Good morning. The Roper Technologies Conference Call will now begin. Today's call is being recorded, and all participants will be in listen-only mode. I would now like to turn the call over to Zack Moxcey, Vice President of Investor Relations. Please go ahead.

Good morning and thank you all for joining us as we discuss the third quarter financial results for Roper Technologies. Joining me on the call this morning are Neil Hunn, President and Chief Executive Officer; Jason Conley, Executive Vice President and Chief Financial Officer; Brandon Cross, Vice President and Principal 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 have 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 two. 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 three. Today, we will discuss our results primarily on an adjusted non-GAAP and continuing operations basis. For the third quarter, the difference between our GAAP results and adjusted results consists of the following items; amortization of acquisition-related intangible assets, the financial impacts associated with our minority investment in Indicor, transaction and restructuring-related expenses associated with our completed acquisitions, and lastly, a gain from the sale of non-operating assets. 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 four, I will hand the call over to Neil. After our prepared remarks, we will take questions from our telephone participants. Neil?

Thank you, Zack, and thanks to everyone for joining our call. We're looking forward to sharing our third quarter results with you this morning, which like each of the first two quarters this year were quite good. As we turn to page four, let's look at today's agenda. As usual, we'll start with the most recent quarter's financial highlights then Jason will discuss our results. After that, we'll turn to our segment specific discussion and wrap up outlining our increased 2023 enterprise guidance. Let's go ahead and get started. Next slide, please. As we turn to page five, the four main takeaways for today's call are first, we continue to perform at a high level operationally, delivering another quarter of very strong financial results, definitively demonstrating the quality of our portfolio of businesses, our leaders, and our governance system; second, we continue to be very active on the M&A front, deploying about $2 billion over last quarter; third, we're increasing our full year guidance; and fourth, we remain very well positioned for further disciplined capital deployment. As it relates to the first takeaway, our continued strong performance, we saw total revenue growth of 16% and organic revenue growth of 6%. Consistent with our long-standing strategy, we continue to not only scale our enterprise, but also simultaneously improve the underlying quality and recurring revenue base with organic software recurring revenue growing at high single-digits in the quarter. Importantly, the cash. As we've been highlighting throughout the year, we had very strong cash flow performance with free cash flow growing 19% for the most recent trailing twelve-month period and 77% in the quarter. Turning to our second main takeaway, the deployment of $2 billion over last quarter was led by our acquisitions of Syntellis and Replicon, both of which are bolt-ons for Strata and Deltek, respectively. These are each strategically interesting bolt-ons and are highly compelling from a value creation perspective as we're able to buy these businesses for about 14 times next year's EBITDA. More on these in a bit. In addition, in the quarter, we made a $125 million minority investment in Certinia, a professional services automation software business. We're excited to partner with Haveli and General Atlantic Ventures to deploy the value creation thesis associated with this unique opportunity. Third, we're increasing our full year total revenue growth to be 14% plus, increasing our organic revenue growth to be 7% plus and increasing our full year DEPS guidance to be in the range of $16.62 to $16.66 or up $0.21 at the midpoint versus our previous guidance of $16.36 to $16.50. And fourth, we continue to be very well positioned for further capital deployment by having over $4 billion of M&A firepower. We remain very active in the market as we evaluate and diligence many attractive opportunities. So with that, Jason, let me turn the call over to you, so you can walk through our third quarter results and our very strong financial position.

Thanks, Neil, and good morning to those that have joined our call, and thank you for your interest in Roper. Turning to slide six, I'll take you through our third quarter enterprise results in a bit more detail. Revenue of $1.56 billion was up 16% over prior year, with 6% organic growth and a 9% contribution from acquisitions, led by Frontline. As Neil mentioned, organic software recurring revenue growth was in the high single-digit area. This was led by strength in customer expansion and net new logos across our enterprise software businesses. Additionally, our product businesses continued to deliver with 10% organic growth in the quarter, highlighted by Neptune and Verathon. Revenue converted nicely through EBITDA, with EBITDA of $652 million or up 18% over prior year. Margin expanded in the quarter to 41.7%, with EBITDA operating leverage of 46%. This all translated to DEPS of $4.32 versus our guidance of $4.16 to $4.20. Of note, our recent acquisitions had minimal impact on earnings this quarter. We expect DEPS accretion from these deals in 2024 as we pay down the revolver and benefit from full synergy realization. Free cash flow was very strong in the quarter and came in line with our expectations. We generated $625 million of free cash flow, which is up $272 million over prior year. As a reminder, our Frontline business delivers most of its free cash flow in the third quarter. So that, plus a terrific organic contribution drove the significant growth. Looking at cash flow on a trailing twelve-month basis, as shown on the slide, provides a more relevant comparison. With the frontline renewals tucked into the third quarter, our TTM free cash flow was $1.82 billion, which is up 19% over the prior TTM period. With the expectation for a strong Q4, we're on track to deliver north of 30% free cash flow margins in 2023. Taking a broader view, our TTM free cash flow has compounded 16% over a three-year period, which is in line with EBITDA growth. In summary, our focus on compounding cash flow is evident in our results and will continue to guide us into the future. Next slide on page seven here. Taking a look at our financial position, we ended the quarter with net debt of $6.6 billion, including about $900 million drawn on our revolver. With trailing EBITDA of over $2.4 billion, this leaves us with net leverage of about 2.7 times. Looking forward, we have the capacity to deploy $4 billion or more over the foreseeable period even after deploying $2 billion in the third quarter. As always, cash flow growth optimization guides our strategic choices. So while our balance sheet may be primed, we will be disciplined and patient when it comes to capital deployment. To that end, private markets are slowly filling with activity picking up over the last quarter. With that, I'll turn it back over to Neil to go through the segment results and outlook.

Thanks, Jason. Let's turn to page nine. And before we walk through our segment details, we'd like to start with an overview of our acquisition of Syntellis and the combination with our Strata business. To remind everyone, Strata has been part of Roper for eight years as a leader in delivering SaaS-based financial planning, decision support, and performance analytics solutions to U.S. hospitals and health systems. Syntellis is a leading provider of SaaS-based enterprise performance management and data solutions to hospitals, higher education and financial institutions. As many of you know, U.S.-based hospitals and health systems continue to face intense pressure from macro market trends, challenges resulting from care setting shifts, reimbursement rates, lagging rising costs and labor staffing issues. The combined Strata and Syntellis business will uniquely be able to help health systems address these difficult financial and operational challenges. Together, the enterprise has relationships with about 70% of the country's health systems. Stand-alone, Syntellis meets all our acquisition criteria - a leader in a niche market, delivers mission-critical application-specific solutions, is an HSD organic growth business, and operates an extremely asset-light business model. Taken together with Strata, it only gets more attractive in terms of the combined customer base, the combined product offering, the combined financial profile, and the combined future product development opportunities. For 2024, we expect Syntellis to deliver about $185 million of revenue and about $90 million of EBITDA inclusive of cost synergies. Of note, this EBITDA is $5 million higher than at the time of our deal announcement. Considering the $1.25 billion net purchase price, the valuation is about 14 times next year's EBITDA and will only improve from there. Operationally, the teams have moved quite expeditiously and are ahead of schedule relative to the near-term value creation plan, having implemented about 85% of the cost synergy opportunities within the first 45 days. In addition, the customer feedback has been overwhelmingly positive. Finally, the new combined leadership team headed by Strata's CEO, John Martino, are turning their strategic attention to new combined product development ideas. Net-net, this is a highly compelling value creation opportunity for our customers and our shareholders. And with that, let's now turn to page 10 and walk through our Application Software segment. Third quarter revenues for the Application Software segment were $803 million, up 5% on an organic basis and EBITDA margins increased to 44.6% in the quarter. We'll start with Deltek. Deltek was solid in the quarter with sustained momentum in their SMB channel and the private sector solutions. They continue to see sluggish activity in their GovCon Enterprise segment given the backdrop of federal government spending uncertainty. Retention rates across the entirety of Deltek remain high. Importantly, over the last couple of months, Deltek released a Gen AI-enabled data collection capability for the GovWin IQ business, an LLM based processing feature for their Vantagepoint product. It's good to see further adoption of Gen AI within the portfolio. Also in the quarter, as we outlined on last quarter's call, Deltek closed the acquisition of Replicon, albeit about a month later than anticipated. To remind you, Replicon is a market-leading timekeeping and workforce management SaaS solution focused on professional services firms and is highly complementary to Deltek's strategy. We continue to expect Replicon to contribute more than $70 million of revenue and $24 million of EBITDA next year. Aderant, our software business focused on the needs of law firms, continues to excel and deliver a very strong quarter. In the quarter, Aderant saw record third quarter bookings and continued success in the adoption and cross-sell of their SaaS solutions. Also and importantly, during the quarter, Aderant continued to mature and gain market traction with their Generative AI-enabled MADDI. Aderant's most recent Gen AI product release enables passive fee earner time entry assistance through Aderant's iTimekeep product line. Great to see this rapid product innovation at Aderant. Vertafore, our software business that tech enables property and casualty insurance agencies continues to be a great business for us with solid performance across our core P&C business and their recent MGA solutions bolt-on. Strata, independent from the Syntellis acquisition was strong in the quarter and continued to gain market adoption of their leading decision support and financial planning solutions. Finally, Frontline had a strong customer renewal season and delivered significant cash flow, as Jason mentioned, to the enterprise in the quarter. Looking to the final quarter of the year, we expect to see organic revenue growth in the mid-single-digit area for the segment. Turning to page 11. Third quarter revenues for our Network Software segment were $364 million, up 5% on an organic basis and EBITDA margins were 56.3%. Let's start with our U.S. and Canadian freight matching businesses DAT and Loadlink, both of which grew in the quarter despite the continued challenges across the broader freight and logistics markets. Over the last quarter or two, these businesses have done a fantastic job of baselining their cost structures while continuing to invest in new product development. This led to strong segment margins in the quarter. Relative to product development, and as we highlighted a touch last quarter, DAT launched Gen AI-enabled solutions, among other initiatives targeted to combat freight industry fraud, which is a problem that plagues the entire industry. Within the first month of release, DAT has made a significant dent in fraudulent activity and DAT's customers have noticed and recognized this great accomplishment. This is a shiny example of why and how Roper businesses continue to innovate through and across macroeconomic cycles, which enables us to consistently deliver on market and customer opportunities ultimately leading to market share gains. Turning to our iPipeline. Our network software business that tech-enabled the distribution channel for life insurance and annuities. iPipeline continues to execute at a high level and gain market share. In the quarter, they had very nice ARR gains driven by strong retention and customer expansion activity. This growth is directly attributable to iPipeline's strategy that is laser-focused on their core life insurance and annuity customer base. We talked about this concept during our Investor Day earlier in the year. A closely held value of Roper in our businesses is the notion that we compete and win based on customer intimacy. Customer intimacy requires focus and strategic choice. iPipeline over the last two to three years has excelled at this, the concept of focus on the core and choice, which enables further market share gains. Great job, team. Foundry, our media and entertainment post-production software business continued their business model transition to a subscription model and is ahead of plan in that regard. Though industry demand was temporarily paused given both the Hollywood writers and actor strikes. Notwithstanding, Foundry continues to innovate their product offering and will aggressively compete for customer wallet share in the coming months as the actor strike resolves. Finally, our alternate site healthcare businesses, MHA, SoftWriters, and SHP were strong in the quarter. Execution was solid and the business has benefited by having improved census and skilled nursing assisted-living facilities and home health reaching the highest occupancy levels and patient volumes since the onset of the pandemic. For the final quarter of the year, we expect to see low single-digit growth for this segment based on continued challenging freight market conditions and the actor strike's impact on Foundry. Now let's turn to page 12 and walk through our TEP segment. Revenues in the quarter were $396 million, up 10% on an organic basis. EBITDA margins for the segment were strong at 36.5% in the quarter. We'll start with Neptune, our water meter and technology business. Neptune delivered another fantastic quarter of operational and financial performance. As has been the case for several quarters, Neptune continues to see strong demand and momentum for the residential and commercial ultrasonic or static meters and increasing adoption for their meter data management software. We remain bullish about Neptune and the market in which they compete, given this market tends to be quite steady as Neptune's customers' budgets are typically fixed year-to-year and not tied to broader macroeconomic trends or cycles. Verathon was outstanding in the quarter as well with double-digit order growth and tremendous operational execution. Specifically, Verathon saw strength across the recurring single-use products both Bronchoscope or Bflex and video innovation or GlideScope as well as BladderScan capital purchases. A group of smaller businesses here Inovonics, IPA, and rf IDEAS were fantastic; as they were last quarter, substantially working through a series of nagging supply chain challenges. Relative to the final quarter of the year, we expect to see low double-digit organic growth for this segment. Now please turn to page 14, and let's go through our increased 2023 guidance. Based on our strong third quarter performance, we're raising our full year 2023 guidance for total revenue, organic revenue and adjusted DEPS. For 2023, we now expect total revenue growth to be 14% plus, an increase from about 13% last quarter. In addition, we're raising our full year organic revenue outlook to be in the 7% plus range, an increase from about 7% last quarter and 5% to 6% in our original guide for the year. As a result of our improved revenue outlook, we're increasing our DEPS guidance for the year to be in the range of $16.62 and $16.66, up from our prior guidance of $16.36 to $16.50. Assumed in this guidance is the tax rate trending to the high end of our 21% to 22% range. For the fourth quarter, we're establishing adjusted DEPS guidance to be in the range of $4.28 and $4.32. Now please turn over to page 15 and then we'll look forward to answering your questions. We want to leave you with the same four points with which we started. First, we delivered yet another solid quarter. In the third quarter, revenues increased 16% to $1.56 billion. This growth was underpinned with 6% organic revenue growth and high single-digit organic software recurring revenue growth. In addition, EBITDA margins were notably strong at 41.7% and cash flow was outstanding, growing 77% in the quarter and 19% on a trailing twelve-month basis. Second, we successfully deployed $2 billion of capital in the quarter, led by the bolt-ons of Syntellis and Replicon. These two deals will deliver about $115 million of EBITDA next year and are priced about 14 times next year's EBITDA, quite compelling. Third, based on the strong quarter performance, the recurring nature of our revenue stream, and the importance of our solutions to our customers, we're increasing our full year total and organic revenue growth outlook and increasing our full year DEPS outlook to be between $16.62 and $16.66. And finally, notwithstanding this quarter's $2 billion of deployment, we continue to be active with our capital deployment activities as we have north of $4 billion of available M&A firepower. As we've been discussing over the past several quarters, we have a very large pipeline of opportunities; however, as always, we remain super patient and highly disciplined to ensure the continued optimal deployment of our available capital, just as we did with the Syntellis and Replicon acquisitions. We firmly believe that patience, as is always the case with capital deployment, will be rewarded. Before we turn to your questions, I'd like to share an exciting addition to the Roper executive team. During the quarter, Janet Glazer joined our team and is leading our acquisition cultivation and corporate development outreach efforts. Janet will partner with our M&A resources, our corporate leadership team, and several of our business units to increase our forward-leaning posture with private equity sponsors and their businesses. Most recently, Janet was a global sector leader and portfolio manager at Fidelity. We're super excited that Janet has joined our leadership team and welcome her aboard. As we turn to your questions, and if you could flip to the final slide, our strategic flywheel. We'd like to remind everyone that what we do at Roper is simple. We compound cash flow over a long arc of time by operating a portfolio of market-leading application-specific and vertically oriented businesses. Once a company is part of Roper, we operate in a decentralized environment so our businesses can compete and win based on customer intimacy, yet we close our businesses on how to structurally improve their growth rates and underlying business quality. Finally, we run a centralized process-driven capital deployment strategy that focuses on finding the next great business to add to our cash flow flywheel. Taken together, we compound our cash flow in the mid-teens area over a long arc of time. So with that, thank you for your continued interest in Roper and let's open it up to your questions.

We will now go to our question-and-answer portion of the call. The first question comes from Julian Mitchell with Barclays. Please go ahead.

Thanks. Good morning. Maybe just wanted to focus on the network software business for a second. One question really trying to put a finer point on how much of a headwind in that Q4 sales guide you have from the freight markets what sort of pace of decline or softness there? And is foundry more of a sort of rear-view month of October type headwind? And then was there anything one-time in the network software margins in Q3 that made them so high?

Good morning, Julian. Thanks for the question. So I'll try and take it in reverse order. The margins I tried to cover in my prepared remarks; how DAT and Loadlink have just done a great job in Q2 and Q3, aligning the cost structure of where the business is today. And so they're actually a little bit ahead of where they wanted to be in that regard. So that's what drove the margins. Relative to Foundry, it's very much in Q4. I mean, there's still much - very much is an actor strike for Foundry in post-production. They need content flowing through the pipeline. And right now, writers are writing, but actors aren't acting. The general consensus that will sort of resolve itself in Q4, but one never knows. Then the pipelines will build and sort of leading into maybe the second half of Q1 and Q2, Foundry's demand will sort of get back to normal levels. So it's sort of as a Q3, Q4, maybe Q1 impacting. Relative to DAT and Loadlink, I'll remind just DAT has just been remarkable over the last couple of years. It's really been abnormal growth. It's been exceptional. DAT has a super long history of being very steady and growing. They grew in the quarter. They continued to innovate, you know, in October here. We've seen sort of we're bouncing along the bottom, if you will, maybe a slight uptick in the first handful of weeks in October. Who knows if that sort of started the trend or just some of the yellow sort of, you know, capacity coming into a different part of the market and reshaping. But we expect normal behavior for DAT. It's just we've got to wait about get off the bottom here in terms of the industry freight volumes. Anything you want to add to that, Jason?

No, I think that's correct. The abnormality is clear when you look back to 2019; the business has shown significant growth. We've experienced exceptional growth with many carriers entering and exiting the market. Overall, we've had steady growth for the last 20 years, aside from this exceptional period. Regarding Foundry, we have noticed that the gross retention of the business has been very strong. We transitioned to a subscription model this year, which makes customers think twice about opting out of maintenance, as they would need to return to a subscription. We are optimistic that once the actor strike concludes, the business will recover and grow next year.

Thanks very much. And then just a quick follow-up. It sounds like Syntellis is off to a strong start. But maybe my question on Certinia more, you know, maybe a slightly unusual structure for Roper to go into this minority interest approach, you know, given the attributes when you bring something in-house. So maybe just sort of explain why you went for this structure. And any sense of the scale of Certinia or the size of that business?

We have a partnership with Haveli, primarily with some familiar partners there. One of the founders of Vista and the individual who led the tech practice at Bain are both involved in Haveli. They reached out to us to see if we could share our expertise, which we found intriguing. There’s a significant value creation opportunity in this situation, and we’re excited to contribute while also learning from this capable group with a solid track record in this type of transaction. As you mentioned, it's a distinctive chance for us. It's important to note that we are not planning to pursue many more opportunities like this; this isn't the start of a significant number of minority investments. We'll continue to be selective and opportunistic, but we'll keep the pace and volume minimal. Our focus will remain primarily within the private business domain.

Great. Thank you.

The next question comes from Allison Poliniak with Wells Fargo. Please go ahead.

Hi. Good morning.

Good morning.

Good morning.

Going back to the technology-enabled products, it seems like certainly a tick-up in terms of where you were expecting the second half of this year. I know you mentioned Neptune and Verathon. But any specific vertical driving sort of that outperformance in the sector, in the space?

I think sort of market-based.

Oh, sorry, but you broke up just at the very end there, Allison. So to reiterate, Neptune is somewhat market-based, and that market continues to be very healthy. The customers' ordering patterns are consistent and robust, with a lot of backlog extending into next year. We are gaining market share and have a product advantage, along with a cooperative market. In the case of Verathon, the market dynamic is shifting towards single-use products in the bronchoscope category due to infection control, indicating that this is definitely a growth market where we are soon to be the number one player, hopefully as soon as this quarter. This is market-related, but it reflects tremendous execution by the team in both go-to-market and product efforts. There is substantial product vitality as well. Additionally, in this segment, we mentioned a couple of smaller RF product businesses that are facing less market influence and are instead clearing through significant supply chain issues that have affected these businesses for several quarters. The second and third quarters have been strong in that respect for those businesses.

Understood. Regarding M&A, you mentioned that private markets are starting to decline. Can you discuss the multiples you are seeing there? Are they as appealing as what we observed in the last quarter, or do they still have some adjustments to make? Thank you.

That's really the question. The market is behaving like a coiled spring. There's a significant amount of activity forming, with investment bankers and pipelines filling up, and processes beginning. LPs are increasing pressure on sponsors to think about returning some liquidity to them. Sponsors are starting to consider raising new funds, which they need liquidity to do. So, there's a lot of precursor activity necessary for transactions to return to the market. The ongoing issue is the bid-ask spread between buyers and sellers. The number of completed deals so far remains small. We anticipate, and we know, there will be more opportunities, but we are still unsure about their pricing. We continue to exercise patience. The market is approaching us; we don't feel the need to pursue it aggressively. If we find compelling value opportunities like Replicon and Syntellis, we will pursue them. Otherwise, we will stay patient.

Understood. Thank you.

The next question comes from Deane Dray with RBC Capital Markets. Please go ahead.

Thank you. Good morning, everyone.

Good morning.

Good morning, Deane.

Hey, first, congrats on hiring Janet. I've known her many years. I think she'll be a great addition to the team. So congrats.

Thanks for mentioning that. We are considering her; she's not part of the prepared remarks, but we are looking at her, and she seems to be really great, so she will definitely be a valuable addition to the team.

That's fabulous. All right. So, first, I wanted to go back more of a macro question. Had there been any changes at the margin in customer decision-making? You know, the pace of new logos, you called out Deltek, which is understandable given their government service side, some of the uncertainties there, but just kind of broad-brush, are you seeing any changes in customer behavior?

So it's played out as we anticipated over the course of the year. It's really been a mixed bag. Just look at one company in Deltek, strong across SMB, both on the government contracting and private sector, professional services markets, strong at the enterprise level for PS, less strong on the government contracting side at the enterprise level. So it really is a mixed bag. In that case, it's less macro-related and more tied to the uncertainty around what's happening to the federal government and budgets and what's going on there. You see strength across iPipeline. You see strength at Aderant. Those are very healthy customer bases. So it really is a mixed bag. Obviously, the weakness at DAT given that we just talked about with just where freight markets are, so it's really a collection of bespoke things than it is sort of a broad brush macro across the portfolio.

That's good to hear. I have a second question regarding an update on Gen AI. It was interesting that you highlighted several initiatives at the companies pursuing DAT and Aderant. Are these mainly bottom-up initiatives from the companies, or is there input from headquarters, possibly in the form of expertise to help identify opportunities? Also, could you provide insight into how integrated this is within Roper currently and what level of adoption you anticipate a year from now? It seems like you are taking a more proactive approach in this area, and I would appreciate any insights you can share. Thank you.

We're definitely taking an active approach. We believe this technology is transformational and not just a passing trend. It's a foundational technology that will significantly influence our personal lives over the next five to ten years. Our strategy involves both top-down and bottom-up approaches. On the top-down side, we've appointed a couple of our executives, Satish Maripuri and Mike Corkery, to lead an educational series on various aspects of Gen AI across our companies. We've conducted several Zoom meetings and have more planned, focusing on topics that start with what Gen AI is and evolve into methods of deployment and integration within the organization to enhance productivity and inspire new product ideas. The aim is to foster creative thinking among our 18,000 employees at Roper, encouraging them to positively impact both our customers and our operations. While we expect a groundswell of ideas to emerge from the bottom up, we're accelerating the learning process. We may also explore partnerships with larger companies or look into deployment models for cybersecurity and safety. Ultimately, we believe the best ideas will be generated by our employees and leadership team in the field.

Great to hear. Thank you.

You're welcome.

The next question comes from Joe Vruwink with Baird. Please go ahead.

Great. Thank you. In the slides, you make the distinction that organic software growth, the recurring software growth that's already in the high single-digits. And then, of course, your reported organic is 5%. I guess the question is that generally going to be the spread you would expect just given professional services and probably license attrition over time? And then is that spread expected to be consistent in the foreseeable future?

Hey Joe, it's Jason. I would say that there will always be a spread. It was probably a bit more noticeable this quarter because we had some deals in AS pushed out, and we mentioned Foundry transitioning from perpetual to subscription. So yes, there will always be a spread. As I said, it's probably a bit more pronounced than in the third quarter.

Okay, thanks for that. And then I wanted to go back a couple of quarters ago now you mentioned that AS had ramping services capacity that was to support strong bookings in your health care assets. I'm wondering if you can maybe just provide an update on maybe whether those awards have gone live. And then in the broader healthcare apparatus, you know, what are you seeing there? Obviously, you're increasing exposure there now via M&A. I guess, how does maybe organic growth as a profile stand relative to the AS broader segment?

Yes, regarding the professional services ramp build, it was primarily in our global laboratory business, Clinisys. They have excelled in competing and winning contracts in the UK, France, and the Benelux region, typically involving larger installations. Additionally, their second quarter services bookings for PowerPlan appears to be the highest in the company's history. The deals have developed, and capacity is being utilized effectively, showing good operational foresight from these two businesses. As for our healthcare exposure with Syntellis, it remains a solid high single-digit growth business. Our Strata business performed slightly better during our ownership period. Now that the combined company has completed most of the cost synergy work, they are very enthusiastic about new product development ideas aimed at further monetizing both the customer base and the CFO persona. We serve 70% of health systems as customers within that persona, which is not merely overlapping customers but rather the same persona, and we are quite optimistic about the potential of this alignment.

That's great. Thank you very much.

You're welcome.

The next question comes from Scott Davis from Melius Research. Please go ahead.

Good morning, everybody.

Hey, Scott. Good morning.

Good morning. When you engage in a bolt-on type of deal in the current rate environment, are you facing different competitors compared to a year or two ago? Are there fewer private equity firms involved? I'm trying to get a sense of whether there is less overall competition for these types of transactions.

As a general matter, we are still competing against the sponsor community, although the competition is somewhat less intense. In the case of Syntellis, it was truly a proprietary deal, and we haven't encountered many proprietary deals in a while. In a more active market, even if you were the most probable buyer for an asset, the seller would typically conduct a market evaluation. However, in this situation, we were able to bypass that process and reach a mutually beneficial agreement. Therefore, while the competition may be somewhat reduced, the same players are still involved.

Okay. Make sense. Not much to pick on a very solid quarter overall. But can you give us a sense of materiality of kind of the Foundry, you know, just the strike impact and everything? If Foundry wasn't in the mix, would growth have been higher than the 5% segment growth?

Yeah, I would say a little bit. For the second half, it’s a single-digit revenue impact compared to our last guidance.

Okay.

Mid-singles.

Okay. All right. Good. All right. Thank you. I'll pass it on. Appreciate it.

Yeah. Good to hear from you.

The next question comes from Terry Tillman with Truist. Please go ahead.

Yes, thanks for taking my questions, and good morning, gentlemen. The first question is on Frontline. If I'm not mistaken, you know, you have this important renewal season. We saw the strong cash flow in the quarter. I'm curious, those are important kind of milestones when they're renewing and you get the cash flow. But what happens and what did you see with expansion or interest in expanding products or modules, adding more seats, taking pricing? And then the second part of my first question is just how is new business growth going in Frontline?

Okay. So Frontline, as we mentioned, I mean, it was just a good first year. The renewals, and we're right on plan. Consistent with last year, gross retention was in line with historical and net retention. So relative to the upsell, cross-selling was in line with historical rates, sort of 103, 104 is very consistent in the quarter for Frontline for net retention. So steady as she goes. It just goes to the criticality of what Frontline does for the customers in which they serve. Again, they empower the front line of education. So it's good. In terms of the new cross-selling, or excuse me, net new customers, it's been very good on the sort of the run rate business at Frontline. Actually a little bit better than prior years. And then as it goes with a lot of small numbers, there's a handful of large deals that Frontline normally gets in any given year. The larger deals have been a little slower to show up this year. They're still in the pipeline. They're just starting to push into the right, but we're talking about three to five deals in the course of a year. It's just a lot of small numbers. So we're not reading too much into that. Hard to recall a macro or a lack of execution. It's just a small number of deals.

Okay, thanks for that, Neil. And I guess, just my follow-up is on Neptune. You know, do you foresee this momentum continuing into '24? And how much should we hang our hat on this meter data management product? I mean, does that move the needle? Does it have a good attach rate? Thanks.

Neptune has a significant backlog heading into next year. We need to go through our planning process for all our companies to understand the various factors at play. However, we anticipate that Neptune will have another successful year due to the strong momentum of the backlog, its market positioning, and its capacity and competitive advantages. In relation to master data management and software, this area has become crucial for the business. As we incorporate more technology into the meters to extract and enhance data capabilities, we need to handle a large volume of data for billing and cash collection systems. Neptune has developed a sizable and highly skilled software team over the past decade to manage this, and it is an expanding segment of the business. While it remains a smaller part of the overall operation, it is growing rapidly, which is noteworthy for the quarter. Thank you for your question.

Thanks.

The next question comes from Christopher Glynn with Oppenheimer. Please go ahead.

Thanks. Good morning, everyone. I have a question regarding some language in the press release that mentions guidance does not include future acquisitions or divestitures. Given the significant divestitures you’ve executed over the past couple of years, I’m curious about the intention behind including that wording in the press release.

I think it's just standard language, Christopher. And so nothing to read into that.

Okay, great. Thank you. That's all I got.

The next question comes from Joe Giordano with TD Cowen. Please go ahead.

Hey, good morning, guys.

Good morning.

Good morning.

Hey. So regarding mergers and acquisitions, as we enter a more uncertain macro environment, I understand why it might make those markets a bit more accessible. But do these larger-scale acquisitions become more appealing during times like this, since you have greater familiarity with the markets and likely more certainty regarding the outcomes compared to, say, pursuing something that's more of a new area or less known to you?

Well, Joe, I would say yes and no to that. First of all, during uncertain times regarding our capital deployment, our history suggests these are great opportunities for us. If you look back at the pandemic, for instance, we acquired Vertafore in the late summer of 2020. It turned out to be a fantastic business for us, and because of our financial strength and flexibility, we were able to operate when others couldn’t, and sellers needed to sell. Last year with Frontline, the reasons were quite different, but the situation was similar. Syntellis also presented opportunities during this uncertainty. We appreciate that. As for whether our capital will be focused on a platform or a bolt-on, we've spent over 20 years developing the ability to be effective business selectors. This involves understanding the markets and recognizing competitive advantages. We seek stability, meaning we look for stable competitive dynamics, observable competitive forces, small markets, clear leadership positions, and high gross and net retention rates. This combination offers a stable foundation for growth. If we identify such opportunities in these uncertain times, we will certainly pursue them. At the same time, as we mentioned during our Investor Day, our capital deployment strategy emphasizes more bolt-on activities because they have historically provided the best value-creating deals, helping our businesses to grow faster once they turn organic. This is a significant part of why we brought Janet in—to lead this aspect of our investment strategy. We can pursue either option, but it’s important to understand the relationship between the two.

Yeah, that makes sense. And then just last, we still don't have a speaker of the house, we may have a government shutdown coming at the end of the year. What are the implications of something like that on Deltek's business?

I believe all of that is considered in the current environment. The major government contractors are being very cautious in their activities due to the uncertainty. They have been cautious throughout the year, with some fluctuations. I think this is already accounted for in our outlook for this year, which reflects ongoing uncertainty. The positive news is that this situation will eventually resolve itself, leading the government to resume spending, which will be a catalyst for Deltek.

Great, thanks. And I'll just echo Deane's comments and great hire on Janet. We'll miss her as a client, but a good home for her and a great hire for you guys. Thanks guys.

Thank you.

The next question comes from Steve Tusa with JPMorgan. Please go ahead.

Hey, good morning.

Hey, Steve. Good morning to you.

Congrats to Janet as well. Great cash flow in the quarter. You've mentioned seasonality, so how should we view Q4 from a working capital standpoint? What does history suggest? Will there be any impact from Frontline in the fourth quarter? How should we approach working capital? Should we anticipate another strong performance like we experienced in the third quarter, based on historical trends?

Before Frontline, the fourth quarter was our strongest quarter of the year, bolstered by significant renewals in our enterprise software businesses. We anticipate similar strength this year. Frontline is likely to remain stable regarding cash flow, so we feel optimistic about how the fourth quarter will conclude the year. We still expect free cash flow margins to exceed 30% for this year. Q3 was strong, and we expect Q4 to follow suit.

And anything else year-over-year in Q4 from a cash tax timing perspective or outside of working capital we have to be aware of?

Not really. Yeah.

Okay. So effectively, net income growth and then some working capital benefits?

Right.

Okay. Great. And then just following up on the environment and enterprise software. You guys mentioned there's like there's pockets of softening. I think can you just clarify like what you're just seeing broadly there from customers into '24. It just seems like the economy is mixed, but a lot of the software businesses out there holding up really well. How would you guys kind of characterize the environment maybe a little bit deeper there?

I think it's important to remember that we have a business model built on durability, which means it is highly recurring. Our offerings are mission-critical, so they’re not something that can easily be switched on and off. We serve as a system of record and operate within the freight markets where our customers rely on our software, leading to high retention rates. Pricing tends to be routine in our growth strategy, and we have minimized the cyclicality of our business. Therefore, from a macro perspective, we have a robust set of businesses. We’re experiencing only small variations in terms of impact. We discussed earlier about the potential for widespread concern regarding macroeconomic factors. As we suggested at the beginning of the year, we expected some slowdown in software sales, particularly due to market uncertainty affecting large new software purchases. Consequently, we anticipate slightly higher gross retention, while cross-selling and up-selling may be lower as customer growth slows. However, our net retention is expected to remain consistent with previous periods. Additionally, we won’t be selling as many large new products, which reflects how the enterprise landscape is evolving, albeit with some variances. There's considerable strength at Aderant, while Deltek is seeing some softness in GovCon. We also have robust performance at iPipeline and improving conditions at ConstructConnect, but we are facing challenges with DAT. Overall, it’s a mixed situation.

Got it. Okay. Great color. Thanks a lot.

You're welcome.

The next question comes from Joe Ritchie with Goldman Sachs. Please go ahead.

Hey, good morning, guys and congrats to you both, Janet. I look forward to reconnecting sometime in the near future. Just my first question, maybe just talking on the bolt-ons for a second. So clearly highlighted Syntellis and Replicon today. As you look across your portfolio, where do you see the most opportunity to potentially bolt-on?

We are in the early stages of this process. We do not intend to implement a centralized approach from Sarasota, telling any of our companies what they should purchase. Instead, we are encouraging most of our businesses to incorporate both organic and inorganic strategies during their strategic planning cycle. As we evaluate these strategies, we will identify key areas for expansion and then discuss whether to pursue organic or inorganic growth. From there, we will actively seek out inorganic opportunities. Generally, the larger businesses are the most likely candidates, including Deltek, Frontline, and Vertafore, but it's not limited to those. For instance, Strata represents an average-sized business for us that presented a compelling opportunity. Ultimately, we expect that the majority, potentially up to 20 of our 27 companies, will have an inorganic growth strategy. Whether we follow through with that will be a separate matter, but at least we will have strategies in place across most of the portfolio.

Got it. That's helpful, Neil. And I guess maybe just a follow-on question. As you think about renewal rates, you mentioned Frontline. So I think Q3 tends to be more like a typical quarter where you'd see more renewals for Frontline. Across your portfolio, does it tend to be more weighted around like the fourth quarter? Or just any color you can give us on, you know, I guess, the confidence in your retention rate staying very high going into next year?

Our fourth quarter is a very strong renewal season for us at Deltek, Vertafore, and Aderant. While it is balanced throughout the year, we see more activity in the fourth quarter. The situation with Frontline in the third quarter has shifted some dynamics, but we anticipate robust renewals. We had our operating calls this quarter, and the renewal process for these businesses has already begun for the fourth quarter, and we are receiving positive feedback.

Okay, great. Thanks guys.

You're welcome.

The next question comes from Brett Linzey with Mizuho. Please go ahead.

Hi. Good morning, all. Congrats on a nice quarter.

Thank you. Good morning.

Hey, I wanted to return to the topic of ConstructConnect. In your earlier comment, you mentioned improving strength. Could you clarify what you mean by that improving activity, especially considering some of the recent data on construction seems a bit weaker with higher rates? I'm curious about what you're observing in that regard.

ConstructConnect is a leader in commercial construction informatics, focusing on data used during the planning stages of construction. Once construction begins, it's a different sector in which we do not operate. For contractors or building product manufacturers, an environment with a large backlog and less response to RFPs has been prevalent for the past few years, which has dampened demand for our business. When projects are scarce, contractors have to work harder to find opportunities, which actually plays to ConstructConnect's strengths. The improvement we are seeing is because the market is turning to us. Our demand tends to be countercyclical. Additionally, we must highlight the operational enhancements made by Matt Strazza and his team at ConstructConnect. They are effectively simplifying our operations, making our go-to-market and product strategies more efficient, and refining our marketing approach. As the market seeks us out, we are better positioned to meet that demand, resulting from both market conditions and operational improvements.

Got it. I appreciate the color. And then just the last question on the margin outlook. Understand you don't want to give full guidance here in October for next year, but just thinking about the moving pieces, you know, the mixed differences in the business, is there a framework to think about in terms of you know percent margin expansion, incremental margins and particularly within network software, I mean, do we build off these high levels for next year?

Yeah, I mean, I think it's a little early to talk about margins for next year, but I mean, broadly, you know, 45% operating leverage is sort of what our long-term model is, and we've been close to that this year. I think you're probably right, though on network, it'll be maybe a little bit above that next year, but it's still too early to tell.

Got it. I appreciate the color.

This concludes our question-and-answer session. We will now return back to Zach Moxie for any closing remarks.

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

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.