Earnings Call Transcript - ROP Q3 2025

Operator, Operator

Good morning. The Roper Technologies conference call will now begin and is being recorded. I would like to turn the call over to Zack Moxcey, Vice President of Investor Relations. Please go ahead.

Zack Moxcey, Vice President of Investor Relations

Good morning, and thank you all for joining us as we discuss the third 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. 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 if you please turn to Page 3. Today, we will discuss our results primarily on an adjusted non-GAAP and continuing operations basis. For the third quarter, the difference between our GAAP results and adjusted results consists of the following items: amortization of acquisition-related intangible assets, transaction-related expenses associated with completed acquisitions; and lastly, financial impacts associated with our minority investment in Indicor. 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 us and excited to be with you this morning. As we turn to Page 4, you'll see the topics we plan to cover today. We'll start with our third quarter highlights and financial results. Next, we'll review our segment performance, our AI progress and momentum, and our most recent set of bolt-on acquisitions. Then I'll get into our guidance details and, of course, wrap up with your questions. So with that, let's go ahead and get started. Next slide, please. Turning to Page 5. Let me run through the four key takeaways for today's call. First, we had a strong third quarter. Total revenue grew 14%, organic revenue grew 6%, software bookings grew in the high singles area, and we continue to deliver impressive free cash flow with free cash flow growing 17%. And of note, free cash flow margins posted at 32% for the TTM period, really impressive financial results. Second, we're super encouraged by the progress and momentum we're seeing across all of our businesses as it relates to our AI enablement and our product stacks and our internal operations and more on this in a moment. Third, we're announcing today our first share repurchase authorization, $3 billion in total. And lastly, we continue to execute on our M&A strategy of acquiring faster growth platforms and bolt-on or tuck-in acquisitions at a high fidelity rate. In the quarter, we deployed $1.3 billion, $800 million for Subsplash, which we detailed this time last quarter, and $500 million on a series of tuck-in acquisitions. Also more on this later, but worth highlighting here, we are very encouraged by this recent capital deployment execution and the future growth potential that's being layered into our enterprise. Importantly, we remain very well positioned for the continued execution of our M&A strategy and continue to have north of $5 billion of capital deployment capacity available over the next 12 months or so. As I turn the call over to Jason, reflecting on the quarter, I'm quite bullish on most of what we're seeing: a very strong 3Q, real demonstrable AI progress, which is a long-term growth driver for us, excellent execution of our higher growth, higher returning capital deployment strategy, and the announcement of our first-ever buyback authorization. This all bodes very well for the future. That said, we'd like to see some of our markets start to cooperate a bit better, namely the government contracting and freight markets, and we have some delays in Neptune. Much more on this as we walk through today's call. So with that, let me turn the call over to Jason to talk through our P&L and our balance sheet.

Jason Conley, Executive Vice President and Chief Financial Officer

Thanks, Neil. Good morning, everyone, and thanks for joining us today. I'm pleased to take you through our third quarter results and strong financial position. Turning to Page 6. Q3 and TTM results reflect the long-term financial profile of Roper, which is to compound cash flow in the mid-teens area. We'll start with revenue, which was 14% over prior year and surpassed the $2 billion mark. Acquisitions contributed 8%, led by the final quarter of Transact before it turns organic and CentralReach, which we acquired in April this year. Of note, these businesses are tracking very well against our acquisition expectations. We printed 6% organic growth, both for the consolidated enterprise and across each of our three segments. Our Application and Network Software segments were in line with expectations, while TEP was a bit below given near-term timing at Neptune, which Neil will discuss further. EBITDA of $810 million was 13% over prior year with EBITDA margin of 40.2%. Core margins expanded 10 basis points and segment core margins expanded 30 basis points, led by our software segments. DEPS of $5.14 was 11% over prior year and $0.02 above the high end of our guidance range despite absorbing $0.05 of dilution from Q3 acquisitions that were not reflected in previous guidance. Free cash flow was outstanding at $842 million, up 17% over prior year and representing 32% of revenue on a TTM basis. Our software businesses captured strong renewals, and we drove great working capital performance across the board. Broadening out a bit, TTM cash flow of over $2.4 billion is a 17% CAGR over a three-year period. And for those looking at per share metrics, you'll note that our share count has compounded at about 0.5% over that same time period. At Roper, we have been and will continue to be relentlessly focused on cash flow and shareholder value creation. Now let's turn to Slide 7 and discuss our very strong financial position. Our net debt-to-EBITDA stands at 3x, which is up only modestly from Q2 at 2.9x despite deploying $1.3 billion towards acquisitions. This places us in a great position with over $5 billion in next 12-month capacity for capital deployment. Regarding M&A, you can see that we've been quite active this year in acquiring high-quality growth businesses and several strategic bolt-ons. This is against the backdrop of a muted PE deal environment. The pipeline of high-quality acquisitions continues to build as assets mature in PE portfolios and a return of capital to LPs becomes paramount. Additionally, as Neil mentioned, we're pleased to announce another capital deployment lever that was previously unavailable. Our Board has authorized a $3 billion share repurchase program with an open-ended time period to execute. While M&A will continue to be the majority of our capital deployment allocation, our share repurchase program will allow us to opportunistically complement our M&A program. Over the last year or two, we have talked about the great business building taking place across the Roper portfolio from strategy to talent to execution, all now greatly turbocharged by AI. Our repurchase program reflects both confidence in our strategy and our commitment to delivering long-term shareholder value. So with that, I'll turn it back over to Neil to talk about our segment performance.

Neil Hunn, President and Chief Executive Officer

Thanks, Jason. Turning to Page 8. And before we get into our segment details, we want to discuss why AI is a powerful and durable growth driver for Roper. To start, AI represents a meaningful expansion of our total addressable market across the portfolio. We can now deliver transformational software solutions that automate labor-intensive work adjacent to our existing platforms. This creates substantial new value streams for our customers and correspondingly facilitates long-term growth for Roper and our businesses. Importantly, our businesses are uniquely positioned to win in AI, in fact, having a very high right to win in the AI world. Our software solutions are deeply embedded system of record applications with workflow-oriented domain-specific architectures. The decades of cumulative workflow knowledge built into our platforms, combined with the proprietary vertical market data, provide the precise context needed to develop Agentic AI solutions. Because of this, our businesses have an exceptionally high right to win as we deploy these capabilities across our VMS end markets. Internally, we're becoming AI-native across all functions to drive productivity gains. We're excited to reinvest these gains to further accelerate our product development and go-to-market initiatives. It's important to note, we've always had more great ideas than resources needed to execute, and AI has the potential to attack this challenge. Finally, we have tangible proof points, though it's still early. Aderant has claimed a technology leadership position in legal tech, accelerating their bookings growth. CentralReach now has roughly 75% of their bookings attributed to AI-enabled products, which have automated 100 million reimbursement rule evaluations, over 3.5 million learner appointments, and over 1 million clinical summaries being generated – great real-world examples of the power of AI. Deltek has released over 40 AI features into their cloud offerings, driving increased cloud conversion activity. And DAT has industry-leading AI and machine learning enabled freight matching capabilities, which I'll detail shortly. These are but a few examples from across the portfolio. Very exciting times for sure. With that, let's now turn to our segment review, starting with Page 10 and our Application Software segment. Revenue for the quarter grew by 18% in total and organic revenue grew by 6%. EBITDA margins were 43.4%, and core margins improved 40 basis points in the quarter. Starting with Deltek. Deltek delivered solid performance in the quarter, particularly strong results in their private sector end markets. Construction, architecture, and engineering remained robust throughout. The GovCon business experienced softness in September as agencies paused activity ahead of the pending government shutdown. This timing is unfortunate. Pipeline activity and commercial momentum had been building nicely following the passage of the one big beautiful bill in July, and we are seeing increased engagement across our customer base heading into the new fiscal year. The fundamentals remain strong. The OB3 authorized significant increases in defense and infrastructure spending that will flow through to our customers once appropriations are finalized. This is simply a timing issue, not a demand issue. Finally, retention levels across the entire Deltek franchise remain very high. Aderant continues to be incredibly strong and continues to post impressive bookings and recurring revenue growth. The booking strength is broad-based, fueled by their AI-enabled solutions, especially as it relates to AI-enabled compliant time capture and billing and is a combination of market share gains, cloud migration, and SaaS growth. Vertafore continues once again to be steady and solid for us. We continue to see consistent ARR growth and strong customer retention and strength across their agency, MGA, and carrier solutions. This growth is enabled by their strong go-to-market capabilities and their long-term commitment to product strength. PowerPlan's performance has been terrific. Their success is a result of several years of business building in the product stack, the go-to-market capabilities, their service delivery, really across all functions. In addition, to remind everyone, they serve power generation customers, which are adding capacity as quickly as possible to handle the AI workloads. The setup here should be quite good for a long time. Also in the quarter, we completed the acquisition of Orchard, a tuck-in acquisition for our Clinisys business. Orchard brings additional clinical laboratory capability to Clinisys with particular strength in reference, physician office, and public health labs. Finally, the balance of our application software portfolio continues to execute very well. CentralReach was excellent again in the quarter, driving accelerating adoption of their AI tools and capturing ABA therapy capacity additions. Procare made a great installment of progress with new bookings continuing to be strong, posting low double-digit growth in payments with improved gross margins, though still work to do, in particular, with faster implementation time frames and share of wallet expansion, but meaningful progress for sure. Finally, Strata and Transact were steady and solid in the quarter. As we look to the final quarter of the year, we expect to deliver mid-single-digit organic revenue growth. This outlook reflects high single-digit growth in our recurring revenue base, offset by declines in nonrecurring revenue, primarily due to anticipated softness in our Deltek business stemming from the ongoing government shutdown. Given the uncertainty surrounding the duration and impact of the shutdown, we see potential outcomes across the full range of our mid-single-digit outlook from the lower to the higher end. That said, our businesses in this segment continue to compete and execute exceptionally well. The primary variable remains a higher level of market uncertainty than we typically experience for our Deltek business. Please turn with us to Page 11. Total revenue in our Network segment grew 13% and organic revenue 6% in the quarter. EBITDA margins remained strong at 53.7% with core margins improving 60 basis points. As we dig into the individual businesses, we'll start with DAT. DAT was solid in the quarter and had strong ARPU improvements. DAT continues to execute exceptionally well on their core strategy of driving enhanced network value for both brokers and carriers. This dual-sided approach positions DAT to better monetize their entire network ecosystem and more on this when we turn to the next page. ConstructConnect was solid again for us in the quarter. The growth was fueled by strong customer bookings activity and improved customer net retention. Of note, this business continues to make good progress with our emerging AI-enabled takeoff and estimating solution. Foundry is turning the corner on growth, posting continued sequential improvements in ARR, and we expect our Q4 exit ARR to grow year-over-year in the high-single-digit area. Really happy for the team there as they've had to work through some tough market conditions. Next, our network healthcare businesses, MHA, SHP, and SoftWriters were very good in the quarter. Of particular note, SoftWriters is executing at an exceptional level, winning a few very large pharmacy customers and making substantial progress on a high-impact AI solution, which is being beta tested in the market currently. Congrats to Scott and his entire team for their success. Finally, Subsplash, our most recent acquisition that closed on July 25, is off to a great start, delivering financial results in line with our deal model expectations. Of note, they saw very good market traction with their AI-driven content offering, Pulpit AI, and they deepened its integration with their core engagement platform, driving strong product-led growth – exciting stuff. As we turn to the outlook for the final quarter of the year, we expect to see organic revenue growth at the higher end of the mid-singles area. As we turn to Page 12, we'd like to spend a few minutes describing the strategic evolution of our DAT business and why we're so excited about its future growth prospects. To start, our legacy DAT platform is the largest freight matching network across the U.S. and Canada. The scale is remarkable, over 1.2 million loads posted and 15 million rate views every single day. DAT is the clear market leader, delivering tremendous value to both freight brokers and carriers, both of whom pay to participate in this powerful network. As strong as the legacy business is, we're even more bullish about where DAT is headed. To bring this vision to life, DAT is building capabilities across the entire freight automation workflow from carrier vetting to broker-carrier matching to AI-driven rate negotiation, load management tracking, and finally, payment and settlement. Through deep customer partnering with the brokerage community, DAT is working to fully automate the freight matching process. As this happens, DAT will generate $100 to $200 per load in savings for brokers while giving carriers greater predictability and faster payments on their invoices. What sets DAT apart is this end-to-end product capability and its role as a neutral trusted partner, a Switzerland-like player that equally serves the entire freight brokerage market. This is a truly unique position in the market. This evolution also highlights the Roper DAT partnership at its best. We work closely with the DAT team to craft this strategy, then we executed a focused M&A program to strengthen it through three strategic tuck-ins: Trucker Tools, Outdo, and Convoy. With the deals complete, DAT is now fully focused on delivering against this strategic opportunity. Important to note, Convoy is an unusual transaction for us as it currently is not profitable, but we expect the financial returns over the next several years to be extremely attractive. The key to success is scaling efficiently, leveraging DAT's advantaged customer unit economics for both brokers and carriers to drive sustained growth and profitability. We are confident in this strategy, market position, and DAT's ability to execute. I know this was a bit of a deep dive, but we wanted to share with you why we're so excited about the growth opportunity that sits in front of DAT, true AI-based freight automation. Now let's turn to Page 13 and review our TEP segment's quarterly results. Total revenue here grew 7% and organic revenue grew 6%. EBITDA margins came in at 35.2%. Let's start with Neptune. As we've said before, Neptune continues to execute really well, particularly around its ultrasonic meter strategy, and we're seeing strong traction in its data and software billing solutions. The new copper tariff that took effect on August 1 caused some short-term disruption. Neptune responded by implementing surcharges to offset the tariff's impact, which temporarily slowed order timing. These actions reflect the benefit of being part of Roper, doing the right long-term thing for customers and the business even when it creates near-term headwinds. Verathon continues to perform well. In particular, during the quarter, Verathon saw continued strength in its single-use recurring product lines, both BFlex and GlideScope, which remain key growth drivers. NDI also delivered an excellent quarter. As we discussed previously, NDI provides proprietary world-class precision measurement technologies to a range of healthcare OEMs. These technologies in turn enable guidance-enabled solutions across multiple clinical markets, including orthopedic surgery, interventional radiology, and cardiac ablation. Finally, we saw strong execution and growth across CIVCO, FMI, Inovonics, IPA, and rf IDEAS, rounding out a solid overall performance for this group of companies. Looking ahead to the fourth quarter, we expect organic growth in the low-single-digit area given the very difficult prior year comp and the timing we discussed at Neptune. Now let's turn to Page 15 and review our Q4 and updated full-year 2025 guidance. Starting with the full-year outlook, we continue to expect total revenue to remain in the 13% area. Also, given the delays at Neptune and the temporary impact of the government shutdown, which is slowing year-end commercial activity at Deltek, we now expect organic revenue to land in the 6% area versus our previous 6% to 7% range. Relative to our full-year DEPS outlook, we're tightening guidance to the high end of our prior range after adjusting for $0.10 of dilution from the $500 million of tuck-in acquisitions completed during the quarter. Specifically, we now expect adjusted DEPS to be in the range of $19.90 and $19.95. We expect to see our tax rate at the lower end of our 21% to 22% area for the full year. For the fourth quarter, we're establishing adjusted DEPS guidance to be between $5.11 and $5.16, which includes $0.05 of dilution for last quarter's tuck-in deals.

Zack Moxcey, Vice President of Investor Relations

Now please turn with us to Page 16, and we'll open it up to your questions. We'll conclude with the same key takeaways with which we started. First, we had a very good third quarter with exceptional free cash flow. Second, we're super excited about the pace of AI innovation and the growth potential in front of our enterprise. Third, we're announcing a $3 billion authorization for a share repurchase. And finally, we remain super well positioned for further M&A activity. Relative to our financial results, we grew total revenue 14% and organic revenue 6%, grew EBITDA 13% and delivered 17% free cash flow growth in the quarter. AI is a significant growth driver for Roper, expanding our TAMs by automating tasks and work across our vertical market offerings. With deep workflow integration, proprietary data, and vertical market-specific architectures, our businesses are well positioned to succeed in AI, in fact, have a very high right to win and are already seeing measurable yet early product and commercial results. DAT exemplifies this strategy in action, evolving from a traditional freight matching network to a fully automated freight marketplace powered by AI. Through this transformation, DAT is unlocking significant efficiency and economic value for brokers and carriers alike, positioning itself for improved high-quality growth. As Jason mentioned earlier, we're excited to announce a $3 billion share repurchase authorization, which will deploy opportunistically, enabling us to take advantage of dislocations in the market. We're super confident with our talent advantage, our strategy, and our execution capabilities, and this first-ever buyback is evidence of such. Importantly, we remain exceptionally well positioned to execute our M&A strategy. We have north of $5 billion of available firepower over the next 12 months and a very active, large and attractive pipeline of opportunities. Importantly, Roper continues to strengthen its position as an acquirer of choice for both target CEOs and their private equity owners. As always, we'll pursue these opportunities with our consistent, unbiased, patient, and disciplined approach. Prior to turning to your questions and if you flip to the final slide, our strategic compounding flywheel, we'd like to remind everyone that what we do as Roper is simple. We compound cash flow over a long arc of time by executing a low-risk strategy and running our dual-threat offense. First, we have a proven powerful business model that begins with operating a portfolio of market-leading application-specific and vertically oriented businesses. Once the company is part of Roper, we operate a decentralized environment so our businesses can compete and win based on customer intimacy. We coach our businesses on how to structurally improve their long-term and sustainable organic growth rates and underlying business quality. Second, we run a centralized process-driven capital deployment strategy that focuses in a deliberate and disciplined manner on cultivating, curating, and acquiring the next great vertical market-leading business or tuck-in acquisition 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, meaning we double our cash flow every five years or so. So with that, we'd like to thank you for your continued interest and support and open the call to your questions.

Operator, Operator

Your first question comes from the line of George Kurosawa with Citi.

George Michael Kurosawa, Analyst

It's great to be on the call today. I wanted to start by discussing the overall picture of organic growth. While there has been a slight setback this quarter, it's possible to argue that there are some one-time or short-term factors influencing this. Could you share your thoughts on your confidence in a potential reacceleration moving forward, especially as we begin to plan for 2026?

Neil Hunn, President and Chief Executive Officer

Thank you for being on the call this morning. You're correct that this quarter was challenging for two main reasons: commercial activity at Deltek due to the government shutdown and tariff-related effects at Neptune. Although it's still early for us to provide detailed projections for 2026, the trends in application have been consistent throughout 2025. We expect Deltek and government contracting to improve next year because of OB3, but the timing of that improvement remains uncertain as we move forward with our planning. There are signs of improvement in that market linked to OB3 funding. In the Networks segment, performance has been steady over the last three quarters, despite challenges in the freight market. We will need to monitor how the freight sector develops next year, but I’m optimistic about the business development at DAT. Additionally, I expect Foundry to perform better next year. Regarding TEP, Neptune's order patterns will likely continue to normalize to pre-COVID lead times, and orders have been solid, with expectations for shorter lead times. NDI is looking forward to a couple of strong years, but we need to finalize our planning process for more insight on TEP's performance next year. Overall, we feel positive about the trends in GovCon, Foundry, CentralReach, and Subsplash anticipating organic growth in the latter half of next year, alongside our ongoing business development efforts. We will begin an extensive planning process for Q4 in a couple of weeks.

George Michael Kurosawa, Analyst

Okay. That's super helpful color. And then maybe just one quick follow-up here on the AI strategy. I think you disclosed 25 products last quarter. I'm curious if you have an updated number just to give us a sense for the pace of innovation and just more generally, how you feel businesses are coming up the AI curve here.

Neil Hunn, President and Chief Executive Officer

Yes, we feel very confident. I won't go over all the prepared comments about why we feel that way, but we are transitioning from having a large number of products and key features. We previously mentioned the 40 AI features in the Deltek core that are driving cloud migrations and SaaS. We're increasingly seeing AI SKUs, and we are optimistic about that. Now we need to focus on the commercial activities as we release these SKUs across all our software businesses now and in the first half of next year. We need to sell and commercialize them to build momentum from there. We feel very positive, with a high chance of success, and we have a lot of internal knowledge to help us with this process. You can bring in new talent, but you also need to cultivate it. Internally, there is a lot of collaboration, which is encouraging to see, along with significant momentum. We can discuss this further, but we are very excited about our position in the AI space.

Operator, Operator

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

Brent Thill, Analyst

Just on the buyback, can you explain the strategy behind it and why you're not focusing more on mergers and acquisitions? I believe this is your first buyback. What influenced that decision?

Neil Hunn, President and Chief Executive Officer

I appreciate that. Just to clarify, it's a $3 billion buyback with no specific timing and it's opportunistic; it does not indicate a change in our strategy. To put this in perspective, we have between $15 billion and $20 billion in capital to deploy over the next three years, so this isn’t a shift in direction. The reasoning is straightforward—we have strong confidence in our current initiatives and in the talent we have leading our companies. This includes our strategic approaches, AI implementation, ongoing improvements, and business development. We believe this buyback demonstrates our confidence. That said, we remain firmly focused on mergers and acquisitions. The benefits of our numerator exceed those of the denominator, which is simply a matter of mathematics. We are very engaged in M&A activities; we explore opportunities every day. Recently, Janet Glazer, who leads our capital deployment efforts, had a productive meeting with 18 CEOs of potential acquisitions. The feedback was overwhelmingly positive, positioning us as a preferred buyer for both CEO-led companies and private equity sellers. We are optimistic about executing our M&A strategy, and this buyback serves as a minor complement to Roper's overall strategic approach.

Brent Thill, Analyst

Okay. Neil, I know the last couple of years, we've had a couple of things that maybe haven't gone the way you wanted to. The question is just how do you derisk this out of the guide? And I think investors have looked at the portfolio and said that you get the diversification aspect, but why do we keep having kind of the setbacks if we're that diverse. So that's the question I'm getting.

Neil Hunn, President and Chief Executive Officer

Yes, you're correct. We've designed our portfolio to minimize cyclicality and cycle risk as much as possible. Historically, before divesting our industrial businesses, we would experience cycles of 5 to 10 points. Now, our fluctuations are only about a point here or there. Essentially, we've eliminated most cycle risks within the enterprise. It's just been frustrating due to unique situations. In government contracting, we typically enter GovTech for market stability, but the past couple of years have been anything but stable. Transportation has faced an unexpected three-year freight recession. It's disheartening seeing these challenges accumulate, but they are specific cases, and we do appreciate the structure of our portfolio.

Jason Conley, Executive Vice President and Chief Financial Officer

I believe the cash flow generation remains strong and aligns with our expectations. We have encountered some new deals that have been dilutive, but we have managed to navigate through that. Our guidance, adjusted for dilution, is quite similar to our previous projections. Despite some of the softness we’ve experienced, we have successfully maintained our bottom line.

Operator, Operator

The next question comes from Brad Reback with Stifel.

Brad Reback, Analyst

Software bookings decelerated a little bit sequentially, I think from the mid-teens to the high singles. Was that predominantly Deltek? Or were there other drivers there?

Jason Conley, Executive Vice President and Chief Financial Officer

Yes, it was mainly Deltek, with a bit from Frontline. We mentioned some funding from the DOE; we don't receive a lot of funding at the state level, which slightly affects K-12. However, Deltek Frontline remains strong overall. If you look at the trailing twelve months, it's a rather uneven situation since software bookings can vary significantly from quarter to quarter. The trailing twelve months are up low double digits, which is a positive trend. Additionally, healthcare has performed exceptionally well this quarter. Our Strata business, after merging Strata and Syntellis a couple of years ago, is really starting to make an impact in the market, leading to strong bookings. Our Clinisys business is also doing quite well in both Europe and the U.S., with some new additions helping us expand beyond the hospital sector, which is gaining traction as well. This provides some insight into our bookings this quarter.

Brad Reback, Analyst

Great. And then, Neil, I think two questions ago, you talked about the rollout of the AI SKUs happening now through the first half of '26 and then needing to sell it. That all seems like we should be thinking about this more of a '27 and beyond organic driver as opposed to '26?

Neil Hunn, President and Chief Executive Officer

I believe that's a reasonable perspective, and we certainly share that view. It's a fair assumption. We will see progress in bookings throughout next year, particularly since this involves more than 20 software companies and various products. This will create building momentum. However, I expect it will have a significant impact around 2027 due to the necessary commercial activity accompanying the innovation.

Operator, Operator

The next question comes from Ken Wong with Oppenheimer.

Hoi-Fung Wong, Analyst

Fantastic. I wanted to maybe drill in a little bit on just the organic growth. Any way for you guys to help kind of slice what you might have seen from maybe the same-store sales versus maybe the net new organic that's coming onto the P&L. Hopefully, that question makes sense.

Neil Hunn, President and Chief Executive Officer

We want to ensure we're addressing the right question. Essentially, are you inquiring about the cross-sell compared to the net new mix?

Hoi-Fung Wong, Analyst

No. I guess what was coming from, let's say, the portfolio prior to, let's say, like a Procare, Transact versus the stuff that is now kind of flowing in as incremental organic. What was once inorganic coming in as organic? Does that make a little more sense?

Jason Conley, Executive Vice President and Chief Financial Officer

Yes, like what's the impact of Procare coming into organic. A little bit of accretion from Procare, not as we talked about, not as much as we had thought when we did the deal, but it's certainly accretive to the segment.

Hoi-Fung Wong, Analyst

Okay. Got it. And then on the TEP business, I think going into the quarter, I think the expectations were high single digit in the back half. I guess, yet only 6% in the quarter, low single in Q4. Was that isolated to any particular piece? Or was it a little more broad-based? Is it just Neptune? Or should we think about any other pieces that contributed to that slight weakness?

Jason Conley, Executive Vice President and Chief Financial Officer

Yes, it was primarily Neptune. There was a significant impact in the third quarter. We anticipated a tougher situation in the fourth quarter, but even considering that, both quarters showed a decline. It was indeed Neptune.

Operator, Operator

The next question comes from Joshua Tilton with Wolfe Research.

Joshua Tilton, Analyst

Hey guys, can you hear me?

Neil Hunn, President and Chief Executive Officer

Yes.

Joshua Tilton, Analyst

I've been bounced around a few earnings this morning, so I apologize if it's already been asked. But I guess the #1 question for me is just, is there anything you can give us on the guidance front, specifically for organic revenue growth that could increase our confidence that, like you derisked it enough. Maybe you could just like walk us through a little bit further on where the derisking is coming from Deltek versus Neptune and kind of what gives you the confidence that this is a good base to start for the rest of the year?

Jason Conley, Executive Vice President and Chief Financial Officer

Yes, I think we've outlined our expectations by segment. As Neil mentioned at AS, we're anticipating mid-single-digit growth, with some variability depending on Deltek's perpetual license activity and a few projects in our Transact business that may contribute this quarter or the next. For the Network segment, we expect mid-single-digit-plus growth, largely driven by recurring revenue, though the Truckers' participation can fluctuate monthly. We believe we've accounted for that well. For TEP, we're looking at low single-digit growth, having identified the challenges related to Neptune's tariff activities. NDI is primarily focused on backlog for this quarter, while the others have less backlog. Based on current trends and discussions with the business, we feel confident that this is a suitable projection for the quarter.

Joshua Tilton, Analyst

Really appreciate the color. And just maybe for a quick follow-up. I really appreciate all the color you guys gave on the AI positioning that you guys have and some of the examples. I guess what I'm trying to understand is it feels like every company that we talk to is trying to race to be a winner in this AI world at a pace that we've kind of never seen before. Is there a dynamic? Or do you feel that maybe you guys have this unique AI think tank going on inside of Roper because you have a group or a portfolio of companies that are all marching towards the same AI goal? And then if that's the case, maybe could you share with us how they're sharing knowledge and best practices and what they're seeing across some of the use cases that are already being successful to kind of set up the rest of the portfolio to be just as successful in their AI endeavor?

Neil Hunn, President and Chief Executive Officer

I appreciate your question. I wouldn’t say there’s a think tank in Sarasota orchestrating everything. Instead, we have a clear purpose. In a vertical market, as a system of record, our evolution resembles that of a system of work; the portfolio is so similar that we're essentially executing the same strategy across our more than 20 software companies. There is shared purpose and mutual understanding. We engage in extensive information sharing, with an AI showcase every three weeks at Roper. This involves hundreds of people discussing one or two companies to highlight their achievements in areas such as architecture and commercial strategies. We also distribute a weekly email outlining the current state of technology and AI developments to keep leaders informed. Our planning process incorporates telemetry for product road maps and internal productivity. The group executives, who oversee several businesses each, frequently meet to discuss matters related to the business, with AI being a major topic. We may soon add resources at the corporate office that will focus on identifying and applying enabling technologies. The challenges we face, particularly in identifying deterministic tasks, are significant, but overcoming these challenges creates valuable experiences for our customers, fostering win-win relationships. We are very enthusiastic about this and believe we have a strong position to succeed due to our extensive context, data, and years of accumulated knowledge about these verticals. Lastly, the key to unlocking our potential at Roper lies in our organizational structure, which is decentralized and built on high trust. Managing an $8 billion P&L across 29 units allows us to utilize talented leadership teams that are motivated both intrinsically and by our financial rewards system to compete effectively in the marketplace. This represents a new frontier for our approach.

Operator, Operator

The next question comes from Terry Tillman with Truist Securities.

Terrell Tillman, Analyst

Two questions. The first question is on software bookings and specifically with Deltek. The second one is going to be DAT. So first, in terms of software bookings, I think you said high singles in 3Q. So what are you assuming in 4Q? And the second part of that first question is, and maybe this is wildly optimistic, but assuming at some point, the government shutdown thesis, could you actually get those licenses in still in November or December? Or are you just assuming that doesn't happen? And then I'll have that DAT follow-up.

Jason Conley, Executive Vice President and Chief Financial Officer

Thank you for the question, Terry. For the fourth quarter, we will see how things develop. Last year's Q4 was very strong, making the comparisons a bit tougher this time. However, it's the end of the year, and our pipelines look robust across our businesses. Regarding Deltek, we are not expecting it to contribute this year yet, though we've noticed that customers have been making quick decisions recently, particularly if they have internal budget flexibility. While we are not factoring that into our current assumptions, we are optimistic about what Deltek could achieve in 2026. Deltek has faced challenging market conditions over the past few years, but demand remains strong. They have made significant improvements to their cloud product, adding new AI features that will be exclusive to the cloud, which should enhance conversion rates. Deltek represents our largest maintenance base at Roper. We are excited about the future but need to navigate through this quarter of uncertainty first.

Terrell Tillman, Analyst

Got it. And then, Neil, on Slide 12, I like that slide, shows kind of where you've delivered on the platform. I know with DAT, pricing and packaging was an important kind of growth unlock and improvement this year. But now you have this idea of one-click automation and then newer areas that seem like they've expanded the TAM around management and payments. Like is there any way you can frame like how much you can garner now per successful load or transaction going forward with some of this newer technology versus the past or the present as you laid out on that page?

Neil Hunn, President and Chief Executive Officer

I appreciate it. You're correct. The strategy at DAT has been consistent for several quarters. We operate a unique business that connects brokers and carriers, generating revenue from both sides on a subscription basis. Our market presence is strong, and we have advantageous economics, particularly on the carrier side, as they typically secure their authority first and then subscribe to DAT to find loads efficiently. This approach creates a highly effective method for market penetration, offering distinctive unit economics. Our strategy focuses on adding more value to both sides of the network. The ultimate goal is to eliminate the manual efforts involved in matching broker transactions. Currently, we facilitate approximately 1.2 million loads daily at DAT, with potential savings of $100 to $200 in labor for each load that can be automated. While I'm not specifying exact percentages, the potential for opportunity is substantial when considering both the share of total loads and the labor savings. We need to equip ourselves to realize this potential by integrating this capability into every broker's TMS to make it seamless. We also need to onboard a significant portion of the carrier base, which we are actively pursuing. We're excited about the progress, as early integration results have been positive, particularly on the broker side. Our unique position lies in our neutrality; rather than competing with brokers, we support them, providing significant value for both brokers and carriers.

Operator, Operator

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

Deane Dray, Analyst

Just want to get a clarification on the timing delays at Neptune. Our experience has been, especially recently going through COVID is once a utility is ready to place an order, they're unlikely to switch. It's already gone through the rate case, it's all a pilot study, and so forth. So have they lost any of these orders? Or this is strictly delay at this point?

Neil Hunn, President and Chief Executive Officer

No, no, just to be super clear. This is pushed to the right. So what we've done, and I alluded to this in the prepared remarks, is we have this tariff coming through. We at Neptune decided we concurred fully that they're going to assess a surcharge, which then you've got to go essentially recontract or renegotiate with all the open orders about how to do that, and it just puts some gum into the system. It's a little bit easier when you're going through distribution to do that because you have a distribution partner you can sort of share some of this surcharge with, but when you're doing the direct business, that's a little bit more difficult to do it and a little bit slower. So this is 100% pushed to the right. In fact, Neptune reports, I mean, there was a little market share gain in the quarter for Neptune, but these sort of market share quarter-to-quarter are sort of a point here, a point there, 0.5 point here, 0.5 point there, but the latest report is the share has actually improved a little bit with Neptune in the quarter.

Deane Dray, Analyst

That's really helpful. As a follow-up, I want to express our appreciation for the focus on DAT. Could you discuss the implications of investing in Convoy? You've mentioned that it's not profitable, but I'm interested in the willingness to subsidize and invest for the sake of achieving end-to-end automation, particularly considering the impact of a non-profitable bolt-on.

Neil Hunn, President and Chief Executive Officer

Yes. I'll start by asking Jason to provide some additional insights. In our situation, it was a unique case of choosing between buying and building. This process is quite complicated, despite sounding straightforward. It involves complex algorithms that need to be entirely deterministic. It's primarily focused on machine learning rather than artificial intelligence. We have gained a significant number of skilled engineers through the acquisition, who are now part of the DAT team. While it is currently operating at a loss, it represents the final component in realizing our DAT strategy, and we have strong confidence in the outcomes we expect from this investment.

Jason Conley, Executive Vice President and Chief Financial Officer

Yes. I would just add that most of our strategies involve integrating smaller acquisitions that are closely aligned with our existing operations. For example, we recently integrated Orchard into Clinisys, which represents the typical type of acquisition we pursue. However, this is primarily a technology acquisition aimed at creating a new market. It's quite rare for us to engage in such a move, but we believe it's a significant opportunity, and we are prepared to invest in this technology.

Operator, Operator

The next question comes from Dylan Becker with William Blair.

Faith Brunner, Analyst

It's Faith on for Dylan. Maybe expanding on the DAT question. It seems like this end-to-end platform has been in the making for some time. So can you talk about where you see DAT growing as you continue to build out this network and the long-term potential there? And maybe even how this can drive durability despite some of the headwinds we're seeing in freight?

Neil Hunn, President and Chief Executive Officer

Yes. The DAT core business is experiencing low double-digit growth, which includes some unit growth in addition to packaging and price. This reflects the long-term organic growth rate of our core business. When discussing the entire tracking automated business, we are introducing a capability that does not currently exist in the industry and significantly expands the existing total addressable market. We would like to observe actual momentum in this area before estimating the potential acceleration that could benefit DAT, but it is certainly an exciting development. I understand this may not fully answer your question at the moment, but we want to see growth in the field before determining the extent of the accelerated growth rate.

Faith Brunner, Analyst

All right. No, that's helpful. And then maybe just double-clicking on Deltek. Can you maybe remind us what you guys saw during past government shutdowns and the impact to the business and any potential insulation there?

Neil Hunn, President and Chief Executive Officer

Yes, I’d be happy to do that. Just to remind everyone, Deltek's business is split between 60% in government contracting and 40% in other sectors. We’re focusing on the 60% related to government contracts. What we have observed is that during a government shutdown, both the anticipation of a shutdown and the actual shutdown lead to a halt in commercial activities. While the work is still there and projects continue to develop, there’s minimal signing of purchase orders or contracts due to the uncertainty. People know the shutdown will eventually end, and government operations will resume, and there is substantial spending that needs to be awarded and fulfilled. If this situation were occurring in March, we likely wouldn’t be adjusting our projections for the year because there would be enough time left for commercial activities to play out. However, since we are in the last couple of months of the year, we are effectively running out of time and will transition into next year.

Operator, Operator

The next question comes from Joe Giordano with TD Cowen.

Joseph Giordano, Analyst

When we look at App Software, if we exclude the Deltek GovCon aspect for a moment and focus on the growth of organic revenue, what do you think is driving this change? Historically, we've seen minor fluctuations, maintaining around 6% over the past three years. What, in your opinion, could trigger this growth to shift into a higher single-digit range?

Neil Hunn, President and Chief Executive Officer

Yes. It will certainly be beneficial when the largest segment of our business can grow at its normal rate. We have been experiencing a slowdown over the past couple of years due to uncertainties in government spending, so this will help significantly. Looking at our businesses, Vertafore remains steady with many AI opportunities ahead, though we expect to see early progress next year, with more substantial advancements likely in 2027. Aderant is performing exceptionally well, and PowerPlan is doing great as well. CentralReach is expected to shift to organic growth soon, which will be advantageous. Frontline has been somewhat slow in recent quarters, primarily due to uncertainties in funding from the Department of Education. The hangover from COVID spending is just now starting to stabilize. Frontline's return to growth in the coming years will be very helpful. Lastly, our Clinisys business, specifically the U.S. lab segment, has been lagging for several years, but it is now transitioning to a mid-single-digit organic growth model, which will provide support. Overall, we are optimistic about the growth potential and capabilities we have moving forward. When considering the buyback and evaluating your stock's multiple, what is your thought process regarding a $1 billion opportunity for deploying capital? Previously, it was relatively straightforward to compare your stock's multiple with the multiple of what you're acquiring, but that has changed. Could you elaborate on how this impacts your decisions on capital allocation at any given time? Yes. For us, it's never been about the multiple of our stock. It's been what's in the compounding math for a cash flow acceleration, what's the best deployment of capital to optimize the long-term cash flow compounding of the enterprise. And now we just have another lever to buyback to put into that consideration set.

Operator, Operator

The next question comes from Julian Mitchell with Barclays.

Julian Mitchell, Analyst

Just wanted to start off with the outlook for TEP and Neptune, in particular, on the top line. So you had the backlog declining there for sort of 2-plus years. The revenue growth is slowing a little bit. So I just wondered sort of what's the confidence that, that organic growth on revenue doesn't continue slowing into next year, just given those backlog dynamics?

Neil Hunn, President and Chief Executive Officer

Let's clarify the backlog situation. This is related to the buildup from the COVID period. Before COVID, we typically had a couple of quarters of visibility on our order backlog. It wasn't exactly a book and ship model, but it was much closer to that compared to the period during COVID. Customers made long-term blanket orders that extended over a year. Now, as I mentioned earlier, we are gradually normalizing the order lead times. As a result, the backlog has increased, but it's also decreasing based on this timing of orders. This should be looked at separately from the demand and market share environments. Regarding the normalization at Neptune and the demand environment, we are currently in a cycle this year and likely next year of steady growth for that business, whereas the previous two to three years experienced accelerated growth due to the effects of COVID.

Operator, Operator

And this concludes our question-and-answer session. We will now return back to Zack Moxcey for 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

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