Conference Transcript - ROP 2026-09-15

Clarke Jeffries, Analyst — Piper Sandler

Go ahead and get started. Well, my name is Clark Jeffries. I'm with the technology research team here at Piper Sandler. Very pleased to be joined by Jason Conley, EVP and CFO of Robur Technologies. Thanks for having me. Yeah, absolutely. Welcome to Nashville. Well, let's maybe just start off with some background on Robur Technologies. For those who might be, you know, not familiar, what is the history of the company? What does the business look like today?

Jason Conley, CFO

Thanks for having us. It's the first time I think we've been in Nashville, so it's great. So Roper's a free cash flow compounder. If you think about Roper, we've compounded free cash flow in the mid-teens over the last 20 years. And our roots are really, we were a diversified industrial company. And now today we're a diversified technology company. And so really since 2008, we've been acquiring vertical market software businesses. So we sort of had this industrial veneer, but a lot of software underneath it. And then our code changed in 2022 when we had divested our industrial businesses. But the through line for Roper over the last 20 years is we like being leaders in vertical markets, niche vertical markets, so small markets, typical TAM size for us. The largest TAM that we're in is maybe $4 billion, right? So we're leaders, so we can extend our leadership. When you have market leadership, you can still continue to grow. Cross-sell, get new logos. It's a good place for us to be. So you get a low range of outcomes as a result of that, and we take our free cash flow, we reinvest that to the next great vertical software business. Today, we're about $9 billion in revenue, 40% EBITDA margins, 30% plus free cash flow margins. We have 29 businesses. 21 of them are vertical market software. Eight of them are product tech, vertical tech businesses, but a lot of recurring revenue. And so think of us as like mission critical across the industries that we play in. system of record application software or critical network software businesses are primarily what we own in terms of software.

Clarke Jeffries, Analyst — Piper Sandler

Perfect.

Jason Conley, CFO

Then maybe we could just briefly talk about some of those key segments or key end markets just to give a flavor of what those TAMs look like. And just to set the context, so we certainly are – we love end markets that are protected, but at the end of the day we really are thinking about the types of businesses We want to own the business models, the high gross retention, the high recurring revenue, you know, the ability to cross all those things, all those things I've mentioned, you know, good working capital, you know, efficiency and low CapEx. So those are the characteristics from a fundamental standpoint. But if you think about as we've acquired over the years, we've just sort of naturally fallen into really good kind of protected markets. So we're in healthcare, we are in gov tech, we're in kind of education institutional tech, insure tech, and then a variety of sort of, I'd call them just broadly industrial tech type spaces.

Clarke Jeffries, Analyst — Piper Sandler

So I, you know, given that, and I think one of the questions I get from investors is just how a, you know, I think a lot of investors are familiar with strategic acquirers of software assets, where there's some iteration of the code, whether implicit or explicit, around a vertical, you know, a strategic strategy. But like, maybe talk about differentiating how a purely private equity approach would be versus how you approach M&A of software assets. That would be a great start.

Jason Conley, CFO

And I'd say just from the outside, you know, if you talk to sponsors, you talk to bankers, they think of us more as a private equity versus a sponsor or versus a strategic. And that can be true, but I think the way we differentiate is we have sort of, you know, we think about owning a business over decades, not over five years. So we can think about a business that, like, in 10 years is going to be better than it was in five years and the like, because we're just continually reinvesting in that business. We're adding new capabilities, new leadership. So I think that's a huge differentiation. The other is, if we're going to buy a business, and this is part of a change in strategy to buy a little bit earlier in their life cycle, we're doing bolt-ons to increase the organic growth of that platform. And I'd say private equity does the same thing, but they also know that they can potentially buy down a multiple by doing bolt-ons. So we'll do bolt-ons really to make the platform stronger, again, just thinking over a very long arc of time. So I'd say that's a key differentiator between us and private equity.

Clarke Jeffries, Analyst — Piper Sandler

I'm just thinking of the metaphor of a house that's been a perpetual rental versus a home that's owned by the owner. And just what kind of investments do you make to make sure that that asset is at the highest quality possible? Or do you defer things? You never invest in it because it's always within the horizon.

Jason Conley, CFO

And part of that is we know that when we acquire a business, but we know also the kit of tools that it takes to sort of get the business where we need it to be. And maybe it's not the first year or the second year, but the third. and we're trying to move that forward. Obviously, we're always trying to get better, but there are always really good businesses in good markets that have primarily, they started in venture, had good product market fit, then got in private equity. They had that iteration of a strategy, which is kind of shorter term. And then it's like, well, now we have a strategy where we can build on that forever. So that's sort of, that's the life cycle and we like that space.

Clarke Jeffries, Analyst — Piper Sandler

Yeah, well, we'll definitely get to, I'd say the work that you do with ongoing assets in the portfolio, but I'd love to talk about at least the onboarding funnel of new assets via M&A. It's been a little bit tighter of late in terms of M&A activity. Obviously, you mentioned the bolt-ons, and going back to the prior year, there was about, I think, a third of the M&A activity dedicated to bolt-ons. But, sir, what's your expectation right now for the M&A environment? What are the things that might unlock it in the coming quarters? and, you know, what's maybe the immediate strategy for when that might unlock? What would you go after first?

Jason Conley, CFO

Well, I'll just start. It's been a crazy couple of years in terms of capital markets and specifically in private equity. You know, what you've seen is businesses that were acquired in the 21-22 cohort with lower cost of capital. So there's sort of that dynamic of exiting at a potential lower multiple because just of the cost of capital alone. And then obviously we've seen what's happened in the public markets with SaaSpocalypse. That's, you know, that's sort of gummed up the system as well because the sponsors are trying to figure out like what, you know, what can I, you know, when can I actually exit at a more reasonable multiple? There's been a bit pressure though for several years now on for DPI, right? So LPs are, are, are, are pressuring to get return on capital. So we think all those things kind of swizzle, and private equity has to continue to return capital, and that's how they fundraise. So that coupled with you also have impending private credit cliffs in 28 and 29, and they're going to have to work backwards a year, kind of end minus one on that, so they're not faced with that cliff, because we think that cliff is going to be pretty substantial. It's going to be hard to put more debt on a business. They're going to have to put more, probably have to equitize as well. So I say all these things to say, like, all the ingredients are there to have a much more robust market. We think it's probably going to be somewhere closer to 27 than, you know, the end of this year. But we're encouraged by that because all those factors mean reasonable prices. But it's just hard, right? It's the kind of stages of coping with, you know, buying something for really high and then having all these external factors sort of force the hand to sell it at a more reasonable multiple. But we're going to be a buyer of choice. We're having a lot of constructive conversations. So I talked about all the macro. At the micro, having really good conversations with a variety of sponsors, proprietary looks, management meetings, those sorts of things prior to any process. And so we're hopeful that that will provide some unique opportunities.

Clarke Jeffries, Analyst — Piper Sandler

Well, I think it's a very hot topic for how investors try to view these software markets is really what's the impact of AI. And I guess what I think is the presumption is that if shipping software has become less of a scarcity in the market, the full stack of software becomes a lot more open for new competition. But from your vantage point, a company that's getting your hands dirty with companies with TAMs less than $4 billion, has anything changed on the recent climate with AI in terms of business formation or new competition? as an acquirer of those potential assets must have, I guess, some view of what's happening on the ground. Anything you'd say on how AI has changed the climate within those sub-4 billion TAM companies?

Jason Conley, CFO

Yeah, and I would just say, you know, we've been at this for two and a half years. We've really pivoted to, and our M&A team primarily work with private equity sponsors, but we've increasingly had a lot of, you know, constructive conversations with venture. Part of it is to see what's in their portfolio and more so just, like, what are they doing? and where are they going after. And I would say broadly, they're not going after vertical market software. They may go after some new part of labor that needs to be automated. And that part might not even be attached to the system of record. It could be like a front desk type software at a company. But we're not seeing anything sort of, there's a couple of things that have emerged in a couple of markets, but nothing that's wedged in. We've actually had an example in one of our businesses where someone had a little wedge product got about 10 of our customers on it but the customers were frustrated because the integration was sort of wonky and they had to do a lot of manual so they came to central reach and said can you create this wedge product and within 8 weeks we did and those customers are all that competitor is now gone so not that that wants to be your primary strategy, but the ability to innovate much faster with AI allows us to kind of, again, our customers trust us. They'd rather consolidate with us, and so we do get a lot of feedback from them on things that they want or any sort of fringe startup that might be out there. And again, most startups are not going after kind of where we play. They're kind of going after other parts of the labor, which we're going after a lot of that too, but more so the things that are connected to the current workflow or things that can sort of change the workflow that we're in and then how that attaches back to the system of records. So kind of rethinking how processes work, that's part of what we've been focused on.

Clarke Jeffries, Analyst — Piper Sandler

And then, you know, last part on the sort of funnel of onboarding assets, you have had a strategy that shifted to an earlier lifecycle company. Maybe you gave us some background on what prompted that change. and even if you are in a position of acquiring earlier life cycle companies, you're still able to do a medium-term target of cash flow outcomes for those businesses or how do you have to adjust expectations for those kinds of assets?

Jason Conley, CFO

So, yeah, we've pivoted the strategy a little bit in 2023 and so we've deployed about $10 billion of capital against that. Part of that is also doing more bolt-ons, as you mentioned. So it used to be 10% of our capital. It's been more like a third. And again, that's all to increase the organic growth for the platform that we're attaching it to. And so I think for us, there's a couple of reasons why we want to do it. Obviously, higher organic growth in general, which equals higher year five and further cash flow. And so we have to underwrite a little bit higher growth. But the businesses we're looking at are the same businesses we own in our portfolio. It's just the, think of it as like the TAM has not been digitized yet. So there's still more adoption. There's still a lot more white space in those markets. So we understand the markets. It's just we're underwriting it to a little earlier part of their life cycle. And this isn't venture, right? This is first-term private equity, typically not third-term, which is where we – second or third is where we used to play. So we like that. We like the ability to capture more growth for shareholders.

Clarke Jeffries, Analyst — Piper Sandler

And then also, as I mentioned, to be able to do bolt-ons. you know these businesses haven't been frank hadn't had a frankenstein bolt-on sort of scenario that we can kind of put our print on that business and and have our own platform to grow from there yeah well let's shift gears to maybe the strategy around um commercializing ai and i think it's something i've heard from a variety of companies that are acquisition minded is some some of some of the functionalities for ai can maybe supercharge integration it can be productized across the and these sort of individual businesses may not, they can share some learning. So maybe we can talk about the big pillars on how to commercialize AI, some sort of the agentic products that have been released, and maybe any specific segments that have the fastest traction so far.

Jason Conley, CFO

Sure, that's a lot. I'll try to capture it. Well, look, it's been, this has been a fun year. I mean, we kind of really got into building agentic solutions on top of the software towards the end of last year, early part of this year. But I think we've learned that the adoption can have, it can vary widely depending on kind of what's happening in the end market, what's happening from a top-down perspective at those customers in terms of like pushing change management. And so we're adopting as we go along. But I would say like our central each business was sort of first out of the gates in terms of AI adoption. But if you think about it, so CenterReach plays in the autism space, so you've got a huge disparity between demand and supply for autism therapy. And we were able to provide solutions right in the workflow that enabled scheduling to be faster, claims to go smoother and be first passed through. So we were right in the workflow, and it had high ROI for the autism center, immediate ROI. It made the therapist's existence better because they didn't have to spend as much time with the administration, more time with learners. So in that case, and what they did too, is they did a freemium model for, call it six months, they could track the telemetry, they could see that there was adoption and then said, okay, now we're going to start charging and we're going to start charging above and beyond the core system of record. And you had sort of quick uptake in that. And it was good because it was seamless and the therapist wasn't, by the way, worried about losing their job because there was just so much demand in the industry. You go all the way to another sort of thing about in our freight match business, our DAT business, we're automating workflow for the spot freight market. So a broker doesn't have to make 10 phone calls now to match a load. We have the technology right there. Well, it turns out that's a different act because a broker thinks, wait, that's my secret sauce. I can negotiate. I can get on the phone. I can do this. So which is true. So for maybe 90% of what they do, they're still going to be able to do that. But for 10%, where there's high density loads, and it's pretty obvious what the rate's going to be, because we've got, you know, we've got all the data there, that could be automated. So but that's change management, right? So there's, there's all of that that sort of goes into it. And then you can paint a brush, and there's a continuum of that sort of going on throughout our businesses. But I would just say, you know, the good thing is we've got, we've got the learnings from Central Reach in terms of the freemium. We applied that to Vertifor. And so it's really great to be able to kind of learn from each other successes and failures as we go forward.

Clarke Jeffries, Analyst — Piper Sandler

I think something that people may not appreciate with some in-markets is just that the labor growth has been stagnant for a very long time. And this idea of impairing the labor or replacing the labor, like we needed that 10 years ago for a lot of these in-markets. And so, well, maybe just on the strategy of how to achieve that, commercializing, introduce an AI accelerator team, part of those shared learnings, increase the velocity of tools. Maybe we could talk about how you hire that talent, the size of the team, maybe some intentions for growing that team or targets for the coming quarters.

Jason Conley, CFO

Sure. And just to be clear, the AI accelerator team is mostly about helping our businesses develop agents for revenue, not for productivity. Having said that, they're definitely helping them with AIDLC, right? How do you agentically code? So there's a benefit to that. So we hired a couple of leaders from an enterprise software company at the end of last year, and we're now up to, I think, between 25 and 30 folks. And so think of them as just a team that can come in, and so they're at, call it like four or five businesses right now. They can come in. The businesses provide the product roadmap, the agentic product roadmap, and then they help teach and then build at least the initial agents so that the companies can then take that to market. So we've had great success. Vertifor was our first business that they went to. And we've got, I think, somewhere in the realm of 10 agents now that are out in market that are at least developed. I think four or five are out in market now. So that's something that Vertifor on their own probably would have taken them a lot longer to do that. And so now it's this whole thing of teaching and building the teams from within the businesses to take the ball and run with it. But I think it's been a great experiment because if you think about Roper, and we're certainly, you know, we honor the autonomy and the decentralized model that we have. But this is such a compelling opportunity for all our businesses that, like, there's just been a pull for this. And so, you know, I'm just delighted that we've decided to make this decision and it's going well so far.

Clarke Jeffries, Analyst — Piper Sandler

And in terms of this being, you know, targeted towards commercial products for the end businesses, I think, you know, one of the things that stood out to me was something around the Strata business. And they had a product release, and they said that customers should not have to recreate the financial context they've already established in Strata. And I think as you've done this AI accelerator team, how often were these businesses that were under $4 billion of TAM, they were just unable to execute on obvious adjacencies?

Jason Conley, CFO

Well, I think it's a different way. First of all, it's a different way to do software development, right? This isn't linear coding. This is like I said, it's a 10X AI DLC first on the coding, and then to actually build the agents, do the evals, understand how the product works. it's a different muscle. And so we are teaching them. Strata is a great example, though. I mean, we've been able to elevate some folks in the organization that have said, I want to be a part of that. And the Strata, it's called the FDI, Financial Decision Intelligence. And it's a great product. I can talk about it for a long time. We have a long queue of, we actually, a lot of folks that are testing it out right now, a lot of large health systems, and we expect bookings this year in that and it's essentially if you think about health systems so strata is think about as fpna on steroids for health systems and we're able to marry up the financial operational and clinical information we've always been able to do that but now with ai you know it's using um you know we've got the data structure that we've built over over many decades so you think about like how to split between department centers or operating rooms like there's way many different cuts and we've kind of have that, that, that structure. There's the semantic layer in terms of how you actually calculate margins. And I know it sounds like trivial, but like in a hospital, it's super complicated. And then the ontology, like, you know, the ontology of how a patient moves through the system. So the combination of all that is super powerful. And now with AI, it's kind of moving from, let's just say an analyst before would have to kind of go and pull some things together and get, get the report they needed for their boss. It's like now in the morning, they can get up and they have actual insights because they can prompt the Strata FDI immediately. So we're getting great feedback on it. We're really excited about it.

Clarke Jeffries, Analyst — Piper Sandler

Before I transition, any questions from the room that would like to be Anything that we're seeing that's getting...

Jason Conley, CFO

You mean like our businesses getting... I'm sorry? Yeah, I mean, I mentioned before the AI startups, and so so far it's been pretty quiet. We've had one business where it's within our Dell tech business it's about 10% of their revenue and what they do is they pull RFP data, public RFP data off and then help the businesses prepare proposals for bidding on work and so that business because it's public data obviously that's more commoditized so we've always had a lot of small companies on the fringes and they'll go after smaller government contractors So what we've actually, our response to that has been, we also at Dell Tech own CostPoint, which is the ERP for project-based businesses. So now a customer can marry all of their historical cost point. What did I win on this project? And incorporate that into this bidding solution. So that's different. And so once, I think we're going to, that'll help sort of bolster that business. But that's like the biggest, where we're actually physically seeing competitors come in. I will say in the insurance space, There are more startups kind of going after the work that the labor pool is there. We are, too. We have a velocity AI platform that's going to be the orchestration layer for a lot of the tasks. Because if you think about an insurance brokerage, it is super manual processes. I used to manage insurance for Roper. It's like battle of the forms. Carriers have all their different ways of wanting to see things, different portals. So we think that's a huge TAM that we can go after. for Vertifor, but there's others that are trying to do the same. But that's probably the two that I would call out. So for us, there's many links to that. I think it's if you're critical to the workflow, if there's a high cost, if there's a risk if things go wrong, right? So you've got to have things go wrong. There's a regulatory overlay that's probably embedded in that. There's high configuration density at the customer level. so that's a huge part of like how easy is it to rip out how critical is it to interface with all the other systems and then also just a network effect so like if you think about our segments application software is like the first three of those in our network business our DAT business it's all about that interconnection between participants and that's very hard to break unless you have critical mass it can't sometimes you can have three or four of them and not like Let's say, in application software, you don't really need the network as much, but you do need to be, like, super entrenched. And the other part of this, and this is what's exciting about AI, is, like, every customer, this used to be, like, the word customization used to be a four-letter word, but now you can actually kind of customize the AI on top of however their workflow is configured, and so you'll have high entropy because that customer is different than another one, that we can actually scale now with AI across the customer base. So that's exciting.

Clarke Jeffries, Analyst — Piper Sandler

Well, Jason, unfortunately, we're out of time, but I really appreciate you making the trip to Nashville.

Jason Conley, CFO

Yeah, thanks for having us. All right, take care.