Earnings Call Transcript - ROP Q2 2025

Operator, Operator

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

Zack Moxcey, Vice President of Investor Relations

Good morning, and thank you all for joining us as we discuss the second quarter 2025 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, Senior 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. And now if you'll 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 second quarter, the difference between our GAAP results and adjusted results consists of the following items: amortization of acquisition-related intangible assets, transaction-related expenses associated with completed acquisitions; and lastly, financial impacts associated with minority investments, including cash taxes paid resulting from the sale of our minority interest in Certinia. 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'll take questions from our telephone participants. Neil?

Laurence Neil Hunn, President and CEO

Thank you, Zack, and thank you all for joining us this morning. On Page 4, you'll find the topics we plan to discuss today. We'll begin with our second quarter highlights, including a review of the platform acquisition we announced earlier today, Subsplash. Then, we'll go through our segment results and improved outlook for the full year before addressing your questions. So let's get started. Moving to Page 5, here are the four key takeaways for today's call. First, we reported another strong quarter of financial results. Total revenue increased by 13%. Organic revenue grew by 7% and software bookings rose in the high teens, while we continued to deliver strong cash flow with free cash flow margins at 31% for the trailing twelve months. Second, we announced the acquisition of Subsplash, a prominent vertical market software provider, which I'll detail shortly. Given our strong performance in the first half and the expected completion of the Subsplash acquisition, we are raising our full year total revenue guidance and our full year debt outlook. Lastly, we remain well positioned for capital deployment with over $5 billion in available resources over the next 12 months. Please turn to Page 6 to discuss Subsplash. Subsplash is a cloud-native and AI-enabled software provider dedicated to serving faith-based organizations. As a leading provider of digital engagement, church management, and integrated giving solutions, their specialized platform allows customers to effectively serve their congregations and engage members. Subsplash collaborates with 20,000 faith-based organizations to help them become digitally proficient by enhancing member engagement, decreasing manual administrative tasks through automation, streamlining content distribution, and integrating digital giving solutions, all of which support their core mission. Essentially, Subsplash helps these organizations dedicate more time and resources to what matters most — connecting with and ministering to their congregation both online and in-person. Importantly, the value this provides to customers grows as the company's AI capabilities expand throughout their product offerings. In terms of investment highlights, the purchase price for Subsplash is $800 million. We anticipate it will generate $115 million in revenue and $36 million in EBITDA by the end of Q3 2026. This business aligns with our long-established acquisition criteria, excelling in a niche through customer intimacy, possessing strong gross margins, and generating high cash flow. Subsplash fits the mature leader acquisition profile, demonstrating high organic growth in the teens and competing within a $2.5 billion U.S. total addressable market, with approximately half currently served and significant international expansion potential. Additionally, Subsplash is poised to significantly enhance their gross and EBITDA margins over the next 3 to 5 years through the execution of various available strategies. Consequently, we expect Subsplash's organic revenue growth to convert to high 20% EBITDA growth in the same time frame. We will finance this acquisition with a revolver and report the results in our network software segment. Subsplash is a powerful addition that provides critical solutions to customers with ongoing needs for these capabilities. To the Subsplash team, we are thrilled to have you join Roper and appreciate the vital work you do for your community, as well as your trust in Roper as your permanent partner. Now, I'll hand the call over to Jason to review our P&L and balance sheet. Jason?

Jason P. Conley, Executive Vice President and CFO

Thanks, Neil, and good morning, everyone. I'll now take you through our Q2 financial highlights. The second quarter was another solid installment in what we believe will be a good year for Roper. Revenue of $1.94 billion was up 13% from the prior year, well-balanced with 7% organic growth and a 6% increase from acquisitions, with Central reach results contributing since the April 23 close date. Organic growth was robust across the portfolio, demonstrating resilient demand for our mission-critical solutions. Importantly, network software year-over-year growth notably improved from Q1, thanks to more normal comparisons at MHA, increased freight match unit economics, and the recovery of foundry. EBITDA of $775 million was up 12%, generating an EBITDA margin of 39.9%. Core enterprise operating margin remained flat compared to the prior year, with core segment margin increasing by 40 basis points. This follows a similar pattern to Q1, bringing our year-to-date core segment margin expansion to 70 basis points. For the diluted EPS, we delivered $4.87, exceeding our guidance range of $4.80 on strong revenue growth and excellent core operating leverage. Finally, free cash flow was up 10% from the prior year, pushing our trailing twelve-month free cash flow to over $2.3 billion. The recent passage of the big beautiful Bill Act provided a permanent repeal of Section 174 capitalization of R&D expenditures, allowing us to reduce our cash tax payments for 2025 by about $150 million to reflect the cumulative reversal of capitalization, with around $60 million benefiting our second quarter. We will also see a benefit of $120 million carry into next year due to deduction limitations in 2025. Adjusting for the Section 174 impact, our three-year trailing twelve-month free cash flow compound annual growth rate would be approximately 14%. Overall, this is good news in offsetting some near-term deal dilution and supporting our growth equation. Now let's discuss our strong financial position. We finished the quarter with a healthy balance sheet and substantial capacity for continued capital deployment. We exited at 2.9 times net debt to EBITDA, and pro forma for Subsplash, this would be around 3.1 times. Additionally, our cash balance was $242 million, and our revolver had $1.4 billion drawn against our $3.5 billion credit facility. Even with the Subsplash closing this month, as Neil outlined, this gives us over $5 billion in M&A firepower. This substantial capacity positions us very well to execute on our disciplined capital employment strategy. To that end, while the sponsor-to-sponsor market is still somewhat muted, we are active on several platform and bolt-on transactions that reflect the characteristics of higher growth and increasing long-term value capture, with Subsplash being a key example. With that, I'll turn it back over to Neil for our segment highlights and guidance update. Neil?

Laurence Neil Hunn, President and CEO

Thanks, Jason. As we move to Page 10, let's take a look at our Application Software segment. In the last quarter, total revenue increased by 17%, while organic revenue saw a growth of 6%. Our EBITDA margins stood at 42.9%, with core margins improving by 70 basis points. Starting with Deltek, we saw mid-single-digit growth in both recurring and total revenues. Deltek is experiencing strong migration to their cloud services and continues to innovate rapidly, benefiting from high gross and net retention rates. Regarding the federal government contracting outlook, we anticipate that the recent spending priorities will stimulate market growth, which has been slow over the past two years. Although the timing of this market acceleration is uncertain, we expect it to unfold over the next few quarters. During the last quarter, Deltek made significant advancements in their AI-driven product capabilities and launched their new GovCon product cost point, which integrates their AI assistant Della to help streamline repetitive tasks and enhance decision-making. Aderant also had an outstanding quarter, hitting a record for bookings, driven by their AI-enhanced solutions resulting from market share gains, cloud migration, and SaaS growth. Kudos to Chris and the entire Aderant team for their excellent work. Vertafore has remained consistent, showing strong ARR growth and customer retention across their solutions for agencies, MGAs, and carriers. Their solid market strategies and commitment to product excellence have fueled this growth, and we anticipate discussing their AI solutions in future calls. PowerPlan is performing exceptionally well, having made strides to increase the recurrency of their revenue stream and receiving positive feedback on their cloud offerings, which are facilitating strong SaaS migration. Consequently, PowerPlan continues to thrive with near 100% gross retention. ProCare and TransAct Seaboard are both doing very well in their markets. We also saw positive results from the healthcare IT segment, particularly Strata, Data Innovations, and CliniSys. Additionally, CentralReach is showing remarkable early momentum with record expansion and a 70% win rate for new enterprise clients. Looking ahead to the second half of the year, we expect organic revenue growth to be in the mid-single-digit range. Moving to Page 11, total revenue in our Network segment rose by 6%, and organic revenue grew by 5%. EBITDA margins remained strong at 54.6%, with core margins improving by 20 basis points. Beginning with DAT, it performed well this quarter with solid improvements in ARPU. The market remains stable but is experiencing slight fluctuations. This quarter, we integrated Loadlink, our Canadian freight match business, with DAT, and we believe this integration will lead to a more unified and efficiently operated North American Freight Match network over time. DAT is executing excellently on their core strategy to enhance network value for both brokers and carriers, which will help monetize our entire network ecosystem. They also made significant strides integrating trucker tools and completing the acquisition of Alco, which provides an AI-native factoring technology solution. Looking to the future, DAT will persist with this strategy, laying the groundwork for continued growth and better monetization. The construction sector performed solidly, buoyed by strong customer bookings and improved retention. They've also made good progress with their emerging AI-enabled takeoff and estimating solution. Foundry saw a decline as anticipated, but we are beginning to see market recovery, indicated by their sequential ARR growth for the first time since the actors' and writers strikes. Foundry's new product, Nuke Stage, is gaining traction, particularly with larger studios and smaller clients, allowing for postproduction compositing to be integrated during the production phase. Our network healthcare businesses, including MHA, SHP, and SoftWriters, also performed well this quarter. As we look forward to the second half of the year, we expect revenue growth in the mid-single-digit range. Now let’s proceed to Page 12 to discuss our TEP segment's quarterly results. Revenue grew 10%, and organic revenue increased by 9%, with EBITDA margins at 36.7%. Starting with Neptune, their execution has been solid as they successfully market their ultrasonic meters and data software. Verathon also performed well, particularly with their recurring solutions. NDI had a successful quarter, delivering high precision measurement technologies that enable OEMs to develop guidance-enabled solutions across many healthcare markets. Additionally, SIFCO, FMI, Anionic IPA, and RF Ideas saw strong growth. In terms of outlook, we expect high single-digit organic growth for this segment in the latter half of the year, particularly a stronger Q3 compared to a more challenging Q4. Before we share our guidance outlook, I’d like to address our perspective on AI, its transformative potential for both our customers and our enterprise, and the steps we are undertaking to establish a lasting advantage. Our strategy is focused and pragmatic, applying AI to tackle significant customer-specific challenges. We believe AI-based innovation will significantly expand our business prospects where we have a strong competitive edge, driving our next growth chapter. The true value of AI is realized at the intersection of the specialized workflows our customers depend on daily and our profound market expertise. Our AI initiatives span all our operations, and we are experiencing early success from compliance solutions to AI-enhanced products and intelligent agents that streamline tasks. We are creating solutions that deliver substantial high-value outcomes. Currently, we have around 25 AI-enabled products either in market or in development, and our AI innovations foster a positive ripple effect across many of our businesses, driving demand for our broader product offerings. It’s an exhilarating time to be leading innovation, reshaping workflows across vertical markets and unlocking new growth while building lasting competitive advantages. We are excited about the journey ahead. Moving on to Page 14, let's discuss our Q3 and updated full-year 2025 guidance. Due to our strong performance in Q2 and the anticipated closing of the Subsplash acquisition, we are raising our total revenue growth forecast to around 13%. Our organic growth rate of 6% to 7% for the full year remains the same. We are also updating our full-year debt outlook to a range of 1990 to 2005, which includes the impact of Subsplash. Our guidance continues to reflect an effective tax rate of 21% to 22% for the full year. For Q3, we expect adjusted debt to be between $5.08 and $5.12, accounting for $0.03 of Subsplash dilution. Now let’s move to Page 15 to open the floor for your questions. We’d like to summarize the key points we started with: our second-quarter financial performance was strong, we announced the acquisition of Subsplash, we're raising our full-year guidance based on a solid start to the year, and we're well-positioned for further capital deployment. In terms of financial results, we saw total revenue grow by 13% and organic revenue increase by 7% in the quarter, achieving a 31% free cash flow margin in the TTM period. We are thrilled about our acquisition of Subsplash, an essential player in delivering digital engagement, church management, and payment solutions to 20,000 faith-based organizations, which comes with several growth drivers for high teens revenue growth and a promising margin profile. We are also raising our full-year forecast and are strongly positioned with over $5 billion available for M&A investments in top market-leading vertical software companies. Our M&A pipeline is active, and we are engaged in several opportunities. As always, we are eager to pursue these with our unbiased and disciplined approach. Before we take your questions, I’d like to remind you about our strategic compounding flywheel. At Roper, our goal is straightforward: we aim to compound cash flow over time by executing a low-risk strategy while utilizing our dual threat approach. We operate a diverse portfolio of market-leading application-specific businesses. Within our decentralized environment, our businesses can compete effectively with a focus on customer intimacy. We guide our companies on improving their organic growth rates and overall business quality. Concurrently, we follow a disciplined centralized capital deployment strategy, targeting investment in promising vertical market-leading businesses to enhance our cash flow compounding flywheel. Together, these strategies enable us to grow our cash flow at a mid-teens rate, essentially doubling it every five years. Thank you for your ongoing interest and support. We’re now ready to take your questions.

Operator, Operator

Our first question comes from Dylan Becker with William Blair.

Dylan Tyler Becker, Analyst

I want to appreciate the question here. Maybe, Neil, starting for you, kind of the resiliency and strength across the software segments of the business. Can you kind of just give us a general breakdown of again, the emphasis that your customers are kind of focusing on around productivity kind of in the current context? How that's layering in momentum around AI and maybe this prolonged period of uncertainty, if there's any easing that you're seeing there as they can't necessarily sit on their hands from a decisioning standpoint forever?

Laurence Neil Hunn, President and CEO

I appreciate the question. It was encouraging to see the strong bookings in the second quarter, which indicates stability in the markets we serve. It's important to note that our exposure to end markets like education, legal, and insurance, particularly healthcare, is generally less sensitive to macroeconomic issues. While these markets aren't completely immune to macro influences, they are more resilient. Additionally, there is an unprecedented opportunity for all our businesses to enhance productivity for our customers through AI tools. We are building substantial knowledge internally, which is translating into market-ready products, with many more in development. This is particularly exciting for Aderant, one of our fastest-growing businesses this quarter, where we have been among the first to launch AI and automation-based products. This progress is reflected in their bookings, which not only come from AI-specific offerings but also enhance our existing technology stack.

Dylan Tyler Becker, Analyst

All right. Very helpful. Could you provide a broader overview of the recent acquisitions with a focus on payments? Specifically, how are you considering the positioning of embedded payments functionality across your network and platform, and how does this align with your plans for team expansion?

Laurence Neil Hunn, President and CEO

Yes. We see payments as a key element across ProCare, Subsplash, and Transact Seaboard. It's important to emphasize that the rights to payment opportunities arise from the software, and this is a consistent factor among all three. We consider this a software-driven approach focused on research and development to establish those rights. Holding onto the payment capabilities is a natural advantage. I wouldn't overly analyze the recent transactions, which may have a payments component; our strategy is to incorporate more payments as a coincidental aspect rather than a deliberate theme. Payments do contribute to creating a network effect with our software, leading to strong customer retention for these businesses. The situation with different software products varies; for instance, the transportation sector software is designed specifically for carriers, providing a user-friendly interface for factoring, which supports commerce and payments in a unique way.

Operator, Operator

And your next question comes from the line of Brent Thill with Jefferies.

Brent John Thill, Analyst

Neil, throughout the quarter, I'm just curious, did you see any signs of the tariff headlines your government spending flow on impact anything or perhaps throughout the quarter, maybe things got better as you went through in the back of the quarter. Can you just give us a sense of what you saw in terms of the business trends through the quarter and how that's trending so far in July?

Laurence Neil Hunn, President and CEO

Yes. The broader macro situation, particularly the tariffs, has a relatively minor impact on our test business, estimated to be in the $10 million to $15 million range, which remains unchanged. The team is actively working to mitigate this through the supply chain and pricing strategies. While it’s too early to say it has no effect, its impact is small compared to other factors. There is some uncertainty in K-12 education, which has resulted in a subdued effect on bookings activity industry-wide, leading to a slower bookings quarter for frontline despite high teens growth overall in enterprise bookings. Additionally, governor contracting within Deltek continues to be subdued as predicted, influenced by the implementation of the BBB and ongoing uncertainties. However, the anticipated significant spending from the big beautiful bill could help the industry move forward after 24 months of stagnation. This bill includes substantial funding for government contracting, shifting from low civilian spending to higher defense spending, which typically involves more contractor engagement. While we expect this bill to act as a catalyst, the exact timing for contracts and spending to hit the market is still to be determined, but it should occur within a few quarters.

Brent John Thill, Analyst

Yes. The timing is definitely the question because you've got agencies that don't have employees that we normally interact with. So you've got just a tactical problem at this point. But the demand is there, the pipeline is very strong at Deltek.

Laurence Neil Hunn, President and CEO

As we move on to the next questions, I want to wrap up by saying that as we prepared for the call, our business units remained cautiously optimistic. We entered the call unsure of what to expect, but we left with a similar sense of cautious optimism regarding the future.

Operator, Operator

Your next question comes from Joe with Baird.

Unidentified Analyst, Analyst

I wanted to focus on the impressive high teens bookings, especially considering that last year's period showed a significant increase. It appears that GovCon or frontline did not contribute this quarter. So my question is, what factors led to the positive trends, and given that bookings have improved for the past five quarters, do you have the necessary backlog to enhance your organic recurring revenue growth towards the double-digit range?

Jason P. Conley, Executive Vice President and CFO

Thank you, Joe. It's Jason. I believe it was a very strong quarter. You were right to point out the two areas of weakness that Neil mentioned, which were Deltek and frontline. Apart from that, everything was strong. Aderant achieved their highest bookings quarter ever and secured one of the largest ground to cloud conversions in history, which is a positive development. They also showed strength in their AI solutions and had good cross-selling results. Healthcare performance was solid, though not exceptional, but still within a reasonable range. Looking ahead, this supports our guidance for the second half of the year. As you know, many bookings typically occur in the fourth quarter, which is more in line with our expectations for 2026. After a somewhat subdued first quarter, achieving high teens growth aligns with our year-to-date expectations, and that's encouraging to see as we get back on track.

Unidentified Analyst, Analyst

And then on AI, it seems to me that compared to last quarter, there's a significant increase in activity and references from the individual business units regarding their projects. Do you have a clearer understanding of how this might begin to affect the profit and loss statement? How is it influencing the R&D expenditure? Are you seeing gains in engineering productivity through your own use of these tools? Additionally, when do you expect the revenue impacts to start becoming evident?

Laurence Neil Hunn, President and CEO

We are definitely seeing the expected internal productivity improvements in our larger software businesses, achieving around 30% gains in R&D and similar increases across customer support and content generation. There is still much more to achieve in this area. We're working on making our businesses AI native, starting with enhancing customer value chains, which will lead to significant productivity gains. Currently, the direct impact on our P&L is modest, amounting to tens of millions in annual recurring revenue from AI native products that were not present a year or two ago. This effect extends to the overall technology stack and is expected to compound over time as we enhance our internal knowledge, skills, and resources. While the immediate impact may be small this year, we anticipate it gaining momentum next year. Our product pipeline for 2025 will see a substantial increase, and in a few months, we might not provide specific numbers since everything will be integrated and data-driven. We remain very optimistic about our ability to innovate in this market right now.

Operator, Operator

And your next question comes from the line of Brad Reback with Stifel.

Brad Robert Reback, Analyst

Great. Neil, following up on that 30% productivity gain comment. How do you decide what falls to the bottom line and what gets invested back into faster organic growth?

Laurence Neil Hunn, President and CEO

Yes. So the strong push to the businesses at the moment. We've been very consistent with this answer is we want to do more than for the next period of time to try to get it to the bottom line. There's so much to do, so much opportunity to drive product road map, to drive go to market expansion, whatever it is at the individual business level. So that is the mantra for the time being is do more and drive competitive advantage and top line growth.

Scott Reed Davis, Analyst

That's great. On the AI monetization side of the equation, there's a lot of debate going on inside of software, especially as it relates to seat-based models. Do you have a good sense yet of early successes and the best way to price these products? Or is that still very much a work in progress?

Laurence Neil Hunn, President and CEO

I believe this is still a work in progress, and I don't think there's going to be a one-size-fits-all approach. Currently, we have AI products at Deltek that are part of the subscription model driving upgrades to the cloud, which is generating revenue. However, this won't be the long-term strategy for everyone. It's clear for our current customer base. We have various models, including subscriptions with consumption overages, and some that are purely consumption-based. The approach will vary for each business and customer. If I had to identify a common trend, it would likely be a subscription model with additional consumption options, although it's still early to make definitive conclusions. These are our preliminary thoughts.

Operator, Operator

And your next question comes from the line of Joshua Tilton with Wolfe Research.

Joshua Alexander Tilton, Analyst

I have two quick questions. First, I want to follow up on the Deltek topic. I'm trying to understand why, when I compare last quarter, it seems that you indicated similar growth. There hasn’t been a change in the business growth from the second quarter to the first quarter. However, you mentioned incorporating more conservatism in your outlook for Deltek last quarter due to uncertainties. So, is Deltek performing better than what you initially expected when you set our expectations 90 days ago?

Unidentified Company Representative, Analyst

I wouldn't say that. I think the beautiful bill is providing us with more activity, especially in defense, which is a strong area for Deltek. We are feeling more optimistic, but I don't think it's a bullish comment for 2025. It's more about when we can secure those orders from customers. There may be some upside in the fourth quarter depending on timing, but we haven't considered that yet because the market has been very uncertain.

Laurence Neil Hunn, President and CEO

Yes. The potential for Perpetual would come in the fourth quarter, but it's difficult to predict at this point. Additionally, Deltek's business is comprised of 60% government contracting and 40% professional services, and the professional services segment has been performing very well consistently.

Joshua Alexander Tilton, Analyst

Makes sense. Maybe just to put a finer point on that, I guess, does the outlook still embed that conservatism that you spoke to last quarter?

Laurence Neil Hunn, President and CEO

Yes.

Joshua Alexander Tilton, Analyst

Okay. And then maybe just a quick follow-up. Congrats on the acquisition. I feel like it is definitely the ultimate network software. The one question I have is you guys spoke to confidence in improving the growth profile of the business. We're already at high teens. Can you just talk to what you saw during the diligence that maybe gives you confidence that you can improve that profile going forward?

Laurence Neil Hunn, President and CEO

We feel confident in our ability to maintain growth rates while enhancing our margin profile. I'm happy to discuss that further if you'd like, but I'll leave it there for now.

Joshua Alexander Tilton, Analyst

I'd love to hear that as well, please.

Laurence Neil Hunn, President and CEO

We are seeing significant growth potential in the business. Faith-based organizations and churches are just beginning to modernize and adopt digital solutions. Currently, only 50% of the total addressable market is served from a technology perspective. Technology advancements and competition in the sector are now enabling modern church management systems that handle guest engagement and donation processes in one platform. This presents us with a great opportunity. Subsplash represents a second-generation technology platform, similar to what we experienced a decade ago with our Strata business. It has proven its ability to capture market share in this expanding market, which supports our expectation for continued growth outpacing the market. In terms of margins, the previous owner, K1, successfully grew the business, but there is still significant room for improvement by professionalizing various aspects of operations. The team has effectively managed the business, yet we see opportunities across all cost areas, including sales, marketing, research and development, and payment infrastructure. We believe there are numerous opportunities for margin improvement, and we've identified about half of these as actionable, which should lead to substantial gains over the next three to five years, even if we don’t reach the margins of our network. Additionally, I want to highlight that our strategy over the past three years has focused on acquiring mature leader profiles, which applies here as well. We’re acquiring a business that is earlier in its lifecycle relative to conversion and will be able to scale and optimize its cost structure, ultimately creating more value for our shareholders over time.

Operator, Operator

And your next question comes from the line of Ken Wong with Oppenheimer.

Unidentified Analyst, Analyst

First question about the large bill, there is clearly some impact on Deltek timing that is uncertain. Considering your other segments, have you thought about the potential tailwinds and headwinds that might affect the other sectors you serve?

Laurence Neil Hunn, President and CEO

Yes, we have a good deal of insight here. We've fully addressed the Deltek situation unless you have more questions about it. We are heavily involved in healthcare, although our exposure is mostly indirect, particularly to Medicaid through providers via healthcare IT and medical products. The 10-year outlook for Medicaid indicates that around 12 million people may transition off Medicaid, with approximately 5 to 7 million expected to move to commercial or ACA coverage. Consequently, we anticipate that our revenue will remain stable or experience modest growth. We expect minimal to no impact on our business as a result. I've been in healthcare IT for about 25 years, and a consistent challenge is the reimbursement pressure faced by providers, regardless of the payer type. Serving this market effectively relies on providing either a clear financial return on investment, which all our healthcare IT products deliver, or unique clinical benefits, which our medical product offerings provide. Regarding K-12 and higher education, we see a mostly neutral scenario there as well. In K-12, there is a slight shift of funds towards private institutions, but for the larger public sector, it hasn't significantly changed. In higher education, there is increased pressure on institutions to perform, which aligns with our Transact investment focus on enhancing student engagement for better attraction and retention, directly supported by our software solutions.

Unidentified Company Representative, Analyst

And I would just add on healthcare. Our CentralReach business, the Medicaid impact is more to adults than children and most of end consumers and children. So fairly muted impact there. And then a lot of our alternate site healthcare businesses are more indexed Medicare versus Medicaid. So again, not a huge impact.

Unidentified Analyst, Analyst

Got it. Fantastic. And then just a quick follow-up on the record Aderant quarter. Any unique legal tailwinds that are driving that? Or is this more specific to idiosyncratic dynamics that you're seeing within your business? I think you guys called out maybe starting to see some AI flow through. Would just love to hear what you guys are seeing drive that outsized performance.

Laurence Neil Hunn, President and CEO

Aderant operates in the business of law rather than the practice of law. Their primary AI-based products currently focus on automating and streamlining the process from time entry to cash collection, with significant potential for technology and product improvements still ahead. Over the past 8 or 9 years, Aderant has clearly established itself as the market leader, increasing its market share from about 30% to approximately 55%, particularly among the largest law firms globally. There is also an ongoing shift to cloud solutions, which is boosting bookings. It’s important to note that Aderant currently possesses a strong technological reputation in the business of law. Additionally, the largest law firms are gaining market share, and we are benefiting from that trend as well.

Operator, Operator

And your next question comes from the line of Terrell Tillman with Truist Securities.

Terrell Frederick Tillman, Analyst

Neil, Jason and Zack. A lot of my questions have been answered, but you have a bunch of platform businesses, so I still have a few. One thing I was going to ask about ProCare is it's starting to move into the organic calculation. I think you all had some leadership changes, go-to-market investments? And also, I think you were working on improving attach rate of payments. Just how is ProCare performing, particularly as it's becoming more of an organic calculation? And then I had a Neptune follow-up.

Laurence Neil Hunn, President and CEO

Certainly. ProCare's first year showed mixed results. It grew around 10 percent, falling short of our 15 percent expectation. We understand the reasons behind this and have already addressed them. As part of our strategy, we've made significant leadership changes aimed at driving growth and improving processes, including a new CEO, CFO, CRO, and CTO. These changes have enhanced our market presence, allowing us to outperform the main competitor. Recent initiatives, like a lean Kaizen event focused on expediting customer support response times, have started to yield positive results. We anticipate a return to mid-teens organic growth in the latter half of the year based on these improvements. While ProCare initially performed slightly below expectations, the payment attach rate remains strong, consistently around 75 percent. Additionally, our entire payments operation has improved significantly since acquisition.

Terrell Frederick Tillman, Analyst

A lot of great color. I got asked about ProCare. And I guess just a follow-up on Neptune, and it relates to kind of steps more broadly. But with the meter data management solutions, the billing acquisition, and then on top of just ultrasonic meter reading, like do these just create opportunities for solid for longer? Or potentially some reacceleration of growth from some of these newer dynamics.

Laurence Neil Hunn, President and CEO

Yes, there's a lengthy explanation, but to summarize, we believe that linking the meter to cash is a unique and compelling strategy that only Neptune is currently pursuing. This approach is particularly attractive in the market segment where Neptune operates, which primarily consists of smaller municipalities looking for a single vendor to effectively integrate these services. Once this connection is established, it enables features like leak detection and improves engagement between municipalities and their end customers through increased automation and potentially AI-driven communication, although it's still in the early stages. Currently, we are gaining traction based on the strength of our go-to-market strategy and the quality of our product, which we confidently assert is the best in terms of readability among static meters. We anticipate growth in the future, but it will take some time for this potential to be realized in the market.

Operator, Operator

And your next question comes from the line of Joe Giordano with TD Cowen.

Joseph Craig Giordano, Analyst

Based on your comments about ProCare, how do you prevent similar issues from arising? I understand these are different markets, but as you consider bringing Central REIT Subsplash on board, what measures are in place to avoid potential problems before they occur?

Laurence Neil Hunn, President and CEO

I'd like Jason to add some comments after I'm done. We learned a lot from the ProCare experience. At the end of the day, Jason and Janet, who oversees our capital deployment, along with Shannon from FP&A, have been part of our weekly and bi-weekly meetings where we've observed various challenges. Some we addressed quickly, while others took longer. The key takeaway is that we shouldn't wait. This fundamental understanding has become clear through our observations. Moving forward, with transactions like Subsplash or Central Reach, we won't delay action if we see issues arise. Jason, would you like to add anything?

Jason P. Conley, Executive Vice President and CFO

Yes, I believe it begins with diligence, and we have now appropriately staffed certain areas. If we don't notice the right indicators in the business or in the infrastructure, we can assist the business in clarifying those aspects so we can engage in conversations that lead to quicker actions. This was another important lesson learned at ProCare. We have established a rigorous schedule and execution plan for every deal. We initially believed we had one with ProCare, but as we learn, we refine that approach. Since then, through Transact or Central Reach, we have experienced a much smoother integration. Both are performing well according to our value creation plan. This has been a valuable lesson for us.

Laurence Neil Hunn, President and CEO

One thing I'd mention is that when we reviewed the post-ProCare situation at the last board meeting, we concluded that we accurately assessed the growth trajectory of the market, including market growth, competitive intensity, competitive positioning, and opportunities. We got the overall growth rate correct. However, we misjudged the starting point. The positive aspect is that this starting point involves factors that are largely within our control regarding business operations. So, I want to provide that context. While we did well in our assessment of the growth trajectory, it would have been a more significant issue if we had misjudged the market growth rate or competitive intensity, but those factors remain solid.

Unidentified Analyst, Analyst

Fair. On the Subsplash specifically, can you talk about the market landscape there a little bit in the competitive landscape? I mean, I guess it doesn't feel like a structural growing market in terms of like the total TAM, I guess. But it's interesting to hear like only 50% served. So just curious to hear like what the competitive landscape is.

Laurence Neil Hunn, President and CEO

Yes. To give you an idea of the market size, it is approximately a $2.5 billion market for software, with about half of it currently served. Church attendance has been relatively flat over the past 20 years, although the last few years have seen a slight increase in the low single digits. This data pertains to the U.S. Specifically, the number of faith-based organizations and buildings has grown by a couple of percent, while giving has increased by about 4% or 5% over the last 10 to 20 years. Additionally, there has been a movement towards digitization, transitioning from minimal technology for managing and engaging congregations to a more integrated approach. This contributes to an estimated growth rate of around 9% in the market, providing opportunities for our company to compete and succeed, as we have consistently done over the past several years. There is still significant room for growth in this area. It’s worth noting that in terms of competitive intensity, Subsplash has established itself as a clear market leader in engagement technology. When modern engagement methods are utilized in churches, there is typically a 15% increase in donations, which also enhances our church management software and other services. There are strong synergies at play that the company has effectively demonstrated recently, and we believe this will continue. Lastly, it's important to remember that about 50% of donations in churches are still made in cash and checks, indicating substantial potential for payment solutions.

Operator, Operator

And your next question comes from the line of Deane Dray with RBC Capital Markets.

Deane Michael Dray, Analyst

Just want to circle back on the DAT and Loadlink combination. It makes intuitive sense here, but could you flesh out like what the synergies are expected to be both on kind of go-to-market, but might there be any cost synergies.

Laurence Neil Hunn, President and CEO

Yes. I believe our first significant opportunity lies in managerial synergy. We have a strong leadership team, and our businesses in the Canadian and U.S. markets are fundamentally similar. This allows us to adopt a unified approach to leadership, considering the network as a single entity. Additionally, there is a potential for cross-border operations between the U.S. and Canada, and possibly the U.S. and Mexico in our freight matching business, which we will manage more effectively by combining our businesses. Regarding our network technology, we are taking a cautious approach. The two markets currently operate very efficiently. DAT in the U.S. is actively busy and successfully integrating the trucker tools transaction, along with executing our monetization strategy. As you know, nearly all brokers and carriers in North America are connected to the DAT network, and we monetize both sides through subscriptions, while also exploring the value stack for carriers, specifically through factoring. We now have that infrastructure within DAT and have established partnerships, such as those for legal services and fuel cards. For brokers, the support begins with trucker tools tracking, among other initiatives that DAT is developing. This is a U.S.-centric strategy that we will gradually expand into other markets. Therefore, we are focused on the medium to long-term outcomes rather than short-term synergies.

Deane Michael Dray, Analyst

Great. That was really helpful. And just a follow-up, Neil, I'm not sure how much you can comment, but has there been any change in the Board's thinking about potentially exiting some of the non-software businesses, there was a media article suggesting Neptune might be exited. Can you comment on this? Anything about potential timing?

Laurence Neil Hunn, President and CEO

Yes, Deane, I want to reiterate what we've been stating publicly for the last two and a half years. It was really in November 2022 that our current portfolio was established. As you know, the main motivation behind divesting TransCore, Zetec, and the industrial businesses to CD&R and Veresen Singapore in telecom engineering was to reduce the cyclicality of our operations. That was the decision we made, and we stand by it. The product businesses we have today are strong performers. They align with all our criteria as market leaders that thrive on close customer relationships, have better economics and margin profiles, and show consistent or slightly improved growth compared to organic aspirations. Therefore, they are performing exceptionally well in the portfolio and are not proving to be non-cyclical. This is our strategy, and we will continue to pursue it.

Operator, Operator

Your next question comes from the line of Scott Davis with Melius Research.

Scott Reed Davis, Analyst

I want to follow up on Deane's question but from a different angle. Considering the significant structural changes that have taken place at Roper over the past few years, how do you view the changes in your core growth rate or entitlement growth rate from 2022 to 2026, especially now that Subsplash is included, which seems like an interesting addition?

Laurence Neil Hunn, President and CEO

Yes. The portfolio we discussed back in Thanksgiving 2022 showed a historical growth rate of around 6% to 6.5%. We believe that we have improved this to a range of 7% to 7.5% for minimal cycles in any given year. This is not guidance for this or next year, but rather a year-over-year perspective to avoid any confusion. The potential growth could reach the mid-8% range with this portfolio. Additionally, as we acquire growth-enhancing businesses like Subsplash, which adds about 15 basis points in organic growth, we can achieve further growth. I hope this answers your question, and I’m happy to clarify anything if needed.

Scott Reed Davis, Analyst

No, that does answer it. There have been many questions about Subsplash. Just to clarify, I'm not asking for an exact number, but in your deal model, are you assuming that Subsplash will be around the segment average EBITDA margin in year five? Does that sound about right?

Unidentified Company Representative, Analyst

It's going to be a little bit below, Scott, because networks in sort of the mid- to high 50s EBITDA. And so we'd say it'd be in the low 40s.

Operator, Operator

And this concludes our question-and-answer session. I would like to turn it back to Zack Moxcey for any closing remarks.

Zack Moxcey, Vice President of Investor Relations

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

Operator, Operator

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