Earnings Call Transcript - ROP Q1 2024

Operator, Operator

Good morning. The Roper Technologies Conference Call will now begin. Today's call is being recorded.

Zack Moxcey, Vice President, Investor Relations

Good morning, and thank you all for joining as we discuss the first quarter 2024 financial results for Roper Technologies. Joining me on the call this morning are Neil Hunn, President and Chief Executive Officer; Jason Conley, Executive Vice President and Chief Financial Officer; Brandon Cross, Vice President and Principal Accounting Officer; and Shannon O'Callaghan, Vice President of Finance. Earlier this morning, we issued a press release announcing our financial results. The press release also includes replay information for today's call. We have prepared slides to accompany today's call, which are available through the webcast and are also available on our website. Now if you please turn to Page 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 first quarter, the difference between our GAAP results and adjusted results consists of the following items: amortization of acquisition-related intangible assets; financial impacts associated with minority investments; and lastly, transaction-related expenses associated with the 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?

Neil Hunn, President and Chief Executive Officer

Thank you, Zack, and thanks to everyone for joining our call. We're looking forward to sharing our first quarter results and our increased outlook for the year. As we turn to Page 4, you can see the topics we'll cover today. I'll start by highlighting our strong performance in Q1. Jason will then go through our financial results in more detail, review our balance sheet, including our M&A capacity; and finally, our notable cash flow performance. Then I'll walk through our segment highlights and discuss our increased guidance for the full year and initiate our Q2 guidance. After our closing remarks, we'll open the floor for your questions. So let's go ahead and get started. Next slide, please. As we turn to Page 5, 3 key takeaways for today's call. First, we delivered another strong quarter of results. Second, we're increasing our full year outlook. And third, we continue to be very well positioned relative to capital deployment. To elaborate further, we grew total revenue by 14%, organic revenue by 8%, and EBITDA by 16%, with EBITDA margin expanding by 60 basis points to 40.2%. We grew DEPS by 13% to $4.41, beating our guidance range. We grew free cash flow 15% year-over-year with free cash flow margins of 31%. We completed the acquisition of Procare Solutions, a leading provider of software and integrated payments for the early childhood education market for $1.75 billion. Procare is a great addition to Roper. We are very excited about the business and are especially pleased with the initial results and progress we've made during the onboarding process. We are also increasing our full year 2024 guidance for total revenue, organic revenue, and DEPS reflecting our strong momentum and continued confidence in our outlook. We remain very active in the M&A market, which continues to improve, and one where we have a large pipeline of high-quality and attractive opportunities. In summary, we're quite bullish about our ability to be active on the M&A front this year. As you can see, we had a great start to 2024, and we're well positioned to deliver yet another strong year of performance and growth. Now let me turn the call over to Jason.

Jason Conley, Executive Vice President and Chief Financial Officer

Thanks, Neil. Let's dive right in on Slide 6. Q1 was an excellent first installment to 2024. Revenue was up 14% over the prior year to $1.68 billion. Organic growth of 8% was led by double-digit growth at our TEP segment and solid mid-single-digit growth across our application software and network software segments. Of note, organic recurring revenue grew 7% despite known headwinds at our Freight Match and Foundry businesses. Acquisitions contributed 6 points of growth, led by Syntellis, which is a large bolt-on for our Strata platform that closed in Q3 of last year, and Procare, which closed at the end of February. Regarding Procare, integration is going really well, and we're excited to work with Joe and Kinzel and her team to drive continued growth and innovation in the attractive early childhood education market. EBITDA was $676 million, which was 16% over the prior year. EBITDA incremental margin of 44% translated into EBITDA margin of 40.2% and represented 60 basis points of expansion. This was fueled by gross margin expansion of 100 basis points to 70.3%. Our market-leading businesses compete on customer intimacy and deliver demonstrable value to their customers, which we consistently realize in our high gross margin profile. Debt of $4.41 billion was above our guidance of $4.30 to $4.34 billion. Importantly, free cash flow was strong at $513 million, up 15% over the prior year, and our trailing 12-month free cash flow surpassed $2 billion for the first time in Roper's history. Looking over a 4-year horizon, revenue and EBITDA CAGRs are at 13% on a quarterly basis. For free cash flow, we take a broader lens and a review on a trailing 12-month basis, which generated an 11% CAGR over this period, adjusting for cash tax payments related to Section 174 which impacted the current period's free cash flow by $80 million. The normalized CAGR is 13% over this period. For 2024, we still expect free cash flow margins of 30% or more. With that, we can turn to Slide 7 to talk about our balance sheet. Following our Procare acquisition, our net debt-to-EBITDA ratio came in at 2.9x at the quarter end. Our revolver, which provides us with $3.5 billion of immediate liquidity, was utilized to fund the Procare acquisition, bringing the drawn balance to $1.75 billion. With strong and consistent cash generation and a well-positioned balance sheet, we have the capacity to deploy $4 billion or more towards high-quality acquisitions. I will reiterate our commitment to remain a solid investment-grade issuer, as access to investment-grade capital markets is fundamental to Roper's strategy. In terms of what we're seeing in deal markets, our pipeline of acquisition opportunities is growing and quite attractive. As always, we will remain patient and disciplined in allocating capital to opportunities with the highest risk-adjusted returns for our shareholders. With that, I'll turn it back over to Neil to talk through our segment detail and updated guidance.

Neil Hunn, President and Chief Executive Officer

Thanks, Jason. As we turn to Page 9, let's review our Application Software segment results. Revenues here grew by 18% in total, and organic revenue grew by 6%. EBITDA margins were at 43.3%. We experienced strong performance across this portfolio of businesses. We'll start with Deltek. Our enterprise software business surveys the government contracting, architecture, engineering and construction contractor markets. Deltek continued to grow at SaaS solutions, especially within their private sector markets. Importantly, in the quarter, Deltek launched a new GenAI-powered digital assistant, Dela, which will be integrated across Deltek's core software applications. We also welcome Bob Hughes as the new CEO of Deltek. Bob brings a wealth of software and leadership experience to the role, having most recently served as the Chief Customer and Strategy Officer at UKG. Bob, we're thrilled to be working with you. We also welcome Mike Corkery into his new role as a full-time group executive within Roper. For those who do not know, Mike was Deltek's CEO for nearly 12 years during our entire ownership period. Mike, thank you for building a tremendous market-leading company. Not only has Deltek grown multifold during their leadership tenure, but the underlying quality has also massively improved, and the culture has never been better. Thank you for everything you've accomplished, and we're very much looking forward to working with you in your new leadership capacity at Roper. Aderant continues to perform incredibly well in the market and had another great quarter with continued SaaS momentum and GenAI-focused innovation. Vertafore also performed well with solid growth in their ARR base. Turning to PowerPlan, our financial planning and tax software business serving the heavy fixed asset industries, PowerPlan was impressive in the quarter and grew its ARR with strong customer retention and adoption of its new SaaS solution. Great job here. Our healthcare IT businesses led by Strata and Data Innovations were also strong in the quarter. We're especially pleased to see the solid go-to-market execution at both businesses. Finally, as I mentioned a few minutes ago, we completed the acquisition of Procare Solutions, which is off to a good start and complements this segment with a higher organic growth profile. For the remaining 3 quarters of the year, we expect to see mid-single-digit organic revenue growth for this segment. Please turn with us to Page 10. Revenues in our Network Software segment grew 5% in total and 4% on an organic basis despite the fact we continue to experience pressure with our Freight Matching businesses and the impact on Foundry due to the recent actor and writer strikes. EBITDA margins continue to be strong at 55.9% and grew about 10% year-over-year. As we dig into the details of it, we'll start with our Freight Matching businesses, DAT & Loadlink, which declined slightly as expected due to the challenging freight market conditions that affected each of these businesses. As is typical for Roper, we invest for long-term sustainable and improving levels of organic growth. In DAT's case, we're leading the industry with GenAI-enabled fraud detection and prevention tools. As many know, fraud across the transport ecosystem remains a significant concern and economic loss. Turning to Foundry, which continues to innovate at an impressive clip in terms of major product enhancements and customer productivity-based AI/ML innovations. That said, Foundry declined slightly in the quarter as expected, given the recent industry strikes. Notwithstanding the headwinds of DAT, Loadlink, and Foundry, we grew 4% organically in this segment based on the strengths across the balance of this portfolio. Specifically, iPipeline, our life insurance and annuities network software business had strong renewals, customer expansions, and market activity, especially in the annuities market. ConstructConnect continued to solidify its market position, improving financial results and enhancing its network value with GenAI-powered solutions. MHA had a strong quarter, benefiting from increased operational focus and rigor, revenue timing related to one of MHA's data partnerships, and improvement in senior care occupancy rates. For the balance of the year, although we performed slightly better than expected in the first quarter, we continue to expect to see low single-digit organic revenue growth for this segment due to the continued challenging freight market conditions and our view that Foundry's recovery will be extended throughout this year. Now please turn to Page 11, and let's review our TEP segment's results. Revenues here grew 17% on an organic basis, and EBITDA margins remained strong at 34.3%. Neptune continued to see notable customer demand, particularly for their ultrasonic meters and meter data management software. In short, Neptune delivered another quarter of growth. Verathon had very strong growth across all 3 of its product families and executed at an exceptional level in the quarter. Of note, Verathon had a record number of large account wins, further demonstrating their market momentum. Great job by team Verathon. We also had strong execution and growth led by healthcare end markets from CIVCO, Inovonics, IPA, and rf IDEAS. As we turn to the outlook for the balance of the year, let us remind you that we expected to have a stronger first quarter, which we delivered. That said, for the balance of the year, we expect to see organic revenue for this segment to be in the high single-digit area. Now please turn to Page 13. Let's review our increased full year 2024 guidance and discuss our Q2 outlook. Based on our strong Q1 results, enterprise momentum, and our confidence in our outlook, we are raising our guidance for 2024. For the full year, we now expect total revenue to grow in the area of 12%, up from our initial guide of 11% to 12%. Organic revenues are now expected to grow about 6%, up from a prior estimate of 5% to 6%, and adjusted DEPS is now projected to be in the range of $18.05 and $18.25, up from $17.85 to $18.15 previously. Our guidance continues to assume a full year effective tax rate in the 21% to 22% range. For Q2, we expect adjusted DEPS to be in the range of $4.42 and $4.46. Now please turn to Page 14, and we'll open it up for your questions. As per custom, we'll conclude with the same key takeaways with which we started. First, we delivered another strong quarter of results. Second, we're increasing our outlook for the full year. And third, we are very well positioned relative to capital deployment. For the quarter, we delivered double-digit growth in revenue, EBITDA, adjusted DEPS, and free cash flow, with margin expansion and very strong cash flow conversion. We also completed the acquisition of Procare Solutions, which is a great addition to our enterprise and our application software segment. We're increasing our full year 2024 guidance for total revenue, organic revenue, and DEPS, reflecting our confidence in our outlook and continued momentum. Finally, we continue to maintain a strong financial position with over $4 billion of capacity for capital deployment. The M&A markets are very active, and we have a robust pipeline of attractive acquisition opportunities that we're excited to pursue with our unbiased and disciplined approach. We're quite bullish about our ability to execute this part of our strategy over the course of 2024. Now as we turn to your questions, and if you could flip to the final slide, our strategic flywheel, we'd like to remind everyone that what we do at Roper is simple. We compound cash flow over a long arc of time by operating a portfolio of market-leading application-specific and vertically oriented businesses. Once a company is part of Roper, we operate in a decentralized environment so our businesses can compete and win based on customer intimacy. We coach our businesses on how to structurally improve 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 over a long arc of time in the mid-teens area. With that, we'd like to thank you for your continued interest and support and open the floor to your questions.

Operator, Operator

Your first question comes from Julian Mitchell from Barclays.

Julian Mitchell, Analyst

Maybe just a first question on the network software division. So the freight markets, I think there was a fairly down outlook from some of the U.S. trucking companies in the past couple of weeks. It sounds like that business for you on Freight Matching is playing out as expected. Are we expecting sort of down low single digits for the balance of the year in the freight match business? Is that what you're kind of dialing in? And any comments on where we are on the sort of carrier consolidation?

Neil Hunn, President and Chief Executive Officer

Why don't you take Jason the first one, I'll say the second one.

Jason Conley, Executive Vice President and Chief Financial Officer

So Julian, it's, like you said, it's about playing out as we expected, down low singles for the year. Not much change from our perspective last quarter. So yes, that's kind of the current guiding assumption.

Neil Hunn, President and Chief Executive Officer

And as far as on the carrier side, it's actually been pretty stable for the last several months. It hasn't improved. It has been stable. And when you take that stability and you put it against the prior year comp, that's what drives the outlook for the year.

Julian Mitchell, Analyst

That's helpful. And then just dialing in on the second quarter EPS guide. I think normally, you'd have maybe sort of a 3%, 4% type sequential increase in earnings in the second quarter, looks like it's basically flat at the guide midpoint for this Q2. Is there anything going on sort of sequentially with any of the segment sales or margins that's abnormal or something below the line that's weighing on that?

Jason Conley, Executive Vice President and Chief Financial Officer

No, not really. We feel confident about raising our guidance for the full year. Looking back to a quarter ago, our guidance for Q2 aligns with what we anticipated 90 days ago. Historically, in 2021 and 2022, we saw that our segment EBITDA was flat from Q1 to Q2, which is usually our norm. While we experienced sequential growth last year due to strong deliveries by Verathon, we don’t have that same dynamic this year as Verathon is starting strong. Typically, AS sees a slight decrease in earnings due to some timing with Vertafore, but we didn’t encounter that last year. Overall, we are confident about the progress from Q1 to Q2 on an operational level. Looking to the second half, we expect to see the benefits of Procare with its sequential growth through the year, along with reduced interest expenses as we pay down the revolver. Therefore, I feel optimistic about the progression throughout 2024.

Operator, Operator

Your next question comes from Deane Dray with RBC Capital Markets.

Deane Dray, Analyst

Since it's the newest addition to the team on Procare, just some data points. So what was the contribution in the quarter? And reminds us about any kind of seasonality on the cash flow because it is tied to education. So we know that it tends to be seasonal. And any sort of like first 100-day plans for the business?

Neil Hunn, President and Chief Executive Officer

Yes, it was roughly in line with our expectations. We had a few extra days included, resulting in just over $20 million in revenue, which aligns with our EBITDA margin in the mid-30s. From a cash flow standpoint, it's more of a monthly payment structure. Unlike frontline businesses that have significant renewals from schools, these childhood education centers make regular monthly payments, which provides a consistent cash flow throughout the year. We're off to a solid start regarding the integration process. Our teams are quickly getting up to speed financially, and we're addressing all the usual integration aspects, such as insurance and cybersecurity. Additionally, we have been holding weekly discussions to track our progress on defined value creation strategies focused on growth, and they are proceeding very well. The collaboration within the team has been exceptional, and we are on track to meet the milestones we set shortly after the acquisition. Overall, I feel very positive about the momentum we have.

Deane Dray, Analyst

And the normal cadence for the monthly revenue cadence is approximately what?

Neil Hunn, President and Chief Executive Officer

It's consistent. If you consider software, it's clearly stable month-to-month. Payments may increase slightly at the start of the year, but that change is modest. Overall, it remains fairly constant throughout the year. Of course, they are growing, so we will see a sequential increase over the year. However, in terms of business model, it is quite stable over the year with not much seasonality.

Zack Moxcey, Vice President, Investor Relations

If you're comparing this to frontline, where most of the cash flow comes in Q3, this is not that. This is much more linear throughout the course of the year.

Deane Dray, Analyst

That's great. I have a follow-up regarding the fastest growth platform, which is surprisingly in the tech-enabled products like Neptune. What are your expectations for this growth rate? Considering we see similar numbers at Badger Meter, how much of this is attributed to market growth versus any share gains you might be experiencing?

Neil Hunn, President and Chief Executive Officer

Yes. For a long time, Neptune has been a steady share gainer, as reflected in the market data we observe and continue to analyze. Regarding short-term performance, we believe it stems from a couple of factors. Firstly, they are addressing an unprecedented backlog. Additionally, when COVID struck, especially in the Northeast where many meter installations occur inside homes, operations were significantly paused. However, our customers still need to adhere to their maintenance schedules. As a result, any slowdown in maintenance, which may have lasted one to one and a half years, is now being addressed. We anticipate this process will unfold over a three to four-year timeframe, compressing about five to five and a half years of demand into a four-year window. This market dynamic is fueling the growth we're currently experiencing, which we expect to persist into next year. Furthermore, there is strong momentum for the new technologies that Neptune is implementing in the field, including solid-state ultrasonic meters for both residential and large commercial applications, as well as cellular communication and meter data management software that enhances our customers’ network connectivity.

Operator, Operator

Your next question comes from Joe Vruwink with Baird.

Joseph Vruwink, Analyst

When you consider the businesses that serve clients in the public sector, how are they planning for the balance of the year, just particularly around the election and then the end of stimulus in certain cases? And I ask about stimulus not because a business like frontline has benefited from that, but does just the shifting of revenue sources for a school district perhaps cause a pause in their decision-making?

Neil Hunn, President and Chief Executive Officer

Yes. It depends on the specific part of the market. In education, our frontline business has not really benefited from ESR funding. As that funding comes to a close, we haven't seen any direct advantages from it. There may be some indirect benefits due to school districts having increased budgets recently, but we don't believe our products have been directly funded by ESR. In terms of pipeline coverage, frontline had a strong booking in the first quarter, and the second quarter pipeline looks promising, so we're cautiously optimistic about that. Regarding U.S. Federal Government contractors, which include our largest customers, the uncertainty around government spending has created a slower environment for bookings among those clients. However, the SMB segment of that market has been robust for Deltek. If you’d like to discuss other areas of the portfolio, I’m here to help. Jason, do you have anything to add?

Joseph Vruwink, Analyst

Yes, yes. No, those are the 2 that I had in mind. And then if I can ask, I guess this is a pretty targeted segment-level question. But the recurring revenue sources for application software really look like they jumped this period, maybe about 2 points more in growth contribution than typically you see there. Just what drives that particular part of the business?

Neil Hunn, President and Chief Executive Officer

Yes. Joe, that's the Procare business coming online, right? So we talked about 75% or so of their revenue is payments. And so that's showing up in the recurring line.

Operator, Operator

Your next question comes from Scott Davis with Melius Research.

Scott Davis, Analyst

I think this was more positive in tone regarding the M&A commentary than what we typically hear from you. You're usually not very bearish. Could you provide a bit more detail on a couple of things? Is it about the number of deals or the valuations that have become more appealing? Has the competition on the buy side improved? It would be helpful to dive deeper into that. Additionally, you mentioned having $4 billion of capacity; is that sufficient? Would you consider accessing equity markets if the deal flow increases significantly?

Neil Hunn, President and Chief Executive Officer

There's a lot to discuss, and I'll try to address all the points. If I miss anything, please remind me. We're feeling quite optimistic right now, and for good reasons. There are many deals currently available in the market and more on the way. We have strong relationships with both sponsors and investment banker intermediaries, and their pipelines are full. Consequently, there are numerous opportunities ahead. The reason for this surge is that there hasn't been much activity for about 18 months. In private equity, the focus is on DPI and returning money to the limited partners. The pressure from limited partners has grown, and they are eager for capital returns. We anticipate compressing two and a half years' worth of deals into one to one and a half years, resulting in a significant amount of activity. Regarding competition, we believe that for a certain period, the private equity asset class we operate in will be more of a net seller than a net buyer. Procare serves as a sign of what we can expect, indicating reduced competition. While there is still competition, it is less intense than in previous periods, which affects valuations. The Procare valuation was for a high-growth, high-quality business offered at a reasonable price. This situation is a product of the deal volume and, potentially, our perspective on competition. While the number of deals seems certain, the competitive landscape can shift at any moment. However, this is how we explain our optimism. Regarding whether the $4 billion is sufficient, we remain focused on ensuring that the enterprise's cash flow is investment-grade, maintaining a disciplined approach while using leverage. We will continue to evaluate every deal individually.

Operator, Operator

Your next question comes from Brent Thill with Jefferies.

Unknown Analyst, Analyst

This is David on for Brent. I wanted to ask around there was increased commentary, I think, versus the prior quarter around some of the companies and what they're doing around AI. Just if you could just give us an update on the broader AI strategy? And if you guys are charging for any of these AI products, any color there would be helpful on how AI could possibly help with the organic growth of some of your assets in the long term, that would be helpful.

Neil Hunn, President and Chief Executive Officer

Yes. We'll certainly give you an update on that. So we continue to grind away at this. We have done a lot of work engaging with all 28 of our businesses, both on the internal productivity-based applications around R&D, customer for live customer support go-to-market, admin, HR, finance, regulatory, et cetera. We have a call at lunch with a large group of our leaders today on just that topic. We're starting to see some early wins on productivity, like most of us are in code assistance and marketing content generation, things like that. So we are cautiously optimistic about productivity enhancements. As they relate more directly to your question around products and the market and monetization, this is going to be a slow and steady race about how do you use these tools to create incremental value for our customers. Again, you know we compete on intimacy. That intimacy leads us to know very specific problems and very specific questions that need to be addressed. We have a new technology set to be able to do that. Companies that have products in the market today using GenAI include Aderant, Deltek, DAT, ConstructConnect, and Foundry by our account; there may be a few others. Two quarters ago, I think that the count was 0. We like the momentum in that regard. In terms of monetization, it's still early days. Our belief is that, for the moment at least, we're monetizing the GenAI investments by enhancing our existing products in unique ways, and that is creating more value in the products, which is driving almost all cases bookings acceleration with those products, and in some cases, higher price points because of the value that's achieved through the tools. So that's where I leave it. Happy to follow up if you want to add anything, Jason.

Operator, Operator

Your next question comes from Terry Tillman with Truist Securities.

Terrell Tillman, Analyst

Maybe just the first question because it is the most recent addition to the portfolio, and I think you all calculated the opportunity here maybe to continue buying high-quality assets, but maybe even some better growth profiles, good valuations. I'm curious, just an update on where you see kind of on a go-forward basis, the Procare Solutions revenue compounding growth rate where you see that? And then as you've had a little bit of time here, where do you see one of the most untapped growth engines for that? And then I had a quick follow-up for Jason.

Neil Hunn, President and Chief Executive Officer

Yes. So on Procare, when we announced the deal, we talked about how we believe this is going to be a mid-teens organic growth business. The market is growing 10% or a little north of that. Procare is about 1.5x relative market share. With that leadership position and market growth, Procare has the right to win that big share and grow above market. In terms of your question, Terry, bolt-on activity inside of Procare, there's a couple of areas that Janet and her team with the leadership team at Procare are exploring, we. Tuck in a couple of bolt-on type products that sell into the network. But I think at Procare, the bolt-ons are going to be modest on a go-forward basis.

Terrell Tillman, Analyst

Got it. Okay. And then just a quick follow-up. I think it was 5% to 6% organic growth, and now you've firmly set at 6%, so that's good to see. Jason, if you had to think about what is the biggest driver or maybe it's just a bunch of little things. What is the biggest swing factor in just tightening that and effectively raising the organic?

Jason Conley, Executive Vice President and Chief Financial Officer

Yes. I mean, obviously, we had a really strong Q1. So part of that is just carrying that through, and a lot of that was at TEP. Then we had some various small beats across software. I think it's mainly what we saw in Q1 and just the confidence that we're going to be able to sort of maintain our prior guidance for the out quarters.

Operator, Operator

Your next question comes from Joe Giordano with TD Cowen.

Joseph Giordano, Analyst

I'm curious about the job market in the country. The job data looks quite positive, but there seems to be a trend where white-collar jobs are declining and being replaced by part-time blue-collar positions. I'm interested in understanding the longer-term effects this may have on some of your software businesses that rely heavily on headcount. Are you beginning to see any implications for the future as a result of this trend?

Neil Hunn, President and Chief Executive Officer

I would say no, but the reason is that a small portion of our revenue comes from seat-based pricing. While there is some, we are transitioning to a different metric. As disruptions from GenAI occur and knowledge workers become more productive, we want to benefit from that rather than be penalized. However, this has not been a topic raised by any of our companies during our operational or strategic reviews.

Joseph Giordano, Analyst

Interesting. Okay. And then just to follow up on the AI discussion in terms of deployments and the products you're launching here. Has that been like table stakes now? Or is your competition doing the same? Or do you feel like deploying these tools has been a differentiation for your businesses?

Neil Hunn, President and Chief Executive Officer

So far, the situation has been quite varied. I believe that competitors will certainly have their response. I should emphasize that across all 20 of our businesses, we operate in very small markets, and we are the largest player in those markets. This gives us the advantage of scale to carry out more product development, invest in research and development, and enhance our go-to-market strategies to provide these tools. This long-term advantage influences our selection of businesses in our portfolio. Additionally, when competing on intimacy with Generative AI, we have the knowledge, content, and data across all our verticals. However, that only addresses part of the issue. The real advantage lies in our ability to know which questions to answer, allowing us to utilize our content, data, and now, Generative AI as a tool to solve those problems. We are confident in our long-term competitive positioning.

Joseph Giordano, Analyst

Is this an area where corporate can be flexible, considering that these solutions are often costly to implement? Could corporate decide to allocate capital to the businesses that specifically need it, outside of the normal cash flow dynamics of those firms?

Neil Hunn, President and Chief Executive Officer

So these tools are not free, but they are substantially less expensive than these large language models that have to be developed, right? And so there is the research and development part of the application of the LLM and what we're doing, and then there's the operational costs. Jason did a teach-in a couple of months ago about the ROI case studies and all of this stuff. So far, we've not seen an ROI case study that's been challenged in any meaningful way on this front. I'm sure that will happen as you start to work down the curve of opportunities. But at the moment, we're not going to try to do a one-size-fits-all Roper Generative AI solution because it would just not work because of the 28 different applications. Jason, anything you want to add?

Jason Conley, Executive Vice President and Chief Financial Officer

Yes. No, that's right. I mean we do have benefits and scale with some of the agreements with our large cloud service providers. So that's been beneficial for companies to do some experimentation at a very low cost. And then we're just allocating a lot of mind share towards that, so we can collectively get better. But in terms of like allocating capital, that just hasn't been front-centered out. The company has a really compelling value proposition. We're always going to entertain that, but that's not what we're seeing today.

Operator, Operator

Your next question comes from Joe Ritchie with Goldman Sachs.

Joseph Ritchie, Analyst

So in your prepared comments, Neil, you referenced how some of your new SaaS-based offerings were helping certain businesses. I'm just curious as you kind of think a look at the portfolio as a whole, like how far along are you in terms of rolling out additional new platforms? And how much room is there to go from here? And if there are any examples that you want to highlight, that would be great across the portfolio.

Neil Hunn, President and Chief Executive Officer

So I just want to make sure we understand it, or answering the question you're asking is that essentially how far along are we on our SaaS journey? And what's that look like?

Joseph Ritchie, Analyst

Yes, that's exactly right. If you have any examples from the portfolio where you believe there are additional opportunities, I would love to hear about those.

Jason Conley, Executive Vice President and Chief Financial Officer

At a macro level, we have over $900 million in maintenance revenue today, and looking back over the last five years, we've converted our maintenance base at a rate in the mid- to high single-digit percentage range. This means we still have substantial room for growth, as we convert that maintenance revenue at a ratio of 2 to 2.5 times when transitioning to SaaS. Currently, there are several businesses in the process of transitioning, with Aderant experiencing the most significant migration over the past three to four years. Initially, this industry was hesitant to adopt cloud solutions, but once some firms made the shift, many others followed suit. Aderant is now heavily engaged in this cloud migration. Neil, would you like to discuss some other examples?

Neil Hunn, President and Chief Executive Officer

As Jason said, I mean, it is this $900 million of on-premise maintenance that's concentrated in a handful of businesses. The examples we give would start with Deltek. It's both on the cost point, which is our government contracting core product and Vantage Point, which is their private sector, their engineering and architecture product. You might have seen, for instance, on cost point, this quarter, Deltek achieved FedRAMP Moderate ready status. There is a requirement the government puts on for security. It's a meaningful checkpoint for cost point in the cloud; almost all net new for the private sector part of Deltek's book is sold and Vantage Point, which is in the cloud and SaaS enabled. Jason talked about Aderant; 80-plus percent of all of Aderant bookings today are in the cloud, talked about PowerPlan. PowerPlan has one, a handful of core applications. I would say their #2 application is cloud-enabled and being deployed today. So we're rolling through that book in that product set and building into this long-term SaaS business.

Operator, Operator

Your next question comes from Brad Hewitt with Wolfe Research.

Bradley Hewitt, Analyst

So you talked about the strength that pipeline in the quarter. I saw you announced a new CFO for that business with a focus on driving the long-term growth strategy. Just wondering if you could update us on kind of the normalized growth profile of that business and what you see as kind of the biggest opportunities to perhaps accelerate growth in that business going forward.

Neil Hunn, President and Chief Executive Officer

I'll handle the first part of your question and then let Jason discuss the growth outlook. We have a new president, Pat McDonald, who has just been hired as the CFO. I really appreciate the leadership mindset, competitive orientation, learning approach, and capability building that he brings to iPipeline. His predecessor was a long-term leader at Roper and did an excellent job setting up the business for success. Retention remains very strong, and the company is well-positioned for market share gains with a solid market focus. The competitive landscape is definitely shifting in our favor. The business also benefits from network effects, and I am enthusiastic about the momentum and potential we have in this area. Now, Jason, I'll let you address the growth question.

Jason Conley, Executive Vice President and Chief Financial Officer

Yes. I mean, I think it's playing out as we thought it would when we acquired it back in the 2018-2019 area; it's in the high single-digit plus range and maybe it tilts a little higher down the road. But that's sort of where it's tracking. And just Adam Boone was added to the team a month ago, and we're excited about him joining along with Pat. So we're excited about the process for our pipeline.

Operator, Operator

Okay. Great. And then it looks like growth in network in Q1 was maybe a few points better than expected. Your guidance for the rest of the year kind of implies revenue flattening sequentially on an absolute basis. I would assume most of the businesses in that segment would see kind of modest sequential growth throughout the year. So just kind of trying to understand if there are any potential offsets that maybe if that's DAT. Just any thoughts on kind of sequentials relative to Q1 levels in network.

Jason Conley, Executive Vice President and Chief Financial Officer

Yes, we discussed MHA, which had a very strong quarter, and we believe they will continue to grow this year. Q1 was particularly robust due to contract renegotiations, providing a boost in organic growth. However, DAT and Loadlink are expected to decline this year, potentially slightly lower than Q1. This is leading to modest growth in the low single digits for the remainder of the year.

Operator, Operator

Your next question comes from Patrick Baumann with JPMorgan.

Patrick Baumann, Analyst

Lot of ground been covered. Just a couple of cleanups here. Sticking with the Network Software segment, it's seen really good margin expansion for a couple of quarters now. Could you remind us what's driving that? And if this 56%, 57% is sustainable and could potentially move up further in coming quarters?

Neil Hunn, President and Chief Executive Officer

Yes, we discussed this last year regarding DAT's proactive approach to anticipating market trends and reducing some fixed costs. We believe the margins, which are currently around 55% to 56%, will remain stable throughout the year and are unlikely to expand further.

Patrick Baumann, Analyst

Okay. Got it. And then lastly, just the second quarter. Any color you could give us on organic growth expectations? I know you gave it for Q2 to Q4. Any difference between second quarter and that Q2 to Q4 guide? And then also on free cash flow, typically lumpy from quarter-to-quarter. So wondering if you could give any kind of color on that relative to the first quarter.

Neil Hunn, President and Chief Executive Officer

Yes. I mean, I think the organic growth expectations are the same in the second quarter as they are for the year. So no real big swings there. And then cash flow in the second quarter, it's always the quarter that we make federal tax payments. So it's always the lowest of the year. So that's really the only dynamic I would point out there. If you look over prior years, that's always our low point, but still expect to grow, of course.

Operator, Operator

Your next question comes from Alexander Blanton with Clear Harbor Asset Management.

Alexander Blanton, Analyst

I noticed that you're forecasting or guiding to organic growth of 6% for the year, correct? But you had 8% in the first quarter. So are you factoring in some economic weakness in the U.S. in that forecast?

Jason Conley, Executive Vice President and Chief Financial Officer

No. I think it all plays out in our products segment and our TEP segment over the first quarter. We had a better comparison, and the ramp we had in Neptune last year makes the comps normalize for the rest of the year. So it's really just that. It's not more complicated than that. That's why Q1 was significant, and when we entered the year, we indicated that Q1 would be the highest point in terms of organic growth unless our assumptions change.

Neil Hunn, President and Chief Executive Officer

And I would just add, Alex, to what Jason said, we assume that there are freight conditions and whatnot that are muted, but we've assumed that all the way through; it's not a new assumption, but there is definitely back half macroeconomic weak impacts in that part of our business. That did not change, but it's embedded from our original guidance.

Alexander Blanton, Analyst

And which part of the business? I missed that.

Neil Hunn, President and Chief Executive Officer

The transportation part, the DAT & Loadlink inside of network, the Freight Matching business.

Operator, Operator

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

Zack Moxcey, Vice President, Investor Relations

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

Operator, Operator

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