Good morning. The Roper Technologies Conference Call will now begin. Today's call is being recorded. I would now like to turn the conference over to Zack Moxcey, Vice President, Investor Relations. Please go ahead, sir.

Good morning, and thank you all for joining us as we discuss the fourth quarter and full-year 2023 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 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 primarily on an adjusted non-GAAP and continuing operations basis. For the fourth 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 investments in Indicor and Certinia. Finally, transaction-related expenses associated with our completed acquisitions. 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?

Thank you, Zack, and thanks to everyone for joining our call. We're looking forward to sharing our quite good 2023 fourth quarter and full-year results with you this morning. As we turn to Page 5, let's look at today's agenda. This morning, I'll start by walking through our full-year highlights and then we'll turn to commenting on our most recent acquisition, Procare Solutions. Jason will then go through our quarterly results, both in aggregate and at the segment level, share our annual results, and review our strong balance sheet position. Then I'll pick up and discuss our segment level annual results, our 2024 outlook, wrap up, and turn to your questions. Let's go ahead and get started. Next slide, please. As we turn to Page 5, the two key takeaways for today's call are: first, we delivered a very strong 2023; and second, we remain well-positioned and are carrying positive momentum into 2024. As we look back on the full-year, we're proud of what the organization accomplished. From a financial perspective, we delivered 15% revenue growth, 16% EBITDA growth, and 32% free cash flow growth, with free cash flow margins at 32%. Our total revenue growth of 15% was underpinned by 8% organic revenue growth. Jason will cover this in a few minutes, but Q4 was strong as well with 13% total revenue growth and 8% organic revenue growth. Also during the year, we deployed $2.1 billion in high-quality vertical software acquisitions, highlighted by our bolt-on acquisitions of Syntellis and Replicon. As we all know, last year was a challenging year relative to available acquisition opportunities, given that I'm super proud of our team's ability to grind through the market conditions and successfully convert two outstanding value-creation M&A opportunities. Given all this, we entered this year with positive momentum. We continue to see strong demand for our mission-critical solutions. As a reminder, each of our businesses is a leader in their respective market and delivers system of record, network critical or vital, and/or lifesaving technologies. As a result, we continue to see strong demand for our solutions. Also as we head into 2024, we have meaningful contributions from our recent acquisitions, Syntellis, Replicon, and Procare. It is important to highlight that these additions to our portfolio of businesses also improved the underlying quality of our enterprise in terms of recurring revenue mix and organic growth profile. Finally, we continue to be very active in the M&A market, in an environment that we expect to be notably improved in 2024 with a strong balance sheet and a large pipeline of attractive opportunities. So, a strong '23 and solid momentum both organic and inorganic behind us as we enter 2024. Now please turn to the next page, Page 6, where I will discuss our most recent acquisition, Procare Solutions. Procare Solutions is a fantastic addition to the Roper portfolio. Let's start with the fundamentals. We're paying $1.75 billion net of a $110 million tax benefit for the business. We expect Procare to contribute about $260 million of revenue and $95 million of EBITDA for the 12 months ended Q1 '25. Procare will be accretive to our free cash flow in '24 and to our adjusted EPS in '25. We will fund the acquisition with a portion of our $3.5 billion revolver, and we'll report Procare in our Application Software segment, expecting the deal to close this quarter. Procare meets all our longstanding acquisition criteria, leading in a smaller market, delivering mission-critical verticalized software solutions, competing based on customer intimacy, operating in an asset-light business model, and is led by a skilled, passionate leadership team. What's incrementally different for us is the maturing leader nature of this company. As we outlined during our Investor Day last year, our corporate strategy leans on implementing two modest improvements. First, we aim to continue to improve our long-term sustainable organic growth rate. Second, to capture more value from our capital deployment capacity. Relative to additional capital deployment value capture, we are focusing on a higher proportion of bolt-on activity, as evidenced by last year's capital deployment records and adding higher-growth or maturing leader business profiles to our enterprise. Procare is a prototypical maturing leader archetype, meeting all our longstanding criteria, but as a structurally faster growth business that possesses the opportunity to improve margins as the top line scales. For Procare, we expect mid-teens top-line growth with improving margins from an already strong position for years to come. Let's talk about what the company does. Procare is the leading provider of mission-critical and purpose-built software to 37,000 owners and operators of early childhood education centers which they used to run their business. The software provides all the needed functionality to run a childcare center, ranging from parents and family engagement, staff and teachers scheduling, classroom management, tuition billing, and payment processing. The market itself is quite attractive, undergoing long-term secular tailwind of young dual-income families seeking higher levels of early childhood education versus daycare. In addition, like most industries, this one is undergoing long-term tech enablement. Given these factors, this market is growing annually in the low double digits area. As mentioned, Procare is the leading player with a 1.5 times market share advantage in this space, given their compelling value proposition that combines both software and integrated payment capabilities. Given this, Procare has very high gross retention and compelling net retention as well. Finally, from extensive due diligence on the business, we are encouraged by the fact that Procare has multiple strategic and operating pathways available to deliver mid-teens growth and long-term margin expansion. Net-net, this is a highly compelling value creation opportunity for Roper and our shareholders. And to Joanne, your leadership team, and all the Procare family, welcome to Roper. So with that, Jason, let me turn the call over to you so you can walk through our fourth quarter and full-year results, as well as our very strong financial position.

Great. Thanks, Neil. I'll walk through the enterprise and segment results for Q4, and enterprise results for the full year along with a review of our balance sheet. Starting with Q4 on Slide 7. We had an excellent finish to a strong year; revenue over $1.6 billion was 13% over prior year, led by 8% organic growth with acquisitions adding four points and less than a point of currency benefit. Organic outperformance was led by our TEP segment, highlighted by Neptune and Verathon. Gross margin of 69.7% was down 30 basis points versus prior year given the higher mix coming from our TEP segment. EBITDA grew 11% to $659 million, with the EBITDA margin coming in at a solid 40.8%. With the offsetting impact of interest and taxes, this translated into EPS growth of 11% to $4.37, above our guidance range of $4.28 to $4.32. Also from a cash perspective, free cash flow finished strong at $596 million, up 30% over the prior year. This was in line with our expectations, with a good renewal season across our software businesses. We turn to Slide 8, I'll briefly touch on the segment performance in Q4. Application Software delivered revenue growth of 15% over the prior year to $852 million, with organic growth contributing seven points and the balance coming primarily from our bolt-on acquisitions of Syntellis and Replicon. EBITDA margin of 43.2% in the quarter was below prior year's high watermark of 45.6%, which, as we discussed last year, was driven by lower incentive-based compensation. Network Software was up 3% to $363 million with EBITDA up 10% to $208 million. As we have discussed before, our freight matching businesses are navigating a drawdown of carriers, following exceptional marketplace growth over 2021 and 2022, which is mixing down the growth rate for the segment. However, our business leaders, DAT and Loadlink, have aligned the cost base with reduced carrier subscribers to still drive solid EBITDA growth in the quarter. Our TEP segment grew by 17% in the quarter to $399 million, with EBITDA of 13% to $134 million. Growth was led by exceptional performance at Neptune, with continued increasing demand for ultrasonic technologies and overall favorable market conditions. Also, Verathon continued its remarkable growth with strengthened single-use products across Laryngoscopy and Bronchoscopy. EBITDA margin of 33.6% was down from prior year, given some one-time investments and incentive compensation in the quarter. Turning to Slide 9, I'll walk through our full-year 2023 performance. As Neil just mentioned, revenue was just under $6.2 billion, up 15% over prior year with organic growth of 8% and acquisitions contributing seven points, mainly Frontline and Syntellis. Looking at a three-year revenue CAGR on this slide, similar to 2023, it's also at 15%. Further, the average organic growth rate over the three-year period has been about 8%. So as Neil mentioned, we benefited from some market conditions over that time period. EBITDA of just over $2.5 billion was up 16% over prior year, yielding an EBITDA margin of 40.6%. Our three-year EBITDA over this period was also up 16%. So the story remains the same at Roper. We own and continually grow a portfolio of high gross margin businesses and generally convert EBITDA growth to EBITDA in the 45% range, which allows for ample investment back into the business for future sustainable growth. Free cash flow for the year was just shy of $2 billion, which represents a 32% margin and is coincidentally up 32% over 2022. Full-year contribution from our Frontline acquisition and excellent performance across the enterprise drove this result, underpinned by strong renewals, favorable DSO, and improving inventory turns. Notably, our net working capital as a percent of annualized revenue was negative 19% in Q4, setting a new record for Roper. Importantly, over a three-year period, we have compounded cash flow at 16%. Our consistent focus on growing cash flow and the strength of our new portfolio following our divestitures demonstrates a solid base from which to continue our long-term growth algorithm. To that end, we expect free cash flow margin to be 30% or more in 2024. With that, we can flip to Slide 10 to discuss our strong financial position. From a liquidity standpoint, we finished the year with $3.14 billion available on our revolver, with over $200 million of cash. Regarding leverage, we brought down net-debt to EBITDA from 2.7 times at the beginning of 2023 to a year-end figure of 2.4 times, despite deploying $2.1 billion towards acquisitions. We expect to close on Procare later in Q1 and will utilize our revolver to fund the transaction. This will adjust our pro-forma leverage to about 3 times. Our solid balance sheet coupled with strong cash generation gives us the capacity to deploy $4 billion or more of capital while remaining committed to our solid investment-grade rating. Since our October call, deal activity has demonstrably increased with a corresponding lift in asset quality. That said, our market optimism remains balanced by our disciplined processes and patient posture. With that, I'll turn the call back over to Neil to talk about our full-year segment performance and the indications for 2024.

Thanks, Jason. As we turn to Page 12, let's look back on the year for our Application Software segment. Total revenues grew 21% and organic revenues grew 6% to $3.19 billion, while EBITDA margins remained strong at 43.7%. Within the segment, results were consistent with strength at Deltek, Aderant, Vertafore, Strata, and Frontline. Deltek continued to see strong gains in our SaaS solutions, especially in the private sector markets. As discussed throughout the year, the GovCon market was tempered given all the uncertainty regarding government spending, notwithstanding Deltek delivered mid-single-digit organic growth for the year. In addition, they continue to innovate and add capabilities during times of uncertainty, which is a hallmark of Roper's strategy, highlighted by the bolt-ons of Replicon and ProPricer. ProPricer, a smaller transaction about an $80 million purchase price, closed late last year and delivers the leading contract pricing solutions and software for government contractors and federal agencies, an ideal strategic fit for Deltek's cost point product family. Aderant was just amazing last year. They had record bookings and significant adoption of their anchor SaaS solutions and add-on products. Also, Aderant is one of the leaders within Roper in the legal software market as it relates to productizing generative AI solutions within their product stack. Great job by Chris, Rossi, and the entire team at Aderant. Continuing on, Vertafore was solid with strong ARR gains throughout the year. Additionally, Vertafore made great strides with our product strategy deployment, and the MGA systems bolt-on is trending well ahead of our investment case. Strata also performed well last year, both in terms of organic ARR gains, and their acquisition and integration work associated with Syntellis. Finally, Frontline executed well, delivering strong retention and cash flow during the year. As I mentioned earlier, we will report Procare solutions in this segment and expect the deal to close this quarter. Regarding our 2024 outlook for this segment, we expect to see mid-single-digit organic revenue growth. Please turn to Page 13. Full-year organic revenue for our Network segment grew 5% to $1.44 billion, and margins were strong at 55.2%. We'll start with our freight matching businesses, DAT and Loadlink, which both experienced growth in the year, despite long-muted freight market conditions. Similar to that of Deltek, both businesses continued to innovate during the sluggish market, with particularly interesting Gen AI innovations at DAT to help combat industry fraud. Pipeline delivered record bookings and had very strong customer retention and expansion activity, leading to strong ARR growth. Foundry, our post-production media and entertainment software business, muscled through the year given the writers' and actors' strikes and made meaningful progress in the transition to a full subscription revenue model. Finally, our alternate site healthcare businesses, MHA, SoftWriters, and SHP were strong throughout the year as census levels and senior care facilities improved. As it relates to our full-year 2024 guide for the segment, we expect to see low-single-digit organic revenue growth based on the expectation of continued muted freight market conditions, but with continued strong EBITDA margin performance. Now please turn to Page 14, and let's review our TEP segment's results. Organic revenues for the year grew 15% to $1.55 billion, and EBITDA margins remain consistent at 35.3%. As we look back over the year, we entered the year with a high degree of supply-chain uncertainty. During the year, the vast majority of these uncertainties were resolved, and our business has done a tremendous job of capturing the opportunity. As we exit '23 and look to '24, we do not see meaningful supply chain constraints. As usual, we'll start with Neptune, our water meter and technology business. Neptune was just great and continues to see strong demand and momentum for their residential and commercial ultrasonic or static meters, along with increasing adoption of their meter data management software. We remain bullish about Neptune and the market in which they compete. Verathon was also strong throughout the year. Verathon performed well across all three of their product families: ultrasonic, bladder volume measurement, video-assisted intubation, and single-use Bronchoscopy. As a reminder, Verathon's recurring single-use offerings now account for about 55% of the business' annual revenue stream. An amazing product and business execution journey to both scale and improve the underlying quality of the business. Finally, our RF product businesses, Inovonics and rf IDEAS did a terrific job managing through their supply chain challenges and delivered very strong financial performance in 2023. Looking to our 2024 guidance for this segment, we expect to see high single-digit organic revenue growth for the full-year, with the expectation that Q1 will grow in the mid-teens area. Now please turn with us to Page 16. This morning, we're establishing our 2024 full-year and first-quarter guidance. For the full-year, which includes the impact of Procare Solutions, we expect to see total revenue growth between 11% and 12%. On an organic basis, we expect to see full-year 2024 revenue grow between 5% and 6%. We expect to see full-year adjusted EPS in the range of $17.85 - $18.15, which includes about $0.10 to $0.15 of EPS dilution associated with the Procare deal. Assumed in this guidance, the tax rate is in the 21% to 22% range. We want to take a moment to set our guidance in context of our long-term strategy and execution model. To remind everyone, historically, we operate at a 5% to 6% organic growth portfolio. Our strategy and ambition is to structurally improve our organic growth rate to be in the 8% to 9% area. Over the last three years, we grew 8%, 9%, and 8% on an organic basis. These years benefited to some extent from certain market conditions. As such, our view is our current course and speed of organic growth rate is in the 7% to 7.5% area. We are very pleased with our progress to date and continue to work to achieve our organic growth aspirations. Relating to the organic revenue outlook for '24, we enter the year mindful of two factors; continued subdued large customer activity in our Application Software segment, and our freight matching businesses within our Network segment being below trend based on our expectations for continued muted freight market conditions. In relation to the first quarter, we expect to see adjusted EPS in the range of $4.30 and $4.34. Now please turn with us to Page 17, and then we'll look forward to your questions. As per our custom, we'll conclude with the same key takeaways with which we started. One, we delivered another great year performance. And two, we have continued positive momentum heading into 2024. Relative to 2023's performance, we delivered 15% revenue growth, 16% EBITDA growth, and 32% free cash flow growth, with free cash flow margins also at 32%. Our total revenue growth of 15% was underpinned by 8% organic revenue growth. Importantly, free cash flow was growing 16% on a three-year compounded basis and we delivered our first-ever quarter of $1 billion of software recurring and reoccurring revenues, quite an important milestone for enterprise. In addition, we deployed $2.1 billion towards high-quality vertical software acquisitions, highlighted by our bolt-ons of Syntellis and Replicon, and the year we deployed capital was structurally challenged, and we did so at very compelling values, leading to strong value creation for shareholders. As we enter 2024, we do so with strong momentum. We continue to see robust demand for our mission-critical solutions, a strong outlook for organic growth. Also, you can count on Roper to improve the underlying business quality as we scale our enterprise. Adding to the momentum for the year are the contributions from our 2023 acquisition cohort and last week's announcement of Procare Solutions. Finally, we are well-positioned to continue our capital deployment execution. We remain very active in the M&A market and expect an environment that will improve notably in 2024. We do this with a strong balance sheet, a large pipeline of attractive opportunities, and unwavering levels of patience and discipline. Now as we turn to your questions, and if you can 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 the company is part of Roper, we operate in a decentralized environment so our businesses can compete and win based on customer intimacy. We coach our businesses on how to structurally improve the organic 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 compounding flywheel. Taken together, we compound our cash flow in the mid-teens area over the long arc of time. So with that, thank you for your continued interest in Roper, and let's open it up to your questions.

Thank you. Today's first question comes from Deane Dray with RBC Capital Markets. Please go ahead.

Thank you. Good morning, everyone.

Good morning, Deane.

Can we just start with Procare? It's interesting. This is the first time I recall where you made a deal announcement and I had not one, but two people at RBC Research contact me and say, hi, that they were your active customers. And so they showed me the apps on their phones, and it was really interesting to see that dynamic. And my question here is, I'm really glad that you highlighted how they're a maturing leader within that category. What surprises me is how much growth there is. I mean, low-single-digit, maybe a low-double-digit to mid-teens. As you start to see that type of growth, might the private equity sellers have a bias where maybe that's a public company exit? That's always been the adage if you go for these more orphan businesses, there is no public company exit, they're more apt to sell to you at a reasonable price. If you start looking at some of these growth-oriented businesses like Procare, even at a maturing leader category, might that stretch the multiples because the private equity players might have a public company exit in mind? So maybe we can start there.

Yes, so I appreciate the comments on Procare. I think there's like 80,000 five-star ratings in the app store. So your colleagues are a couple of many who like the application and the engagement with their kids in their early childhood education centers. Relative to the question about IPOs as a competitor, I mean maybe on some transactions, but most of what we're going to look at are going to be sub-scale for the IPO market. The TAM here is sub $1 billion; that's not a very IPO-able type market. So this is again a small market leader. The market is growing low double digits that we talked about, which underpins the mid-teens growth rate we're underwriting here. In terms of valuation and multiples, I think we're just in a world where sellers, especially private equity sellers, understand the cost of capital, where the world is. They have constraints from their LPs. They need to get liquidity back to them. They can't raise new funds without it. It's hard to guess what this asset would have traded for 12 months to 18 months ago, but it would have been substantially higher on a multiple basis. So we think at the moment, the valuations are coming to us because of the market for us that we just talked about.

I think in this current environment, liquidity is really key. So if you do an IPO, you don't get your liquidity right away. So I think that's pretty important.

At your Analyst Day, you mentioned being open to exploring businesses that may be earlier in their development. Considering that Procare is a maturing leader, is this something you could have pursued earlier? Regarding the level of activity mentioned by Jason, are there businesses in the funnel at that earlier stage that could be attractive?

I think Procare is a good example of companies that are earlier in their development stage. They are not quite at the early-stage level but are earlier than what we've typically acquired in the past. They meet all of our criteria. I want to stress every time we discuss maturing leaders that this is a leader in a small market. The competition is clear and visible in the marketplace. The relative market share advantage of this company is particularly noteworthy. These traits are consistent with what we've always acquired. In this situation, the market is growing slightly faster, and the underlying business model suggests that margins will increase as the business expands. This is what we mean by an earlier stage. Historically, we might have waited until the next opportunity, but looking at the long-term model, this transaction offers greater value for our shareholders. As for the pipeline, there has been a noticeable increase in activity since our last call for several reasons we've discussed, showcasing a variety of opportunities. We are focusing more on bolt-on acquisitions, so there’s substantial activity in that area. Jan and her team are working to build that up, along with several emerging maturing leader profiles. We will remain patient and disciplined in choosing the right opportunities for us.

That's all great to hear. Thanks. Congratulations.

Thank you.

And our next question today comes from Julian Mitchell with Barclays. Please go ahead.

Hi, good morning. Maybe just following up on Procare. If you could clarify a little bit just the financial impact. I think you said maybe $0.10 to $0.15 hit for the year in that guide. So maybe just sort of clarify around that. Is it kind of a smaller hit in Q1 because of the timing of the deal close and then we just spread the rest out over the balance? Any thoughts on kind of the seasonality of the Procare business and then how quickly you'll get that sort of related debt down?

Yes, sure, Julian. So we expect to close in March. That's sort of our assumption right now. So the way that plays out is of the $0.15, maybe $0.02 in the first quarter. We expect around $75 million of EBITDA for the calendar year. From an interest perspective, we'll reload on the revolver, which is going to be at around 6%. That will flow through the rest of the year. That's how you get to your $0.10 to $0.15 for the year. In terms of seasonality, there isn't a ton for the business. Given that it is growing nicely, it should work through any aberrations between quarters.

That's helpful. Thank you. And then, just homing in on Network Software for a second. So you have that sort of softness in the freight markets, just been sort of well understood for some time. Foundry was also weak for some last year. So are we thinking that in the context of that low single-digit organic growth guide for the year in Network Software, just trying to understand are you assuming kind of a slower start and then a pickup in the back half? Or is it a steady sort of 3% growth rate dialed in, just like how you exited 2023?

I'll address the first part, and then I’ll let Jason add anything if he wishes. You're correct that the main factors driving the growth rates for 2024 are DAT and Link, along with our freight matching businesses. Foundry faced challenges in 2023 due to the actors' and writers' strike, and they are beginning their transition to a full subscription model. Therefore, we expect Foundry's performance in 2024 to be somewhat subdued, though its impact will be minor compared to DAT and the Canadian Freight Match businesses. We have anticipated relatively muted conditions for the entire year. While some market analysts predict an improvement in the second half, we have not factored that into our model yet. We want to confirm that trend before incorporating it, which is our main assumption regarding the freight match businesses.

That's right. Great. Thank you.

And our next question today comes from Brent Thill with Jefferies. Please go ahead.

Thanks. Curious just to get the thoughts on organic growth in '24; obviously you've taken a pretty meaningful step down from what you did last year. And maybe if you can explain that in the initial guide and what you're baking in for the overall guide for '24?

Sure. I'll just comment and share a few of the thoughts, we said in the prepared remarks, right? So our long-term aspirations are to grow organically in that 8% to 9% range, and we believe we have the possibility to do that. It's going to take a few more years to get into that run-rate. That's the aspiration of what we're all working towards, both in the group executives and all the operating teams across the company. As you know, the last three years there was an 8%, 9%, 8% throughout that whole period of time. We said those were benefited by some market tailwinds, some back from the pandemic, a raging freight market, things like that, supply chain sort of bottlenecks and eventual releases. That was sort of in the last three years. So as we look at this year compared to history and also, or the possible in the arc, we think our current course and speed is in the 7% to 7.5% range organic growth through all that noise. So as we compare, we're doing in '24 against all that, it really is two simple reconciling factors. One is, we just talked about in the last question; the freight markets being slow, our expectation for them to be slow throughout the whole year. As we talked about for a few quarters last year in our Application Software segment, there was notably less large customer activity, like enterprise class customer activity. Deltek, a little bit, Frontline. A bit of smaller business called Data Innovations, which all makes sense. The large companies anticipating a slowdown just got cautious in their buying behavior. The good news is, Deltek ended Q4 with a fair amount of momentum. They're up low double-digit, either high single or low double digits in the quarter, so they exited with a fair amount of momentum. That's one data point. We want to see a few of those thrown together. So those are the two reconciling items around the freight slowdown and expectation slowdown in large activity in Application; that's embedded in our model, and those are reconciling factors between last year and where we are this year.

Great. Thank you.

Yes.

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

Great, thanks for taking my questions. I wanted to pick up on the last answer and maybe contextualize a bit more on the outlook specifically for Application Software. Appreciate the comments on subdued activity with large accounts. Do you happen to have the trend in Enterprise bookings and then any other forecasting considerations to call out? Because I'm trying to reconcile the good step-up at year-end against the mid-single outlook, but that might just be related to the planning assumptions you just mentioned, Neil?

Yes. I think the step up at the year, I mean Deltek was strong in Q4. It's one data point. The pipeline looks attractive. The pipeline for Frontline looks attractive at both the Enterprise and SMB portion of their business, but we've been through the better part of three, four quarters where the Enterprise activity was slow, and we're just not going to underwrite that in our guidance at the moment.

In terms of Enterprise bookings, they were up low single digits, which is consistent for the full year this year and sort of consistent with what we've said all year long regarding just lower activity at the Enterprise level.

Okay, great. Then I wanted to ask, there are some exogenous events like you mentioned Foundry. I think they communicated that they are now exclusively subscriptions here in 2024. You also have a lot of other businesses that have big on-prem maintenance streams that can get a multiplier over time. So there are things that are hurting and helping, I suppose. Do you have a sense on a blended and net basis about what this might be contributing to the model in 2024? And when you think about growth improving from the 7% to 7.5% range, what these types of items might ultimately mean over the next couple of years?

So I can take the first part of that, Joe, and then maybe Neil can take the second. In terms of the Application Software, we still expect it to be strong in mid-singles. I think nonrecurring revenue will still kind of be flattish. We still expect that sort of shift to SaaS to continue, and that's been a small headwind for us throughout the last couple of years. But it's been overcome by the things we talked about, which was Enterprise bookings, which we didn't get in '23. Again, recurring is going to be strong. Nonrecurring will be flattish. If Deltek picks up in '24, especially in the large GovCon Enterprise, there could be upside in the year because a lot of those customers are still buying on-premise licenses. That could be an opportunity, but we didn't bake any of that into our guidance. Then when we look at Network, recurring will clearly be down low single digits just based on DAT & Loadlink, at least based on our current assumptions. To your point, I think nonrecurring will be fairly muted as well because we will be at the last point of that conversion of Foundry from license to subscription. They didn't mandate that in '23. They will mandate in '24, so we'll be digesting that last piece there. And then on the 7%, Neil...

Yes. Looking at the long-term perspective on the SaaS migration, we currently have over $900 million in on-premise maintenance. Historically, as this converts to SaaS and cloud, the annual recurring revenue has increased significantly, typically more than double during this transition. We expect this conversion to be a significant growth driver. While we are moving from one-time perpetual licenses to a SaaS model, which can have a classic J-curve effect, we anticipate that converting this $900 million in maintenance will offset that J-curve impact. Foundry is somewhat different as they are making an immediate shift in their business model, while other companies are taking a more gradual approach.

Okay. That's all helpful. Thank you.

And our next question today comes from Allison Poliniak with Wells Fargo. Please go ahead.

Hi, good morning. Just wanted to turn to tech-enabled products. Obviously, a strong year. As we think about that guide, Neptune and Verathon are certainly big components of that growth. Does that kind of diverge to some extent as one starts to appease the other? It seems like there's a lot of development at Verathon that can drive some of that. Just any thoughts there?

Both, as we talked about, both Neptune and Verathon were just great, and last year both grew faster than the segment. Obviously, they are a predominant element of the segment. We believe that the long-term growth rate at Neptune is probably in the high single digits area. We believe that the long-term organic growth rate of Verathon is probably a bit higher than that. We're optimistic about the pipeline of R&D and the momentum they have in the market across the three product categories, so that's where we expect the long-term growth rates to be.

Got it. And then just following up on the M&A side of things, leverage at 3 times, obviously a strong cash flow generator, but it sounds like the pipeline is incredibly active with quality transactions. What's the comfort level in terms of going above that range? Is there a way to think through that?

Yes, our long-term policy aims for a leverage ratio between 3 times to 3.5 times. If we look back to 2015 and 2016, it's clear that we can't always remain at that level; there will be fluctuations above and below it. It's a continuous process of determining where to find the balance amid those changes. We focus on selecting the best business models, and we will keep seeking out the most attractive businesses that align with our criteria at appealing valuations. After that, we will consider the optimal financing methods. We are very aware of the risks involved, both in the businesses and the capital structure, which significantly influences our capital deployment strategies and asset valuations.

Got it. Thank you.

And our next question today comes from Christopher Glynn with Oppenheimer. Please go ahead.

Thanks. Good morning, guys.

Good morning.

I had a question about the TEP segment. So you commented on the supply chain issues from the last couple of years being resolved. Curious if you're seeing some nice benefits emerge from production planning, and if that drives some natural margin and productivity tailwinds that we should see in the margins in 2024?

I think scaling certainly helps. We've added a fair amount of capacity at Neptune. We've added supplier capacity at Verathon. We've added supplier capacity at the RF product businesses. Certainly, our demand is not the same as other companies. The supply chain operations teams are moving from a model that was focused in the last three or four years on resiliency to perhaps a more balanced approach between resiliency and just-in-time, which certainly will help with inventory turns and asset velocity. We believe there's a little bit of money trapped in inventory for us, so it will be more of a working capital advantage if we can execute on that plan. Regarding margins, I'll look to Jason. I think it's probably more about scaling infrastructure. Our cost of goods is so low relative to industrial-type companies that the input costs are a fraction of the cost structure of our enterprise, but your thoughts about that?

Yes, no, I think we'll have leverage that will be a little bit above what the EBITDA margin is for the business. I mean, you do have some growth that we're seeing in single-use products, which are great because they have a lot of recurring revenue, but they come at a little bit of a lower margin. Then when Neptune grows, it has a little bit of an impact on the segment, too. I would expect leverage to be consistent with what we've seen in the last couple of years based on those factors.

Great, thanks. And then about the aspiration to 8% to 9% organic growth and driving things higher, certainly understand you have a lot of coordination of experts and best practices across the enterprise. What would you characterize as top of the list businesses with particular action plan opportunities in that respect?

So, we appreciate the question, right? We started this portfolio with a 5% to 6% growth. We're at a point where we think we're at 7% to 7.5% on the way to 8% to 9%. We've made a fair amount of progress over the last four or five years. It's less about which company; it's more about the training and discipline across all 27, now going into 28 companies. You've heard us talk about this repeatedly, but it's all about consistency. It's about how do each of our businesses design a strategy in terms of where to play and how to win, and where they have the right to win for durable long-term growth. The second thing is, how does the process enable the execution of that strategy so that you're on repeat? We can use our long-term forever ownership period as a long-term competitive advantage. As we stack capabilities that become enduring, we can outpace our competitors. Finally, we run a talent offense, where we use talent as a long-term competitive advantage. We've talked a lot about the upgrade at the field leadership level over the last three or four years. The expectation for performance is much higher, much, much higher. The alignment of our compensation is tighter to that expectation. So it's all three acting in unison that helps achieve the Verathons, which a decade ago were low-single-digit growers and are now hopefully low double-digit growers. You take businesses like Deltek, which have the mid and could solidly inch into the high singles over time.

Thanks, Neil.

You bet.

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

Hi guys, good morning.

Good morning.

Hi, regarding DAT, the free market is clearly weak. Could you elaborate on the relationship being somewhat inverse in weaker markets where they tend to perform better? Specifically, is it more accurate to say that this occurs during negative shifts in the market where there are spikes, and then if the weakness is prolonged, it eventually affects DAT? How should we really understand this?

DAT dynamics differ from your description. When freight markets are strong, DAT grows in line with or even outpaces that strength. However, in weaker freight markets, DAT growth slows, leading to a stair-step pattern due to the significant surge we've seen over the last few years. The situation you're describing aligns closely with our ConstructConnect business, which focuses on construction analytics. Contractors seek information about potential job opportunities during periods of active planning in commercial real estate. In strong markets, the value of our information diminishes, while in weaker markets with stable backlogs, the value increases. Thus, in our construction and real estate markets, we aim to leverage both upward and downward trends.

That's good color. Just a broader question. Obviously, we're seeing more layoff announcements across the spectrum from tech to UPS. How are you guys, like in your discussions with your customers? What's the most recent read they're having on where headcount stands and what the implications are for your businesses?

I think unfortunately our read across the macro market isn't great because we operate in relatively insulated end-markets, like government contractors, property and casualty insurance, or brokerages where employment is higher, life insurance where employment is higher, healthcare where employment is higher, and education where employment seems stable if not higher. We're in the relatively isolated protected end-markets where macro swings don't significantly impact us. The general loosening of the labor market has been beneficial for us. We've also been able to not just fully staff at our business level but use this opportunity over the last 12 months plus to significantly upgrade talent across the organization.

Fair enough. Thanks, guys.

Thank you.

Thank you. And our next question comes from Terry Tillman with Truist. Please go ahead.

Yes. Can you all hear me okay?

Hi, Terry. Good morning.

Hi, good morning, everyone, and thanks for fitting me in as well. Maybe just one question for you. I guess it's for you, Neil, is what we've seen with our vertical SaaS companies and even horizontal SaaS companies in the past, when they get those customers on the new modern architecture, it really can start to reduce the friction to buy those other add-on modules. So what I'm curious about is, you just called out some of your businesses in the past like Deltek that have seen improving growth. Anything you can share around net revenue retention from those customers that move to cloud? I know it's still early days, but is there a propensity to buy those add-on modules? Does it speed up? Does it quicken? And that's just one of these things that could be a cumulative benefit over time and also help on that organic growth.

The short answer is yes. We observe that when transitioning from a legacy product to a current cloud-based product, there is a migratory benefit, with Strata being a prime example. Same-store sales indicate an uplift of 2 to 2.5 times. During this process, customers tend to spend more, resulting in total ARR increasing over three times as they shift their customer base. This trend is also evident with Aderant, Vertafore, and others. We see this as a major advantage for both the customers and our companies in providing cloud-based SaaS software, which facilitates the latest updates and easier integration of additional products. We are indeed seeing this across our portfolio and anticipate even more of it in the coming years.

That's great. I appreciate that. And I guess just a follow-up question. I know you want to be careful and not reveal too much. But if the M&A environment does start opening up more and there's more shots on goal and just more things that are interesting, albeit, taking into account your discipline, I'm curious just bigger-picture, usually it's vertical SaaS, but what about interesting niche horizontal SaaS solutions? Whether it's back-office or kind of middle office or front office? And/or secondarily, the idea of maybe software companies with a meaningful payments business. Thank you.

As we've always said, we're going to be business model pickers. The reason historically we've been attracted to vertical, small market verticalized software businesses is that the basis of competition needs to be understandable and observable. We want to be able to compete based on both the value proposition of the product and the intimacy with the customer and the customer relationship. The vast majority of our companies' customers want us to win; they are integral to what they do and always give us input and feedback. Those dynamics are what we look for. There are certainly some niche horizontal-type things that meet those criteria, but not a lot. A lot of the horizontal businesses have gigantic TAMs to compete on the basis of an algorithm and very little loyalty to the company, which means we'll never invest in those. Relative to your comment about payments business models, we have a variety of business models, software, on-premises, and SaaS. Where we have purchased a business combining SaaS, software, and payments, there is deep embedded integration with what the company does and products do with the payment stream. We're open-minded to the business model as long as there is immense durability embedded in the business model.

Good morning, thanks. May I have some questions on Procare? The first one is you've indicated that it is not accretive to adjusted EPS this year. If not, then there is some dilution. How much is that? You might have mentioned that earlier, but I might not have caught it.

Yes, hi, Alex, it's Jason. So we assume around $75 million of EBITDA, and then the interest is going to be 1.6 billion at 6%, which is our current revolver rate. That's how you get to your dilution number, which is $0.10 to $0.15.

Okay. So that accounts for the shortfall in the guidance versus consensus tender. Did you say $0.10 to $0.15 per diluted share?

Absolutely, yes. We're looking for accretion after 2024, which will come from strong mid-teens growth and good cash conversion dynamics, with a tax benefit in play this year and next. We're confident in its contribution to our growth going forward.

Now can you give us an idea of what the total available market is in their business? I assume it's all domestic at this point. How do they look compared with that? In other words, what's your market share or approximate; I understand that Procare is the leading provider, but it looks like it might be a fragmented market?

So the TAM today is about $750 million. It's growing about 10% a year. So you can do the math on what we said; that's in the next 12 months to March 25, it's 260, so you've got to grow the market at 10%, do the math on their current market share and their relative market share position. Their size relative to their next largest competitor is about 1.5 times. The market is characterized as having a number of legacy technology players, and Procare and the principal competitor are generally re-platforming the market from a technology perspective.

Okay. Finally, in that market, there are different sizes to the groups that you might be serving. There are nursery schools, for example, that have several hundred students, and there are small ones that are much smaller. Where do you fit in that? Are you aiming at serving the smallest schools, the larger ones, or both?

I really appreciate the opportunity to address this question because one of the aspects of the business that we like quite a bit is the market segmentation. We segment the market into enterprise, mid, and single operators: 10-plus centers, one-to-ten centers, and a single operator center. Procare is the demonstrable leader relative to market-share advantage substantially higher than the 1.5 times at both the enterprise and the mid. The growth rates in the enterprise and mid are actually growing faster than the overall market. The segments where Procare also competes very well in the single operator, I wouldn't want to comment on that. They compete effectively there as well, but they have the strongest and largest market share in the enterprise and mid, which means as the market consolidates slowly, that accretes to our advantage.

Is there any foreign business available there, or are you looking to get into that or not?

Yes, international is not a meaningful part of the business today. It is certainly something that we will consider in the long-term strategic outlook for the business, but not something probably in the near term because there's so much opportunity domestically to pursue.

Okay. All right. Thank you very much.

I appreciate the questions and have a great one.

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

Thank you. The conference has now concluded, and we thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.