot of scary stories about freight recessions all year long in the U.S. How should we expect that business to perform in that type of macro? And I guess NSS has enjoyed fantastic operating leverage. We see the margins going up to the low 50s in Q2. What's the risk to that sort of incremental margin, if you like, from freight match rolling? And then any color in application software about the license business? Again, there were some questions after the SAP update earlier this week.

Let me address the DAT One and the application software license briefly, and then I'll let Rob discuss the margins in NSS. Regarding DAT, it managed to grow during the 2019 freight recession and has performed exceptionally well over the last couple of years for two reasons. There’s a cyclical advantage it has experienced, along with a lasting secular trend. The enduring aspect of this secular trend is that the spot freight markets have become more liquid and easier to navigate compared to two, three, or five years ago. As a result, the share of the spot market within total freight has increased over this period, benefiting both DAT and its customers, and we expect this to continue. Moreover, the momentum may intensify over the next five years as we enhance the technology supporting the broker's business model. Now, concerning the perpetual license activity in application software, we saw solid orders in the first half and quarter. Our price points are significantly lower than those of companies like SAP. Therefore, while our deals are substantial for our customers, we typically deal with amounts around $1 million, $2 million, or $3 million, rather than much larger sums. Rob, would you like to continue?

Yes. Then on the margins, I would not be concerned that margins would take a step backwards if growth were to slow there. I mean, these are businesses that sort of all have those structural EBITDA margins in that 50% plus range. And so, I'd expect that to continue even if growth were to slow a little.

And then maybe sort of following up more for Rob this line. Just you have an out this big divestment, you've got restated numbers out there. How should we think about any changes from here around or changes in the sort of go-forward run rate for things like tax rate in the P&L? Maybe corporate costs and then kind of free cash flow conversion. Any changes in those three metrics as we look at the sort of new go-forward Roper?

Yes. There shouldn't be any meaningful changes in terms of tax rate. I think in terms of conversion, I mean, clearly, there's a lot of noise around cash taxes this year as we've been talking about, and that's sort of part of the price to pay also when you do these transactions that we think are the best thing to do for the Company in the long term. So I think if you look forward to next year and beyond, I mean, our free cash flow conversion should be at the levels it's been historically and probably a little bit better because we have even more negative working capital. Just better quality portfolio, less cyclicality. And so, I think the cash flow conversion should get a little bit better over time. And corporate, yes, I mean I think the run rate that you see now sort of worth continuing ops is the right run rate moving forward.

Thank you. And the next question comes from Steve Tusa with JPMorgan.

Just a question on the cash. I know you guys don't guide on cash, but usually it gets on kind of an underlying basis, seasonally better in the third and the fourth. Anything changed from that perspective? And any kind of color on how you'd expect it to kind of bounce back here in the third and the fourth from second quarter levels. It's a little bit lumpy in the first and second quarter.

Yes, I think that's right. So seasonally, fourth quarter is always our best working capital quarter because that's when you're getting a lot of the renewals in software. So we would expect working capital to be a pretty good guy in the second half. And we sort of talked about the cash tax situation. And I think everything else is performing really well to generate a lot of cash.

And then on the revenue side, when you think about your recurring, is there on the accounting there in 606, do you book a percentage of those deals, the three-year, three-year type of deals? Do you book a percentage of those upfront as per the 606 accounting? I know you have different businesses in there, so maybe they behave differently from an accounting perspective. But is there an element of that in the revenue there?

Yes. Steve, this is Jason Conley. A lot of the term licenses, there's a portion of that that does get recognized upfront, so multiyear term license is very small for us. Only a couple of businesses have that. And then our perpetual licenses are also booked upfront as part of 606, a portion of it.

Thank you. And the next question comes from Joe Ritchie with Goldman Sachs.

Maybe just the first question on this new portfolio going forward, how do I think about like the right long-term organic growth rate for this business over time? I think we've historically kind of thought about your legacy businesses kind of like somewhere in that 4% to 5% type organic growth rate. I'm just wondering if this business is going to achieve healthier growth longer term.

When we announced the transaction with the Industrial and Process businesses, we presented a chart illustrating the historical long-term growth rate of the future portfolio, which is around 6%. We expect this to be the baseline, and we continuously strive to improve it. For now, we would consider 6% to be the new standard.

And then I guess this whole conversion from on-prem to your SaaS business, it seems like you guys are well on your way there. I'm just curious like how much is that kind of like added to the growth rate in recent years? And then that extra, call it, I don't know if it's an additional 20% to 25% that you are expected to convert, how do we think about that as kind of like an added benefit that you'll continue to see in the coming years?

Yes. As we've mentioned previously, this has been a modest growth driver. To elaborate, there are two sides to consider. On one hand, when you're selling a perpetual deal, such as a $1 million contract, you recognize most of that revenue in the same year. However, if that deal shifts to a subscription or SaaS model, for instance at around $300,000 per year, that creates a shortfall of about $700,000 in revenue for that year, assuming the SaaS deal is booked on January 1. This presents a slight negative impact initially. On the other hand, what offsets this for us is the transition of our large base of maintenance customers to cloud services. For example, if you have customers currently paying $300,000 annually, moving them to the cloud could result in around $600,000 a year from those customers. This leads to a slight overall positive impact. We have been experiencing this dynamic for many years, likely around 7 to 10 years, since we aren't compelling our customers to migrate. We prioritize accommodating our customers based on their willingness to make the shift, which is why the process will take some time.

Yes. I'll just add that every business is on a different sort of phase of this journey, right? I mean many businesses have been SaaS in the very beginning, and they're always 100% SaaS. Other businesses were mainly on-prem like an Aderant. That's really the one business we have talked about where really their customers are really starting to move to the cloud. Deltek has been a mix over time. Most of the rest of the businesses are really kind of already SaaS, at least several businesses that we bought the last four or five years.

Thank you. And the next question comes from Jeff Sprague with Real Research.

As we transition to software, I have a question about the deal and its structure. There are additional details in the 8-K that were not clear to me when the deal was announced. I'm still uncertain about what the back end might look like for you with CD&R paying $829 million for 51% of the equity, alongside new debt of $1.95 billion. It seems the enterprise value is $3.6 billion, which reflects an 11x multiple. If you have taken $2.6 billion out upfront, it is unclear how we should think about the back end.

So, to approach this from the perspective of our new partner, we believe the calculations are accurate. The enterprise value upfront stands at 3.5 to 3.6 billion, which represents an 11 times multiple for this year and 13.5 times for last year. In terms of EBITDA, it’s around the 13 range when viewed over the last five years, considering the cyclical nature of our business. Additionally, the amount of capital that CD&R invested is roughly equal to our own capital still in the business. CD&R aims for a return of over three times on their investment during their holding period. If both we and they succeed, it could essentially triple our remaining equity. This gives a perspective on how to analyze the situation. We estimate there could be a couple of billion dollars of upside, plus the liquidity from the 800 or 900 million we currently have. So, we’re looking at potential returns of around $2.5 billion to $3 billion if things proceed positively over the next five years or so.

Is that based on the premise that they actively do other things with the business? For example, other M&A in the business, and wouldn't that dilute you or would you participate in kind of incremental investments in the business to get it ready for eventual sale?

Yes, we're completely aligned on two questions here. The first is related to the Company's growth thesis. We share a common vision with our partner about this thesis, which focuses on ongoing investment in the organic growth we've pursued over the past four years. Additionally, we aim to create a cycle of capital deployment or M&A that can be replicated. While I can't go into the specifics of the Company's execution plan since it's still being developed, at a high level, this is a cash-generating asset. Our objective is to manage a leveraged asset and utilize that leverage to fund cash generation, avoiding any dilutive effects. In any situation where CDR may need to issue equity, we'll evaluate that on a case-by-case basis. We believe this approach serves our shareholders best. Although some dilution may occur, it has already been considered in the overall calculations I provided earlier.

Thank you. And the next question comes from Rob Mason with Baird.

Just first, a technical question around the guidance. So, the core growth guidance for the year is eight to nine. Did that change versus where it would have been on an apples-to-apples basis three months ago?

I would say it's slightly higher, perhaps around 0.5% or so. We previously guided for seven to nine, and the businesses we divested were on the higher end. With those gone, we've adjusted our guidance to eight to nine. So, it’s a slight net increase, but not by much.

Where would you place that increase within the three segments?

So I'd say the biggest business that has a better outlook is Neptune. They're just doing incredibly well, as we said in the prepared remarks in their second half, given their backlog, given their ability to execute and deliver to their customers. It looks really, really strong. So that's really the one I think that's gotten quite a bit better. Everything else I'd say is about the same as we had it three months ago.

Thank you. And the next question is Alex Blanton with Clear Harbor Asset Management.

Yes, I just wanted to look at this $2.30 per minute. What was that in the first quarter?

Yes, it was about $0.50 in the first quarter and what $0.52 in the second quarter.

And then what is your guidance for that for the third quarter?

So, we're not guiding it by quarter, right, because it's in disc ops, but it's 230 for the full year. So generally, the fourth quarter is the best quarter for those businesses given the cyclicality and the oil and gas markets.

Yes. Well, the thing was I was trying to work out what the total would have been with that in there for the rest of the year quarter-by-quarter. But I guess I can do it with what you just said. I'd like to talk about the future and the future is acquisitions, of course. How does that look now? What's the pipeline like how far are you along in putting the work to $7 billion? What are you working on? What kinds of things are you working on? Just give us some color on that because I think that really is what is going to give investors confidence.

I appreciate the question and the chance to address it. This year has seen a significantly higher level of activity. While we haven't made any major acquisitions, just a few small ones, we remain extremely selective despite having $7 billion to invest. We have established criteria that we adhere to rigorously, supported by extensive analysis, discipline, and patience. This cautious approach is driven by our goal of adding companies to our portfolio that we intend to keep for the long term. Every deal is important, and we ensure that each meets our standards. We are very busy and will maintain this approach as we aim to enhance the quality and scale of our business. However, we do not have a set timetable; we will proceed with the right deal when the opportunity arises.

But do you think that you'll be able to do some this year?

We would like to do it, but there’s no set timetable. There’s no pressure from me, the team, or the Board to deploy a certain amount of money by a specific date. I believe that can lead to poor decision-making. However, it is an active market, so it’s likely we’ll complete something this year, but we’ll just have to wait and see.

Yes, yes, just we're very active working on a lot of different projects like we always are. So, we're certainly very active.

And just characterize the pipeline of how many businesses are available compared with the past. And what are the prices like compared with the past and so on.

We do not want to specify the number of deals or their dollar value in our pipeline. What matters for us is whether it is sufficient, and we believe it is. As I mentioned earlier, we have experienced above-average activity levels this year. High-quality assets continue to command high prices, which is why we are being patient. We trust that the market will eventually align with our expectations, so we will wait for the right company with the right attributes at the right price.

Thank you. And this concludes our question-and-answer session. I would now like to turn the call back over to Zack Moxcey for any closing remarks.

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

Thank you. This concludes today's presentation. Thank you for dialing in, and you may now disconnect your lines.