ROP - NASDAQ

Good morning. The Roper Technologies Conference Call will now begin. Today's call is being recorded. [Operator Instructions] I would now like to turn the call over to

Good morning, and thank you all for joining us as we discuss the second quarter 2025 financial results for Roper Technologies. Joining me on the call this morning are Neil Hunn, President and Chief Executive Officer; Jason Conley, Executive Vice President and Chief Financial Officer; Brandon Cross, Vice President and Principal Accounting Officer; and Shannon O'Callaghan, Senior Vice President of Finance. Earlier this morning, we issued a press release announcing our financial results. The press release also includes replay information for today's call. We have prepared slides to accompany today's call, which are available through the webcast and are also available on our website. And now if you'll please turn to Page 2. We begin with our safe harbor statement. During the course of today's call, we will make forward-looking statements, which are subject to risks and uncertainties as described on this page, in our press release and in our SEC filings. You should listen to today's call in the context of that information. And now please turn to Page 3. Today, we will discuss our results primarily on an adjusted non- GAAP and continuing operations basis. For the second quarter, the difference between our GAAP results and adjusted results consists of the following items: amortization of acquisition-related intangible assets, transaction-related expenses associated with completed acquisitions; and lastly, financial impacts associated with minority investments, including cash taxes paid resulting from the sale of our minority interest in Certinia. Reconciliations can be found in our press release and in the appendix of this presentation on our website. And now if you please turn to Page 4, I'll hand the call over to Neil. After our prepared remarks, we'll take questions from our telephone participants. Neil?

Thank you,

Thanks, Neil, and good morning, everyone. I'll now take you through our Q2 financial highlights on Slide 7. The second quarter was another solid installment in what we believe will be a good year for Roper. Revenue of $1.94 billion was up 13% over prior year and well balanced with 7% organic growth and a 6% increase from acquisitions, with Central reach results contributing since the April 23 close date. Organic growth was strong across the portfolio, demonstrating resilient demand for our mission-critical solutions. Importantly, and as expected, network software year-over-year growth notably improved from Q1, given more normal comps at MHA, increased freight match unit economics and recovery of foundry. EBITDA of $775 million was up 12% and generated EBITDA margin of 39.9%. Core enterprise operating margin was flat to the prior year with core segment margin up 40 basis points. This follows a similar pattern to Q1, bringing our year-to-date core segment margin expansion to 70 basis points. For the diluted EPS, we delivered $4.87 versus our guidance range of $4.80 to [indiscernible] on strong revenue growth and excellent core operating leverage. Finally, free cash flow of [indiscernible] million was up 10% versus prior year, which drives TTM free cash flow to over $2.3 billion. The recent passage of the big beautiful Bill Act provided a permanent repeal of Section 174 capitalization of R&D expenditures. We are, therefore, reducing our cash tax payments for 2025 by around $150 million to reflect the cumulative reversal of capitalization, of which about $60 million benefited our second quarter. We will also see a benefit of $120 million carry into next year due to deduction limitations in 2025. Adjusting out the Section 174 impact, our 3-year TTM free cash flow CAGR would be about 14%. So overall, good news in offsetting some near-term deal dilution and feeling our growth equation. Now let's turn to Slide 8 to discuss our strong financial position. We finished the quarter with a healthy balance sheet and substantial capacity for continued capital deployment. We exited at 2.9x net debt to EBITDA and pro forma for Subsplash, this would be around 3.1x. Additionally, our cash balance was $242 million, and our revolver had $1.4 billion drawn against our $3.5 billion credit facility. So even with Subsplash closing this month, as Neil outlined, this gives us over $5 billion in M&A firepower. This substantial capacity positions us very well to executing on our disciplined capital employment strategy. To that end, while the sponsor-to-sponsor market is still somewhat muted, we are active on a number of both platform and bolt-on transactions that reflect the characteristics of higher growth and increasing long-term value capture with Subsplash being a case in point. With that, I'll turn it back over to Neil for our segment highlights and the guidance update. Neil?

Thanks, Jason. As we turn to Page 10, let's review our Application Software segment. Revenue for the quarter grew by 17% in total and organic revenue grew by 6%. The EBITDA margins were 42.9%, and core margins improved 70 basis points in the quarter. As returns to the businesses, we'll start with Deltek. Deltek grew in the mid-singles range in the quarter, both recurring and total revenues. As highlighted on the slide, Deltek continues to have strong migration to their cloud offerings, while the business continues to innovate at a rapid pace and has benefited by very strong gross and net retention. . As it relates to the federal government contracting outlook, we believe the big beautiful bill spending priorities and sheer volume will be a catalyst for market growth, which has been tepid for the last 24 months or so. The timing of market reacceleration is still to be determined, but we believe it will occur over the course of the next few quarters. Importantly, during the quarter, Deltek made substantial progress in regard to their AI-based product capability and recently announced their new flagship GovCon product cost point, fully embeds their AI assistant Della help deploy intelligent task-oriented agents to streamline repetitive processes and help users make faster, better informed decisions, exciting stuff here and lots more to come for sure. [indiscernible] continues to be incredibly strong and posted their best bookings quarter in the company's history. The booking strength is broad-based, fueled by their AI-enabled solutions and is a combination of market share gains, cloud migration and SaaS growth. Congrats and thanks to Chris and the entire team at Aderant, Keep up the amazing work. Vertafore continues once again to be steady and solid for us. We continue to see consistent ARR growth and strong customer retention here with strength across our agency, MGA and carrier solutions. This growth is enabled by their strong go-to-market capabilities and our long-term commitment to product strength. We look forward to talking about this and their AI-enabled solutions in subsequent calls. PowerPlan continues to be outstanding. As we mentioned last quarter, the team has done a great job at making the revenue stream more recurring in nature. In addition, they continue to get amazing feedback with our innovative cloud offerings, which are driving strong SaaS migration activity. As a result, PowerPlan just continues to win in the market. with our new SaaS solution and near 100% gross retention. ProCare and TransAct seaborne continue to perform very well in their respective markets. We also saw very good results from the health care IT portion of this segment, Strata, Data Innovations and CliniSys. Finally, CentralReach is awesome in the early days, has exceptional momentum, record expansion activity and a 70% enterprise new client win rate all in the quarter. As it relates to the outlook for the second half of the year, we continue to expect organic revenue growth to be in the mid-single-digit plus area. Please turn with to Page 11. Total revenue in our Network segment grew 6% and organic revenue 5% in the quarter. EBITDA margins remained strong at 54.6% and core margins improved 20 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. The market continues to be stable, albeit bouncing along the bottom. Also in the quarter, we integrated Loadlink our Canadian freight match business with DAT. We expect the integration to deliver over time, a more unified and efficiently deployed North American Freight Match network. DAT continues executing exceptionally well on their core strategy of driving enhanced network value for both brokers and carriers. This dual-sided approach positions us to better monetize our entire network ecosystem. Supporting this strategy, DAT made significant progress integrating trucker tools, our Q4 bolt-on acquisition and completing the acquisition of Alco an AI-native factoring technology solution. Combined with the DAT Network Foundation, these integrated products and assets now deliver substantially more value to both carriers and brokers. Looking forward, DAT will maintain their aggressive execution of this network value enhancement strategy, positioning the business for continued growth and improved monetization across all. Construction that was solid for us in the quarter. The growth was fueled by strong customer bookings activity and improved customer retention. Of note, this business continues to make good progress with the emerging AI-enabled takeoff and estimating solution. Foundry declined in the quarter as expected, but we continue to see market recovery signs as they grew their sequential ARR for the first time since the actors and writer strikes. Good to see recovery start here. Also in the quarter, Foundry's new product, Nuke Stage, started gaining traction in the market, specifically with a very large studio and several smaller customers. Nuke stage enables the power of postproduction compositing to occur in the production phase of the pipeline and exciting new capability that will help drive cost savings for the industry. Finally, our network health care businesses, MHA, SHP and SoftWriters were very good in the quarter. As we turn to the outlook for the second half of the year, we expect to see revenue growth in the mid-single-digit plus range. Now please turn to Page 12, and let's review our TEP segment's quarterly results. Revenue here grew 10% and organic revenue grew 9%. EBITDA margins came in at 36.7%. So we'll start with Neptune, which was, once again, just solid for us. Neptune continues to do a great job with our ultrasonic meter go-to-market execution and continue to see strength in their data and software offerings. Verathon continues to execute at a high level as well. In particular, in the quarter, Verathon saw continued strength in their single-use reoccurring solutions, both BFlex and GlideScope. NDI was really good in the quarter. As discussed in prior quarters, NDI delivers proprietary and world-class precision measurement technologies to a wide variety of health care OEMs and which in turn, enables the OEMs to deliver guidance enabled solutions across many health care markets such as orthopedic surgery, interventional radiology and cardiac ablation. Finally, there was strong execution, which led to growth across SIFCO, FMI, anionic IPA and RF ideas. Turning to the outlook for this segment. We expect to see high single-digit organic growth for the second half of the year with a stronger third quarter and a more difficult fourth quarter comp. Before turning to our guidance outlook, I'd like to reflect on our AI perspective, its transformational potential for customers and our enterprise and the steps we're taking to build lasting advantage. Our strategy is focused and practical, applying AI to address high-impact customer-specific challenges. We're confident that AI- based innovation substantially expands our business's TAMs where we have a high right to win, and will be a core catalyst for our next chapter of growth. The true unlock, the magic, if you will, of AI emerges at the intersection of the specialized mission-critical workflows as our customers rely on daily and our deep vertical market expertise. Our AI initiatives span all our businesses, and we're seeing early traction from compliance solutions to AI-enhanced products to AI assistance and intelligent agents that streamline tasks. We're building solutions that deliver tangible high-value outcomes. Today, we have approximately 25 AI-enabled products either in market or in development. Importantly, our AI innovations create a positive halo effect across many of our businesses, driving booking activity for our broader product stacks. This is an exceptionally fun moment to be at the forefront of innovation, redefining and automating workflows across our vertical markets while unlocking new growth and building durable competitive advantages. Exciting stuff for sure. So with that, please turn to Page 14. Let's turn to our Q3 and increased full year 2025 guidance. Given our strong Q2 performance and anticipated closing of the Subsplash acquisition, we're increasing our total revenue growth guide to be in the 13% range. Our organic growth rate of 6% to 7% for the full year remains unchanged. Finally, we're increasing our full year depths outlook to be 1990 to 2005 which includes about [indiscernible] of Subsplash solution. Our guide continues to assume a full year effective tax rate in the 21% to 22% area. For the third quarter, we expect adjusted debt to be between $5.08 and $5.12, absorbing $0.03 of Subsplash dilution in the quarter. Now please turn over to Page 15, and then we'll open it up for your questions. We'll conclude with the same key takeaways with which we started. First, our second quarter financial results were quite good. Second, we announced the acquisition of another market-leading vertical market software business Subsplash. Third, given our solid start to the year, we're raising our full year guidance. And finally, we remain well positioned for further capital deployment. Relative to our financial results, we grew total revenue 13% and organic revenue 7% in the quarter and delivered 31% free cash flow margins in the TTM period. We're delighted with our acquisition of South Flash. As discussed, this vertical market leader is mission critical to the delivery of digital engagement, church management and payments to 20,000 faith-based organizations and has several embedded growth drivers that will support high teens revenue growth and expanding margin profile. Next, we're raising our full year outlook. And finally, we continue to be very well positioned with more than $5 billion of available M&A firepower to deploy capital towards leading vertical market software businesses. Our M&A pipeline continues to be very active, and our teams are engaged on several opportunities. As usual, we're excited to pursue these opportunities with our unbiased and disciplined approach. Prior to turning to your questions and if you could flip to the final slide, our strategic compounding flywheel, we'd like to remind everyone that what we do with 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 sustained organic growth rates and underlying business quality. Second, we are on a centralized process-driven capital deployment strategy that focuses on a deliberate and disciplined manner on cultivating, curating and acquiring the next great vertical market leading 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, meaning we double our cash flow every 5 years or so. With that, we'd like to thank you for your continued interest and support and open the floor to your questions.

[Operator Instructions] With that, our first question comes from the line of Dylan Becker with William Blair.

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

Yes. So I appreciate the question. So first, it was nice to see the high teens bookings in the second quarter gives you a sense that in the nooks and crannies of the market that our businesses serve, things are okay. Also, I'd remind you and everybody that the end market exposure we have generally, not exclusively, but generally are less tied to macro think education, legal, insurance, I mean these are areas that health care for sure, that are generally less macro sensitive but they don't -- they don't ignore the macro sensitivity, but that -- the other thing, as you say, and this is not unique to us, there's just an unprecedented generational opportunity in front of us, all of our businesses to really drive so much productivity gains inside of our customers with the use of these AI tools [indiscernible] sure others will have questions on this, but lots of momentum in terms of the knowledge that's being built up inside the company and that translating the products into the market and then many more products are in development. So that's very exciting. For instance, in Aderant, it was one of our faster-growing businesses in the quarter. There -- we're one of the -- probably our first company to get actual AI-based products, automation-based products into the market, and you see that translating into their bookings activity, not just for the AI-specific product, but for the drag along of existing tech stack with it as well.

All right. Very helpful. And then maybe on -- within some of the recent acquisitions as well to more of a kind of a payments orientation ACO, obviously, within DAT as well. I guess can you just kind of give us a broader overview. You have a lot of value across the network and platform. You're driving incremental adoption kind of how you're thinking about the positioning of embedded and layering in kind of more payments functionality across the suite and how that can kind of tie into broader team expansion.

Yes. So certainly, with ProCare, certainly with sub slash a little bit with transacted Seaboard there is a payments element. The thing that's essential to all 3 of those is that the payments -- the right to the payments opportunities earned through the software, and that's very much the case across all 3. So we view it as a software-led, heavy R&D led to earn their rights. It's a very natural control point to have the payments. I'd say it's not a thematic, I would not read too much into the last 2 or 3 or [indiscernible] transactions, 4 if you count [indiscernible] have a payments angle, we have a strategic strategic decision has been made that we want to layer more payments. I think it's more coincidental than anything else. . The other thing about payments is it does create payments and software and other network effect as well just creates a ton of stickiness -- these businesses tend to have very high both gross and net retention. [indiscernible] a little bit different. [indiscernible] is really the first tech-only tech forward, tech native, I should say, factoring software that's used in the transportation space for the carriers that it's really a slick user interface, a slick back in to enable just an ease of factoring. And so it certainly is enabled commerce and payments, but it's a slightly different payments set up.

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

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

Yes. So just the broader macro, the tariffs obviously, on our test business is relatively small. I think we said last quarter, it's in the $10 million to $15 million range. I think it's still in that. The team is working very hard to mitigate -- mitigated some of that. in supply chain mitigated some of that in pricing. So I won't -- I think it's too early to call it not effect, but for -- relative to others, it's quite small. Relative to the broader other uncertainty, [indiscernible] in pockets, there's uncertainty in K-12 education. So it just sort of had a muted effect on bookings activity across the industry and frontline had a slower bookings quarter, but that's in the backdrop of high teens across the whole enterprise for enterprise bookings. Otherwise, I mean, governor contracting inside of Deltek remains muted as we expected it to occur with the BBB coming through and sort of not knowing what that was going to look like as well as the sort of hangover or lasting effects of [indiscernible]. But I said in the comments relative to Deltek, we think the big beautiful bill is what the industry has been looking for, for the last 24 months or so to unlock and sort of get things moving in given -- one, there's just a lot of spending in the bill relative to the government contracting. But more importantly or maybe equal as importantly, is the category of spend from civilian to defense. DoD, DHS goes from a relatively low spend where it's contractor spend to a higher contractor spend, so definitely civilian spending is a low contract percentage and defense spending is a high contract percentage. So it should be the unlocked. The timing is to be determined because there's still got to get contract and spending into the market, but it should be measured in a small number of quarters, hopefully.

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

I would say as you -- as we switch questions, I should conclude with, I mean, we're talking about this weren't getting ready for the call. We -- the call down to our businesses on the macro topic was our business units were cautiously optimistic coming out of the calls and and we are going into the call is not exactly sure we're going to hear, and we left equally a cautiously optimistic about the go-forward period.

And your next question comes from the line of Joe [indiscernible] with Baird.

I wanted to drill down on the high teens bookings that seems like a very impressive number, just given the year ago period was an inflection higher in its own rate. And it seems like maybe GovCon or frontline were not contributors to this quarter. So maybe the question is what did contribute to the positive trends and at this point given bookings have been better now for 5 quarters, I suppose. -- do you kind of have the backlog you need to inflect your organic recurring revenue growth closer to the double-digit level. .

Thanks, Joe. It's Jason. Yes. No, I think it was a very strong quarter. I think you were correct in highlighting the 2 areas of weakness that Neil alluded to was the Deltek and frontline. Otherwise, very strong. And we mentioned that Aderant had their biggest bookings quarter in history. They landed one of the largest ground to cloud conversions ever. So that was good. And then just strength across some of their AI solutions, cross-selling there. Health care was solid, I'd say, not spectacular or not above the range, but solid. So I think as we look into -- it really supports our second half guide. I think we -- as you know, a lot of the bookings activity tends to Q4, so that's playing more for '26. But this -- I guess after kind of a more -- a little bit more of a muted first quarter, having the high teens kind of supports where we thought where we'd be year-to-date. And so I think that's positive to get back on plan.

And then on AI, it strikes me even relative to last quarter. There's just a lot more happening, a lot more references to what the individual business units are working on -- do you maybe have a better sense of how that starts to impacts the P&L? How is it impacting like R&D spend? Are you getting engineering productivity through your own use of tools -- and then when might the revenue implications start to show up?

Yes. So -- this is the question. So we are definitively getting the internal productivity gains that you'd expect any company to get. 30% in one of our larger software businesses, 30% productivity gains in R&D, for instance, there's productivity gains across customer support, go-to-market, obviously, content generation. There's a long -- there's still way more to go get in that regard. And in fact, we have to do for our businesses where they're sort of re-underwriting or reimagining their entire business to be AI native. The first part of that is for the customer value chain sort of first, second, third derivative. The second part that's a fast follow is leaning in very aggressively on the productivity gains. In terms of when all this goodness hits the P&L -- there's -- it's small today. It's tens of millions in terms of ARR today, that's direct. AI native products that didn't exist a year or two ago. It's a multiple of that or -- it's hard to track but a multiple or 2 of that in terms of the pull along on the rest of the other tech stack, but we are fundamental believers that this is a compounding effect. There's a compounding effect in terms of the knowledge inside the business, the skill, the curiosity -- it's a compounding effect of availing the resources and the dollars, both from freeing up legacy road map work to this work and also just having the dollars gain that we talked about at the beginning of this answer, and then that begets compounding in terms of releases and revenue recognition. So it's going to be small for this year, and it will gain momentum and we get it next year. Like I said, '25 products, either in market or in development, that number is going to be much larger in 3 months. It will be much larger in 6 months, so much so that will stop giving you the number because it's everything is just going to flow together in terms of everything is just going to be a data, but we're super, super bullish and management fund to be innovating in this market right now.

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

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

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

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

I think it's a work in process, and I definitely don't believe that -- or we don't believe there's going to be a one size fits all. So we have products today that again, in these early days, you have AI products, particularly at Deltek that are part of the subscription that's driving an upgrade to the cloud, which is monetizing that way. That is certainly not going to be the long-term method for all. But that is clear and obvious for the customer base and that customer base right now. You have others that have sort of a subscription with sort of a consumption overage and then you have some better straight consumption. And so it's going to be bespoke to the business to the customer. But if I had to say we're -- there's one that there's a general, some gravitation too, it's going to be sort of a subscription with a consumption over the top of it, but it's hard -- it we're early days in this, but that's -- those are our initial thoughts.

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

Just 2 quick ones for me. My first one, I just want to follow up on the Deltek subject. And I guess what I'm trying to understand is -- if I look last quarter, it feels that you guys pretty much called out similar growth. So no change in the growth of the business from 2Q to 1Q. But you also talked to embedding some more conservatism in your outlook for Deltek last quarter because of all the uncertainties. So I guess what I'm trying to understand is, is Deltek just performing ahead of what you initially expected when you kind of set our expectations 90 days ago?

No, I wouldn't say that. I think we're just -- the beautiful bill is giving us -- I mean we had strong pipelines coming into that, but now you're seeing just more activity, especially in defense, which plays strongly to Deltek. I think the area that -- so we're more bullish, but I don't think it's a bullish for '25 comment. It's more about when we can actually get those orders secured from the customer. So we may -- there may be some upside in the fourth quarter depending on timing, but we haven't yet sort of contemplated that because it's just been a -- it's just been a very uncertain dynamic in that market.

Yes. And the upside would come in for Perpetual, which is in Q4. So that's obviously hard to predict at this stage. The other part is Deltek is only 60% GovCon, 40% is in professional services markets, and they have been -- that part of the business has been very strong throughout.

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

Yes.

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

Yes. No. So I think it's -- we feel confident in the ability to sustain the growth rates but improve the margin profile. And so I'm happy to get into that. But if that answers your question, I'll stop there. .

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

Feared as much. So just to give you a sense on the growth rate of the business. So face-based organizations churches are super early in their modernization or digitization, if you will. I mean, it's -- the TAM is only 50% served from a tech point of view. And really just now the technology is -- and the competitors and vendors in the space can sort of have a modern church management that manages the church manages the engagement with the guests as well as the closed loop donation donor sort of economics and sort of how that ties together in a single platform. So there is just a general wave that we get to ride there. Second is Subsplash, I would call it, really the second-generation technology platform that's in the market, so very similar to, gosh, decade ago with our strata business, where we bought the new tech stack, it has -- it's demonstrated its ability to gain market share in this growing market, which is why this business will continue to grow above the market at the top line. Now on the margin structure, there is -- the prior owner K1 did a great job from growing this business from a small business to a a slightly larger business but left lots of opportunity to sort of, if you would just generically call it, professionalize the business. Tim has done a great job running the business for sure, but there's opportunities in almost every part of the cost bar you look at cost of sales, go-to-market, R&D, the way you can improve the payments sort of what's underneath the hood relative to the payments infrastructure. So there's a dozen plus more levers available. We've underwrite to about half of those in the margin improvement where over the course of the next 3 to 5 years, it will look like not quite as high as the network margin, but meaningfully improve -- substantially improve from where it is. Final thing I'd say on that is, just to remind everybody, our strategy for the last couple of 3 years is to buy these maturing leader profiles, which this is just that. And so you get a business that is earlier in its life cycle relative to the [indiscernible] conversion and then they get the scale and other cost structure, which unlocks more value for our shareholders over time.

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

First question on the big beautiful bill, clearly, some impact on Deltek timing unknown. As we think about some of your other segments, are you guys -- have you guys thought through what tailwinds, headwinds might potentially impact some of the other sectors that you guys cater to?

Yes. So quite a bit, as you'd expect. So I think we've drained the Deltek, so I'll leave that unless you have follow-up questions there. Obviously, we have a lot of exposure to health care, but whether it's all indirect to the payer to Medicaid, it's all -- everything is indirect, obviously, we serve providers of health care either through health care IT or with medical products. As you dig into sort of what the 10-year Medicaid sort of impact is going to be roughly 12 -- the estimate is roughly 12 million people who roll off of Medicaid, but somewhere between $5 million and $7 million of those will go on to some other commercial or ACA coverage. So the net effect of total dollars is going to be -- our estimate is flat to up over this period of time. So we would expect there to be minimal, if any, impact, call it, just neutral for our franchise. Final thing I'd say I've been around health care IT for my entire career, 25 years or so. And the 1 constant is there's always reimbursement pressure on the providers, whether it's commercial, Medicaid, Medicare or whatever it is, and it's just a way of life. And when you serve that community, if you do 1 or 2 things, you generally are going to be in a good spot, which is if you deliver a tangible hard dollar ROI, which essentially all of our health care IT assets do or if you deliver a clinical benefit that is unique and compelling to which every one of our medical product businesses do. And so it's sort of a neutral. And then on K-12 and higher ed, we would call that neutral-ish as well. Certainly, K-12, there's very -- there's small dollars that are tilting towards private, but for the larger K-12 public enterprise, it's largely a nonevent. And on higher ed, it puts more pressure on -- on performance, if you will, for the higher ed institutions, which into the theme of our Transact investment, which is better engagement of the students so they can attract the students and retain the students, which is exactly what our software and capability does there.

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

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

Yes. So just to frame Aderant and so everybody understands it doesn't paint too broad of a brush with legal tech. Aderant is in the business of law, not the practice of law. So think about in their principal go-to-market AI-based products right now are on the concept of how you automate and streamline time entry to cash collection and substantial gains still gains to happen on the technology and product side. So we just [indiscernible] over 8 or 9 years has been the clear market share winner, I mean, going from 30% to 55% market share, plus or minus, the largest law firms in the world and there's a large move to cloud that is still happening there, which is driving the bookings. But let's make no mistake about it. Aderant has the technology halo in the market right now on the business of law period full stop. Final thing is the largest law firms are winning in the market, right? They're gaining share, and so we're riding along with that as well.

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

Neil, Jason and

Yes, sure. So ProCare, the first year was mixed. In the first year, it underdelivered on our expectation on growth, there's more like a 10-ish percent grower with our expectation of 15 -- the root causes of that are known and already countermeasure, and you alluded to some of them. So it's been a complete change of the leadership team to be more growth oriented, to be more process-oriented. So there's a new CEO, CFO, CRO, CTO, right? So that's -- those are the leadership changes. So what's happened as with all the leadership changes is the go-to-market is massively improved where we are winning in the market and the principal competitor is not. So that's a great outcome. . The product -- the customer support, there's a great lean Kaizen event on to solve customer support tickets more quickly about 6 or 8 weeks ago, already having an impact. And so you're seeing a rotation there. We expect that by the way, that for the second half of the year to be back on slope of 15% mid-teens organic growth for the reasons they cited. So I feel very good on a go-forward trajectory. ProCare -- it was just a little worse than we thought early on. In terms of attach of payments, it's been solid. Help me -- keep me honest, Jason, and it's 75% plus or minus range, right? So that's been a consistent tax rate and also, I'd say payments, another thing I would say -- the whole payments apparatus has improved from a functional -- operational point of view in a period that we've owned them as well.

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

Yes. So there's a long answer, which we can all spare everybody with. The short answer is we think these are -- the connecting the meter to cash is a unique, compelling and really -- Neptune is only one playing running that strategy. We think it's highly, highly compelling, especially in the segment of the market where Neptune competes in wind, which is a long tail of smaller municipalities, where they want to have a single vendor that stitches all this together in that compelling way. And then when you put in -- once you have that, then you can do leak detection and you can help them engage with the municipalities engage with their end customers with more automation and more perhaps AI-based communications, we'll see what that looks like. It's very early days. And so we're competing and winning today based on the strength of the go-to-market channel and the product that we have, which we would make -- we would claim very aggressively that we have the best static meter from from a readability point of view. And in the future, we expect that to pick up, but it's going to -- the growth to pick up, but it's going to take some time for this to fully get into the market.

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

When -- just based on your comments on ProCare that you just gave, like when you reflect on that, like how do you kind of prevent similar things from happening. I know they're totally different markets. But like when you look at Central REIT Subsplash now that you're going to bring on board, like how do you kind of prevent those things before they start.

Yes. So I'd like to ask Jason to add some comments to this when I'm done. So we learned a lot in the ProCare maturing leader. I think at the end of the day, this is -- we had Jason, we had Janet who leads our capital deployment. We had Shannon, who is here with us on FP&A and our group executive sort of in weekly and every other weekly meetings and we saw some of these challenges occurring and some of which we move very quickly and some of which we weighted. And I think the #1 learning is you just don't wait. -- right? It's the #1 learning is simple. And it's so fundamental the learning is that is. It is true, and we've observed it. And so and transact or Subsplash or sensor reach to the extent we see something we're just not going to wait in the early ones. . The other -- but I'll let you take it from there. Anything you want to add, Jason.

Yes. No. I think it starts in diligence, and we have now, I think, staffed up appropriately in certain areas where if we don't see the proper telemetry on the business or just some of the infrastructure we can help the business sort of illuminate that so that we can have conversations that will drive actions quicker. And so that was another key learning at ProCare. And so we've got a pretty rigorous schedule and execution plan on every deal. We have -- we thought we had one with ProCare, but now as you learn, you fine-tune that a little bit more. And since then, via Transact or central reach, we've had a much smoother integration. Both of those are tracking really well on our value creation plan. And so good lesson learning for us.

One thing I'd say on that is when we did our post-[indiscernible] Procare the Board the last board meeting, we summarized it in that we got the slope right -- so the market, the market growth, the competitive intensity, the competitive positioning, the number of jump balls, the the right to win in payments. All of that is the slope of the forward growth rate, we got exactly right, if you will, slope. The INTERCEPT, we got wrong, right? And so the good news is the INTERCEPT of things that are 99% in our control about the way you operate the business. And so I just want to give you the context, let's stride into what we did, but it would be harder and be a bigger issue if the slope is wrong. If we got something wrong about the market growth rate or the competitive intensity, but that is all fully intact.

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

Yes. So just to give you some sense of the market size or the market that's about a $2.5 billion market for software, like I said, about half served. In terms of church attendance, call it flattish over a 20-year period of time. The last 2 or 3 years is up low single digits, but all we've sort of assumed just flattish church attendance. And this is all U.S., I should say. We -- the number of faith-based organizations, the number of buildings is actually up a couple of percent. And then giving is actually up about 4% or 5% over the last 10 or 20 years. And then on top of that, then you have the digitization going from essentially no technology to manage, operate, engage with the congregates to now starting to do that. And so that's why you have a sort of, call it, 9-ish percent growth rate in the market and then and then the ability for this company to compete and win on top of that, which they've been -- what they've done for the last 5, 6, 7 years. So there's a lot of penetration to still happen there. The import also relative to the competitive intensity, there is engagement technology, which Subsplash really created, invented is a clear market leader. When you engage, when you use modern day engagement technologies, and this is more than just websites and live streaming, for churches, then you find there's a 15% increase in donations when you engage the [indiscernible] that way, which then loops in the ability to drag along the church management software and other elements into the single stack. So lots of good flywheel effects here that the company has demonstrated in their most recent history, and we've underwritten to going forward. Final thing is something like 50% of donations and churches are still cash and check. So there's still a large dentition of payments as well.

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

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

Yes. I think it's the first big opportunity for us is there's a managerial synergy, if you will. We've got an amazing leadership team [indiscernible] and the businesses are essentially the same 1 in the Canadian market, 1 in the U.S. market. So we just get a network- oriented leadership team thinking about the network is one. Two, is a cross-border U.S. to Canada and maybe in the future U.S. to Mexico subtlety in the freight matching business, which we'll be able to better manage in -- when we sort of have the businesses together. In terms of the actual network, the underlying technology itself, that's -- we're sort of taking a wait-and-see approach on that. I mean the 2 markets, the 2 networks fundamentally operate -- they very, very well today. DAT in the U.S. is extraordinarily busy and an exciting way integrating the trucker tools transaction, the [indiscernible] transaction and executing the monetization strategy. So as you know, essentially every broker and every carrier in the U.S., North America is on the DAT network, and we monetize both sites to a subscription and now we're going down looking at the value stack of a carrier, in this case, factoring. We have that captive now in the DAT and we have partnerships, for instance, with legal services and fuel cards. On the broker side, you look at what their -- what we can do to help them, it starts with tracking trucker tools, and there's other things that DAT is working on. And so you have that sort of U.S.-centric oriented that port a market over time as well. So it's really per playing the longer the medium to long game here, Deane, versus some short-term synergy play.

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

Yes, Deane, I'll say what we've said publicly for the better part of 2.5 years, which is it was really just November of 2022 when this -- the current portfolio came into existence when -- and as you know, the driving force behind divesting TransCore and

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

I just want to follow-on on kind of Deane's question but in a different way. What -- when you think about the structural change that has occurred at Roper, which has been pretty meaningful in the last few years, -- what do you -- what would -- and now you include sub Splash, which seems like it's a pretty interesting deal. But -- what do you think your core growth rate or kind of entitlement growth rate has changed kind of, I don't know, just say, 2022 to 2026.

Yes. So our -- the portfolio that in the Thanksgiving of 2022 time when we snap the top line with the divestitures, we talked about the the historical growth rate of that portfolio was somewhere in the 6%, 6.5% range. We believe that we have improved the sort of through cycle, if you will, sort of the minimal cycle that we have, puts or takes in a given year to be in the 7%, 7.5% range. We said that for the last couple of years. This isn't any guidance to this year, next year, this is sort of through year-over-year, so people aren't confused. . And the art the possible is in the mid 8s with this portfolio. Then as we buy businesses that are growth accretive, Subsplash is something like 15 basis points growth accretive organic. I think [indiscernible] each was 30 or 40 basis points, something like that. Then it either, a, provides a hedge, so I just said or b, provides an opportunity to stack on top of that. So that's -- I hope that answers your question, but happy to clarify anything I just said.

No, that does answer it. And then look, there's been a lot of questions on Subsplash. But just to be clear, with I'm not asked for an exact number, but within your deal model, are you assuming the Subsplash should be somewhere around segment average EBITDA margin year 5-ish, -- does that sound about right?

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

And this concludes our question-and-answer session. I would like to turn it back to

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