Good day, everyone and welcome to Roper Technologies Second Quarter 2019 Financial Results Conference Call. I'll remind you that today's call is being recorded. And now I'd like to turn the conference over to Zack Moxcey..

Good morning and thank you all for joining us as we discuss the second quarter financial results for Roper Technologies.

Joining me on the call this morning are Neil Hunn, President and Chief Executive Officer; Rob Crisci, Executive Vice President and Chief Financial Officer; Jason Conley, Vice President and Controller; and Shannon O'Callaghan, Vice President of Finance. Earlier this morning, we issued a press release announcing our financial results.

The press release also includes replay information for today's call. We have prepared slides to accompany today's call which are available through the webcast and are also available on our website. Now if you'll please turn to slide two. 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 slide three.

Today, we will discuss our results for the quarter primarily on an adjusted non-GAAP basis. Reconciliations between GAAP and adjusted measures can be found in our press release and in the appendix of this presentation on our website.

For the second quarter, the difference between our GAAP results and adjusted results consists of the following items; amortization of acquisition-related intangible assets, purchase accounting adjustments to acquire deferred revenue, transaction related expenses for the foundry acquisition and lastly and adjustment to the income tax expense related to the gain on sale of our Scientific Imaging businesses.

And now if you will please turn to Slide 4, I will hand the call over to Neil. After our prepared remarks, we will take questions from our telephone participants.

Neil?.

Thanks, Zack, and good morning, everyone. As usual, we'll start with our second quarter highlights. I'll then turn our call over to Rob to discuss our financial results. I'll then walk us through the segment details and outlook, followed by our Q3 in 2019 guidance, then we'll open it up for Q&A. Next slide.

We had another very strong quarter here at Roper. Revenue grew as expected, margin execution was strong and operating cash flow increased 13%. It was nice to see gross margins expand 90 basis points in the quarter increasing in both of our product segments.

And we always like to see leverage down the P&L with EBITDA growing faster than revenue and cash flow outpacing that of EBITDA. Our software segments continued their strong momentum led by 6% organic growth and our network systems and software segment which saw broad based growth highlighted by DAT, iTrade, MHA and SoftWriters.

Application software grew 2% despite a difficult comp against Deltek significant perpetual wins a year ago. Deltek continues to win in the marketplace with bookings up double-digits and SaaS adoption accelerating in the quarter.

Growth in our Measurement & Analytical Solutions segment was led by high-single-digit growth in our medical product businesses as new products gain traction following recent investments. And Neptune strategic concepts continued with another solid quarter of growth.

However, this was partially offset by expected decline to contain and a short cycle pause late in the quarter for industrial businesses, which represents approximately 8% of our annual revenues. We will discuss this later in the call, but we're maintaining a cautious stand and not assuming investment improvement in the second half of the year.

Process technologies continues to do an impressive job executing through expected declines in oil and gas market. As many of you know, we closed the Foundry transaction in the quarter and onboarded the company into operating and governance model or very early things are off to a good start.

And finally, our acquisition pipeline is quite active, and our balance sheet positions are exceptionally well to deploy capital in the second half. I'll now turn the call over to our CFO to walk you through our consolidated quarter results, Rob..

Thanks, Neil. Good morning, everybody. Turning to page six, I would like to recap some of the numbers behind our strong second quarter financial performance, starting with revenue, revenue was 1.332 billion in the quarter, an increase of 3% and organic increase of 2%.

This was right online as Neil mentioned with our internal guidance model coming into the quarter. We had organic growth in three of the four segments, the one thing that was down was our process technology segment as expected against the very difficult plus 20% comp last year.

Margin expansion was very strong, so gross margins increased 90 basis points to 64%, EBITDA increased 5%, EBITDA margin up 70 basis point. So, really good margin expansion for the quarter, probably a little bit better than we had anticipated coming in.

So that all adds up to DEPS for the quarter of $3.07, which was a 6% increase over last year and a little bit better than our guidance coming in as $3 to $3.04. Next slide. Turning to asset-light business model slide. We will look here the net working capital as a percent of the Q2 annualized revenue, so slightly different view this quarter.

Looking back over the past six years of the trend to give a little bit of a perspective and what's been going on with working capital here for Roper over a long period of time. So, if you look back and compare June 2013 quarter to the June 2019 quarter, you will see our inventory is down 200 basis points to 4.3% of revenue.

Receivables are down 240 basis points to 17.3% of revenue, payables down a little bit to 10.5%, but deferred revenue up 680 basis points to 13.5% and if you add all that together you see this consistent negative working capital we talked about at Roper at minus 2.4% for the quarter and that over a thousand basis point improvement versus the same period in 2013.

So, we really believe the negative net working capital accelerates our cash flow compounding. Next slide.

Speaking of cash flow compounding, excellent cash results in the quarter on page eight, Q2 operating cash flow of 301 million now is at 30% increase versus prior year, the free cash flow was 286 million which represented a 14% increase versus prior year.

So, if we look now at the trailing 12 month 1.51 billion, certainly a record plus 23% over prior year 12-month period and representing importantly 28% of revenue. If you look at the first half of the year, we are up 15% on cash flow that were certainly on pace for continued double-digit compounding at Roper. Next slide.

So importantly, due to the strong cash flow performance, we really see exceptional deleveraging over the past year, so in between acquisitions, we generate a lot of cash, we paid our debt very, very quickly that we're always well-positioned to make the next acquisition and deploy capital.

So, if you look at the past year, gross debt down $900 million from 5.6 billion down to 4.7 billion, Net debt is down 800 million from 5.2 billion to 4.4 billion. The TTM EBITDA is up $191 million and you can see year gross debt to EBITDA is now down to 2.5 times, net debt to EBITDA is was down 2.3 times.

We recently were upgraded at Moody's which we're very happy to see, we also have a BBB plus rating at S&P. So, we really are exceptionally well-positioned as we sit here today to continue our disciplined capital deployment and really take advantage of the of the very high-quality pipeline and acquisition opportunities that we have in front of us.

So, with that, I will turn it back over to Neil..

Thanks, Rob. Let's go and turn to our application software segment. In the quarter, the segment represented 29% of our revenue and revenues came in at 391 million, which was plus to organic and EBITDA was 155 million, which represented 39.7% margin.

Starting with Deltek, we saw a continuation of a few trends that we've discussed over the past several quarters. First, we saw an acceleration in bookings and recurring revenues as a result of an increased mix of business towards Deltek SaaS offerings. In fact, in the quarter, Deltek signed their largest Vantagepoint's SaaS contract.

As a reminder, Vantagepoint is Deltek's new enterprise software offering targeting professionals service firms. Also, the business continues to see a nice balance of activity across their two macro end markets, professional services and government contract.

To remind you, Deltek had a very difficult comp given a very large volume of perpetual deal signed a year ago. Adjusting for this, Deltek grew their bookings double digits in the quarter. Deltek team continues to execute exceptionally well.

Aderant experienced double-digit growth, as a result of continued share gains in the adoption of their newer staff solutions targeting law firm. As you may note, we've highlighted Aderant’s competitive strength over the last several quarters.

Over that period of time and since 2015, Aderant has added approximately 40,000 timekeepers to their core platform, roughly 30,000 of which have been competitively won from their largest competitor, Deane and her team at Aderant have done and continue to do a great job.

At PowerPlan, we saw nice increases in recurring revenues based on continued strong retention rates and an expanding customer base. Importantly, the PowerPlan team is working aggressively and systematically to increase the volume of new pipeline ads and their sales funnel.

This is particularly important following the regulatory driven increase and license implementation revenues following the new lease accounting standards. Also, we saw nice increases again at CBORD with excellent cash performance.

As a reminder, CBORD is our software business that delivers integrated security and payment solutions to higher education and health care campuses.

Finally, Strata log another great quarter based on very strong renewal activity, the adoption of their new products and continued market share gains for their cost accounting and Decision Support SaaS products for hospital market. As we turn to the outlook for the second half, we continue to expect 4% to 6% organic increases for the segment.

The comps for Deltek will normalize in the second half and we expect the segment's organic growth to be slightly better in Q4 versus that of Q3. Next slide. And turning to our Network System, Software & Systems segment.

This segment in the quarter revenue represented 28% of Roper’s revenue and revenue was $368 million which was plus 6% on an organic basis. EBITDA was $159 million, which represented a margin of 43.2%. The quarter was highlighted by continued growth at both of our freight match businesses, the U.S. and Canadian markets.

In particular, we saw strength and demand for our rates data offering. MHA’s performance in the quarter was highlighted by several strong trends.

To remind everyone, MHA is the largest group purchasing network for the non-hospital market, with leadership position and long-term care of pharmacy, long-term care of facilities and home infusion marketplaces. The team continues to win the market share gain relative to on-boarding new and started pharmacies.

So, nothing new here, and a good job by the go-to market team. Importantly in the quarter, MHA started to see the benefits of increased customer purchasing volumes due to several new pharmaceutical products being on contract.

Also, pricing appears just stabilize and the businesses food and nutrition portfolio grew nicely into quarter in the mid-single-digit range. Additionally, our Pharmacy Automation and Workflow Software business, SoftWriters had a very nice quarter continuing a trend.

This is an example of a wonderful software business with network effects and network financial benefits. This is a business that develops and deploys the core pharmacy automation workflow software that closed door or non-retail pharmacies use in their day-to-day operations.

The economics of this business and for our customers are unlocked as they cross-sell the recurring revenue transactional products, specifically electronic claims submission and e-prescription.

So, as this business adds more and more pharmacies to the customer accounts, their economic model expands at a more rapid pace as the recurring revenues accelerate. Nice job by the team in Pittsburgh. iTrade grew high single digits in the quarter based on strong renewal activity and an increase in trading partner growth.

Over the last couple of years, the team at iTrade has worked to structure their business model and customer contracts or iTrade benefits from volume increases from their trading partners and we saw the benefits of this in the most recent quarter. Again, we saw strength at RF Ideas, in fact a record quarter for the business.

The strength is based on continued adoption of RF Ideas core reader technology in the secure print and secure sign-on marketplaces. At TransCore, the quarter is marked by an exciting new product release. TransCore’s proprietary integrated toll technology and partnership with Gentex was released in rearview mirrors and Audi's new electric SUV.

Currently other OEMs are evaluating the technology and considering timetable for a potential adoption, or very early this is another example of great innovation by Roper business. And before we return to the outlook for the segment, we wanted to briefly discuss our most recent acquisition, Foundry. We closed the transaction during the second quarter.

Soon after, we had the opportunity to onboard the team and do our normal introduction to our governance model and CRI framework. Also, we're excited to announce that Jody Madden, previously Foundry’s Head of Product was named as our CEO.

Jody is perfectly suited for this role, given her long history in the visual effects industry, as well as her specific history with Foundry. So far, it has been a very easy transition. Importantly, Jody was able to successfully close a couple of very large planned transactions with customer prospects in early days of our new leadership role.

Congrats to Jody and welcome to the entire Foundry team. Now turning to our outlook. For the second half, we continue to see 4% to 6% organic growth for this segment. Role of TransCore, the new project pipeline remains robust, although it's difficult as usual to forecast the timing of new project wins and implementation timetable. Next slide.

Our Measurement and Analytical Systems segment in the quarter represented 31% of Roper’s revenue. Revenue for the segment was $408 million which is plus 2% on an organic basis, and EBITDA came in at $140 million, which represented a 34.3% margin. Neptune had another record quarter.

Neptune strategy is rooted in customer intimacy and product innovation continues to help Neptune systematically gain market share in the North American market. NDI had another great quarter. This quarter strength is rooted in NDI's electromagnetic and optical measurement systems used by several OEMs in surgical applications.

Dave and his team in Waterloo continue to do a terrific job. Verathon Growth was led by increases in our glide scope consumables recurring revenue and demand for the next generation bladder scan systems.

The Roper Board of Directors is looking forward to a site visit at Verathon during the upcoming September board meeting and seeing all the progress the company has made for the past couple years.

Our CIVCO MMI our Multi-Modality Imaging business located in Iowa City had a very nice quarter that was highlighted by strong execution in their ultrasound guidance and infection control markets. CIVCO's ultrasound guidance products have extremely high levels of intellectual property and meaningfully aid doctors and ultrasound assisted procedures.

Our particular interest is CIVCO's most recent innovation regarding infection control. For many years, CIVCO has been a market leader in providing covers for ultrasound assisted surgical procedures, namely image guided biopsies.

One of the risk factors of these procedures is the risk of cross contamination of the gel that is used for ultrasound conductivity. Well, the smart team at CIVCO appears to have solved this problem. They created the first ever an IP protected solution that does not require gel in ultrasound guided procedures.

The team is just launching the product in North American and Europe, and congrats to the team on its innovation. And we look forward to working with the team to make this become the standard of care.

Our industrial businesses, which are about 25% of this segment’s revenues are impacted by a short cycle pause late in the quarter and down mid-single digits. Strewers [ph] really all of over industrial businesses from a slowdown in the second half of the quarter, due to project push outs and consumable destocking.

As such, bookings for this group were down high single digits in the quarter. Importantly, this group did a very nice job managing margins and cash flow in the quarter. Gatan declined in the quarter as we expected. And as we have announced, the agreement to sell the Thermo has been terminated over regulatory concerns.

As we turn to the guidance for the second half, we see organic revenues increasing 1% to 3% for the segment. Our medical products and Neptune businesses which are roughly 70% of the segments revenues are expected to increase mid-single digit plus for the balance of the year. For a shorter cycle industrial business again 25% of the segments revenues.

We expect these businesses to be down high single digits for the second half of the year. This assumes the late second quarter industrial slowdown continues for the balance of the year. And for Gatan and given the Gatan sale of Thermo was terminated in the quarter. We have now included Gatan in our full year and second half guidance.

Specifically, we’ve added approximately $0.20 of DEPS to the second half. Also, we expect to be modest organic decline for Gatan given the record 2018 comps. Finally, we have reengaged a sale process for Gatan. While early in the relaunch process we received strong interest from many parties.

Gatan is a very good business with an exceptional management team. We’re committed to completing the sale process with Gatan but if we do not receive compelling economic and contractual offers, we look forward to owning Gatan over the long-term, engaging with Saunders [ph] and his team and investing for its long-term success. Next page.

As we turn to our process technology segments in the quarter, the segment represented 12% of Roper's revenue, revenue was a $164 million which was down 5% on organic basis. EBITDA was $60 million, which represented an amazing 36.6% margin.

Our upstream oil and gas businesses declined as expected against a very challenging comp which was plus 20% from a year ago. That said, the business has executed very nimbly in the quarter and drove outstanding margins across the segment. EBITDA margins were up 200 basis points in the quarter.

Role of CCC, we continue to see strength into our LNG product pipeline. Finally, Metrix delivered a record quarter based on strong demand for their vibration monitoring systems and controls across multiple end markets. Turning to the outlook.

We see minus 1% to 3% organic growth for the segment for the balance of the year and do see easing comps in Q4 versus Q3. As we have discussed, the potential for upside may exist based on expanded takeaway capacity and or higher oil prices, but we have not assumed this is going to happen in our outlook for the second half.

Now let’s turn to our guidance update. We’re updating our DEPS guidance to a range of $12.94 to $13.06 compared to our prior guidance of $12.70 to $13. This increase to our guidance range primarily relate to the inclusion of Gatan, which we expect to add approximately $0.207 to second half DEPS.

Given the dynamics around the divestiture process, we do expect there to be greater than a normal variability in Gatan’s second half results. Our DEPS and organic growth guidance assume that the short cycle industrial pause that we saw late in the second half continues for the remainder of the year.

while recent trends may just be a soft patch, we do not have visibility into the second half recovery for our industrial businesses. And more importantly, we do not want our business leaders to assume a bounce back occurs.

Accordingly, we are lowering our revenue assumptions for those businesses and expect our industrial business leaders to focus on continuing to deliver high margin and strong cash flow. Should industrial trends improve, our guidance for those businesses could prove conservative.

As it should be clear from the content of our remarks on this call, the vast majority approximately 80% of our enterprise continues to have strong momentum, growing roughly 5% on an organic basis. Rolled up to our tax rate, we assume the rates for the second half to be approximately 21%.

And finally, we’re establishing our Q3 adjusted DEPS guidance to be in the range of 3.16 to 3.20. Now let’s turn to the Q2 summary. We saw great execution and cash performance across the enterprise. EBITDA increased 5%, margins expanded, and free cash flow grew 14% in the quarter.

Importantly, our CRI discipline improvement business models continue to provide a scale platform for long term to systematic growth. Now turning to capital deployment. First and as the primary source for our capital deployment funding, our excellent cash performance will continue.

With leverage approaching two times trailing EBITDA, our balance sheet is very well-positioned to be offensive.

Through the extent we’re able to successfully complete the sale of Gatan, we will be even better position to accelerate our cash flow compound, also it is nice to see the Moody’s upgrade, the BAA2 and a sustained S&P BBB plus ratings for a bond.

Rolled to the outlook for acquisitions and our pipeline commentary, we continue to see a very large number of very high-quality assets. We’ll always remain patient, but we are very active in maturing a number of opportunities in the pipeline.

Importantly, it’s always good to remind everyone that our CRI orientation and M&A processes help us identify and execute on the very best acquisition ideas. Now as we turn to questions, I want to remind everyone that we do is very simple. We compound cash flow.

By running a portfolio of operating businesses that have market leading position and niche industry. We provide the business leaders with Socratic coaching about what great looks like relative to strategy, operations, innovation and talent development. We incent our management teams based on growth.

We have a culture of mutual trust and transparency and finally, we take our excess free cash flow and deploy it to buy businesses that have better cash returns than our existing company. These simple ideas deliver powerful results. Now let's go and turn it over to the questions..

Thank you. And now we'll begin the question-and-answer session of the call. [Operator Instructions] And moving first to Deane Dray at RBC Capital Markets..

Thank you. Good morning, everyone..

Good morning, Deane..

Good morning..

I don't normally have the opportunity or the responsibility of asking you about short cycle industrial softness in the quarter is just, it's not typically something that we're talking about, but it's presenting itself here.

So, can you provide some more color on the, kind of the cadence in the quarter the push out some of the destocking? And what visibility do you have? And if you can get it by business that might give us some context? And start there, please?.

I'll appreciate the question. I'll give you some thoughts and ask Rob, if he has any additional. So, its first say, we got to note that we're, it's 8% of our business, it's 6 or 7 businesses over 45 that we're talking about. And we're maybe not the best read across to other things. But I'll tell you what we saw. So, April was just fine.

Really no issues there. May saw a little bit of weakness and June saw a lot of weakness. Interestingly, it was across really all of the industrial businesses that we have, it was across geographies Europe might have been a little bit weaker than North America, but nothing discernible.

And really, across different various end market it was an isolated to one end market. What we think, what we saw also was projects push, and then a bit of consumable or spare sort of destocking, right. So, it's really across both the capital piece and the recurring piece.

Interesting, the first three weeks or so in July, we saw a pretty meaningful recovery. But we don't yet know enough, if that's just a bounce back from June or if it's -- or what the real root cause was, for a while we saw the declination across the quarter.

It was window dressing for the quarter or if it was something around trade, tensions or something -- some folks waiting for lower interest rates, we don't yet know the root cause. And so, it's just a little too early for us to call a specific direction. So, we chose to be what we think is relatively concerted here.

So, we saw down mid-single to the second quarter, our assumption is down high singles for the balance of the year. And we're managing the businesses assuming that that occurs, right. We don't want our leaders in these businesses to get sort of caught assuming a recovery and then it doesn't happen, then you have a margin problem.

So, that's a bit of the color. And if Rob if you want to add any additional..

Yes. Sure. So just a clearly sighs that as Neil mentioned that 8% of the company's revenue about 25% of that segment. So, this is not included in Neptune. Neptune continues to grow, it exactly the same sort of mid-single digit plus, it's just the businesses that Neil mentioned. So, the bookings were down sort of high-single-digits.

And therefore, we're assuming the second half of the year is high-single-digit declines where we used to have flat, so it's about 25 million of revenue that comes out of the second half. That's really the only sort of change in the entire company and what we're seeing at this point versus three months ago,.

It's helpful. And if I'm looking to calibrate how the slowing on the organic side ripples through into your guidance. Just to make sure, I've got the right pieces here. Gatan adding back $0.20, it looks like the tax rate a bit lower is adding $0.08 versus our estimate.

So then when I look at the midpoint raise, it does look like there is a second half lower operating guidance. It's something in the high teens sense if that's right and maybe try some context there..

So, the tax rate is slightly lower that’s offset by higher share count, little bit higher interest, we are losing some proceeds from Gatan that impact to interest. So, those other things sort of cancel each other out is really around $0.10 on industrial is the big change..

That's helpful. Just last one for me on Gatan, was there any loss of momentum in the sales process.

You mentioned some slowing, but it sounds like those were tough comps, but is there any momentum loss in the business as it's brought back into Roper?.

So, the team at Gatan really should be applauded for how well they executed and performed over what has been a really long drawn out 18 months, 12 to 18 months process here, The business performed amazingly well last year with sort of new product cycle and as expect with Gatan, it sort of drive up a new product cycle and you moderate a little bit and you drive up on another product cycle.

So, we're just in that moderation phase, but the team is just I mean A plus across the board with the distraction of sales process, which was immense and given sort of the CMA sort of process here in the last six months.

So, great, great remarks to the team there and were certainly - add momentum to try to re-market the process, the business now and have a better outcome..

And I would just add, they did perform very well in the second quarter. So good performance..

Thank you..

Thank you..

Thank you. Moving next to Robert McCarthy at Stephens.

Sir?.

Hi, guys. Good morning. Sorry, I'm about jumping from call to call, but I guess the first question is building on Deane's excellent questions, in terms of the short cycle, you are not planning for any kind of contemplated balancing guidance here. You're telling your business heads to kind of focus on cash and margin, which is sensible.

You said I think six or seven of your segments are really - are your companies within the broader of it, are kind of affected, I mean have you highlighted the past exactly which one of these segments or sub-segments these are and could you just kind of highlight what you're seeing with that kind of level of granularity..

So, it's the thing I should have mentioned related to Deane's question is, the Strewers, alpha, it's Danisco, it's Hardy [ph], I mean there is four or five other that are much smaller but the trends and I just talked about are consistent across all of this, they are not isolated to one.

It was very consistent read across our seven or eight companies here on the trends that we said, but it’s the industrial complex that 8% of revenue that we have..

And then with respect to Gatan, I was under the impression that there were not that many natural buyers or potentially, I guess private equity.

But could you talk about the fact that you think you've got a lot of interest because that doesn’t square with what I have heard maybe I’m just an idiot, but I will leave it there?.

We know what Gatan is right, it’s a clear market leader, it has great growth prospects of a longer time, it's got a great team and amazing cash flow and so, as a result, there is a lot of people that are interested in a business like that, strategic and sponsors alike..

Okay. And then the final question is you know, I was going to ask about obviously, the Foundry acquisition.

It sounds like you answered the question, it sounds this elevation of - is it Jody Madden that you've kind of taken the key man risk or the key creative soul risk out of the equation, because obviously you think about companies with this nexus of technology and entertainment.

You think about Steve Jobs or Jim Hansen or whoever the case may be, you don't want that person walking out the door, I mean would you say she rises to that level when there are other people within the company or the organization that you've made a real strong push to just retain because obviously at the end of the day.

This is probably much more of a human capital business than some of the others?.

Well, first I would say Foundry really like all of our software businesses is just a really boring software business, right. The great software that enables creators then do amazing work. Right. We're not the creative part of the ecosystem or supply chain and visual effects, we're the enabling toolkit that allows that to happen.

Sort of maybe the first statement that’s highly consistent characteristics with really every Roper business, not just the product software businesses, but the product businesses.

The team, I think we mentioned last quarter that the totality of the Foundry team that we met in the diligence process and confirmed here in the first little bit of ownership, the breadth of that team, that depth of that team is quite strong.

And when we sat down and did the onboarding and started to engage with the team about our long-term orientation, multiyear product strategy, multiyear go to market strategies. It just became very clear to the incumbent CEO, Jody, ourselves that the most natural fit for the long-term success inside of our framework was Jody. And she's, she's fantastic.

She's for the last four or five years has been the face of the company relative to the product. And we're expecting her to do great things with the business..

Thanks for entertaining my questions. Congratulations for a great quarter..

Thank you..

And we'll go next to Christopher Glynn at Oppenheimer..

Thanks. Good morning. I had a question about some of the pipeline dynamics that seem to come up a lot where, you have kind of a surfeit of actionable deals, but opportunity cost dynamics are always at play. I'm wondering how that works as a partial gate to timing of deal flow.

And as a curiosity, when was the last time you had kind of an air pocket and actionable pipeline dynamics?.

I've been at Roper for eight years, and I cannot recall a real air pocket in terms of the pipeline. I mean, it's always a steady drumbeat, multiple deals, presented at near final stages to our board, five times a year. I mean, so air pockets or? I can't recall, I'm looking at Rob he, he's agreeing with me.

Relative to we're always to your first question about opportunity cost. I mean, this is a very, it's a debate we have on every transaction, right? You're coming across one that it looks really good, right? It has all the characteristics, we look for niche, leadership, great team, accretive CRI, accretive organic growth rate you know the list.

And or like and the price might be X and are like, that really looks good. But is there something better that's just right around the corner. So, we're always having the opportunity costs discussion. And it's one of those things that that we've sort of honed over the years, and we do the best we can relative to that decision.

It's obviously an opportunity cost decision. One, where we don't have perfect information about what's around the corner. And then we're always steeped in what gives us real confidence. And ultimately, everything we do is we're just steeped in the cash return methodology.

There's always that buffer built in day one when we buy a company relative to the values created for shareholders. And so that's at least how we think about it. Rob, you want to add any color to that..

No, there is always an opportunity. And it's just a matter of finding the best deals at the right price and getting them done..

Okay, thanks. And then follow up is on TransCore, the product implementing without you. That seems pretty groundbreaking for TransCore, maybe I'm wrong.

But could you elaborate on that thought?.

Well, hey, it's very early. We got a great partner in Gentex, right. They are the clear market leader in the smart mirror technology. And so, it's been a nice collaboration with them. But yes, I do believe it has the potential to be groundbreaking.

You know think about cars 10 years ago, or five years ago, you didn't have auto sensing, lane departure systems and whatnot. Now, they're almost standard. So, I don't know if this technology becomes standard like that, but it's certainly our hope that it would. And it's great to have Audi as the first partner.

There is a lot of work that had to be done not just in the technology that goes in the car, but also how you deal with intra-tolling agency and customer relationships and how you deal with the billing and, and that's all been figured out by the partnership between TransCore and Gentex.

It’s super early, but we certainly thought it was exciting one of the highlights for everybody today..

Sounds good. Thanks..

Thank you..

And we'll go next to Barclays and Julian Mitchell..

Hi, this is Jason [ph] on for Julian's. Good morning..

Hey, Jason..

Maybe just a question on the Gatan add back guidance. It was sort of our impression that the annualized Gatan divestment impact would be closer to $0.60 of EPS adding back 20 just kind of wanting to reconcile the difference there just sort of the half year basis seems like it would be closer to 30.

Is this sort of seasonality of earnings or are there other dynamics that plays of just lowered organic sales growth outlook? Even just as we're modeling for 2020, et cetera?.

I think you have too high of a number for Gatan, full year of Gatan would be. So, this is consistent with sort of what we saw for the year all along. There's certainly a lot of variability in the potential for their performance in the second half as Neil mentioned. Now, I think that their fourth quarters are generally their highest quarter of the year.

There's some seasonality there. So, there should have a better fourth quarter than the third quarter..

Understood. And then maybe moving a little bit away from the short cycle businesses to Deltek, I know it's been mentioned for a couple of quarters that there's bolt-on M&A sort of going on there. Is that still the plan for Deltek moving forward? It seems like the booking’s growth is doing quite well.

I just wondering if that was still a strategic focus with the business?.

Sure, I mean, it has been and for a long time, it even predates our ownership Deltek sort of did one-ish bolt-on a year before we owned it for several years, we're probably at that pace or maybe just a touch higher in our ownership. And we would expect that to be the case going forward..

Understood. And it seems like the in moving on to CCC, just in the new construction business seems like it had the expected strength that you sort of called out in previous calls.

Just kind of wondering where that you view that strength of the LNG pipeline in terms of its still extremely early innings or four to six quarters, seems like a reasonable baseline timeline for that?.

Yeah. So, what's characterized is some of these projects that are in development are actually smaller and quicker to come online than what we may have might have seen five, seven, eight years ago. So, in the past, it would have been multiple years, so I think your four to six quarters is probably more in-line with the expectations.

You might drag out a little bit longer as you know these projects do, but these are not five to 10-year projects or three to seven-year projects, they tend to be smaller record to turn on..

Understood. Thank you very much..

And we'll go next to Steve Tusa at JPMorgan..

Hey, guys, good morning..

Good morning, Steve..

Good morning..

Appreciate the use of the term of Socratic [ph] coaching. That was a political science major. I'm not I'm not quite sure what that means, but I kind of get it. On the software businesses, I guess, the application software business.

I mean, I read all these other companies, transcripts, and I don't quite know what I'm reading but they use the term bookings a lot.

How is the booking like the organic bookings growth as you guys define it for, I guess that segment?.

Steve, so let me Socraticly walk you through this..

I need some -- I clearly need some coaching as well. So, I just appreciate a little color..

Yeah, but for the segment now, we've got to go company-by-company around bookings, right. So, I mean, that's a harder question to answer because it's -- we don't know anything up at the segment level..

Maybe bookings and gap sort of bookings..

Sure. So, bookings in this case is or another term, you might hear uses order intake. So, it's what is -- what businesses actually contracted in a period of time and you have to do a fair amount of, sort of equivalency between a perpetual deal and a SaaS deal.

And so -- and then, and obviously, when you booked something, you could have double-digit bookings. And then if it's all SaaS, then it's going to take four quarters right to get into the run rate. So, your gap revenue will lag, could lag that a little bit.

And then on perpetual, you might book something in the second quarter, and you might not be able to recognize the revenue because of some delivery in the software and it might be pushed out a quarter or two as things are being implemented.

So, bookings are just a little bit more -- order intakes a little bit more of an early read of business activity that's ongoing in the company.

So, in Deltek's case, which we highlighted, we had the hard comp against the wonderful second quarter of last year, which by the way is a great problem to have because we want so much business on a perpetual basis a year ago.

And when we sort of normalize for the outsized perpetual growth a year ago at Deltek, bookings are up double-digits this quarter. So, the activity inside that business review is healthy..

Got it. Okay.

And so that's up inside that business that was up like, I don't know, those bookings are like double-digit or like high singles, that's kind of what gives you confidence for the second half in the next year, if you will?.

That's right. It's a combination of the bookings. And then you're also looking out several quarters at pipeline coverage and pipeline sort of conversion rates and things but the combination between that and the near-term bookings is what give us the confidence..

Okay.

Were there any businesses in that application software side that were down on revenue?.

Well, in that we know, your favorite topic of Sundquest is in this segment and it was down mid-singles, as we expect - it actually did modestly better here in the quarter in the first half, we thought, but other than that everything was up pretty much..

Okay, that's great. And then one last one, acquisition pipeline, standard question.

Are you bullish about -- any more bullish about the second half relative to couple months ago, anything loosening up or does the kind of macro environment delayed some of the activity you may have thought you would have seen?.

I would say we feel the same today as we felt last quarter-to-quarter before. I mean, the market and the activity are there, its robust, there is lots of work.

We're looking at lots of things as we always do, and you just never know until the very last minute in a deal if it's going to sort of one that we actually want execute, and one that we can actually lend from a value in contractual terms perspective, but it's steady as she goes on the M&A front..

Yeah, there is nothing in the macro environment that -- there is nothing in the macro environment that impact these deal processes at all.

They're hopping [ph] and, you know?.

Okay. Super. All right, guys. Thanks a lot. Appreciate the detail..

Our pleasure..

And we'll go next to Joe Giordano at Cowen and Company..

Hey guys, good morning..

Good morning..

So now that we're getting into a little bit of an industrial cycle, I guess the question that you guys typically get asked, will get asked a lot more, like, how does this make you think about some of your industrial businesses from a long-term basis.

Does it become somewhat of a nuisance when 8% of your company becomes something that gets talked about more than 8% of the time as we enter these types of things, and how do you think about the positions of those businesses within the context of Roper long-term?.

Yeah, so its first, these businesses are amazing. I would just draw you to the profitability of both, the industrial businesses and the process segments. They're amazing businesses, they're clear leaders in their niche, they're just they're fantastic. Yeah, they have a little bit of cyclicality associated with them.

But we've worked over the last decade, to meaningfully reduce the cyclicality. And it was roughly a 50% tie that these businesses these more cyclical businesses a decade ago, and now we're about 20%. And so that trend will continue as we deploy the capital going forward. We're generally deploying a thing that don't have a large cyclical component.

So, continue to de-emphasize sort of the cyclical aspects, but they're great businesses and it's and we like them in the portfolio..

And they're designed to be incredibly profitable at all points of the cycle right there. As you know, we're always looking at the breakeven analysis, what’s the fix cost, what’s the variable cost. Our business leaders are very, very proactive.

So, they're always going to generate a lot of cash in all environments, and their position to succeed over the long-term. So, we believe we're a great owner for those businesses..

Okay. Yeah, you guys have been very consistent with that answer over time. So, appreciate that.

Are there any specific cost actions that you're looking at, as we enter this period, though, for them, like is there any unique cost out opportunities that you're that you now you can execute as things kind of slow for them?.

I wouldn't say unique, but what maybe is unique about the Roper model, and this is just building on Rob said, these businesses structurally are highly variable in their nature, they buy structural, right. So, any sort of cost actions can happen pretty quickly and without lots of sort of riff or cost to get the cost out, if you will.

And so, the companies also naturally start feeling and pulsing their way when they feel softness and take the actions out, any sort of direction from us, right. And so, we're certainly talking with them and understanding what they're doing. And making sure their assumptions are aligned with our assumptions about what the future looks like.

And then they go about doing what they do in managing their businesses..

Okay. And maybe last for me. Just curious about your -- the outlook, maybe from your customers standpoint about some of the commercial building sectors that you're exposed to.

And I know there is some nuance with some of your businesses, whereas if some construction volumes go down a little bit, it's actually good for like a business like in ConstructConnect thing that used to help and funding the work, but just generally like what are your -- are your customers, kind of getting raised antennas about the health of the or directionality of their businesses over the near-term of very robust levels?.

Yeah, hard to get a read across that, like you said at our ConstructConnect business, which is in the pre-construction part of commercial real estate development. We actually root for a a neutral to slightly positive, slightly bearish market, because that increases the value of what we deliver to our customers.

But it's -- I don't have as we sit here today great read across or read through from ConstructConnect on broader construction themes. So far and it will help you there..

Fair enough. Thanks guys..

Yes. Thank you..

And that does conclude our question-and-answer session for today's call. And at this time, it's my pleasure to turn the conference back over to Zack Moxcey. Please go ahead..

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

And once again, ladies and gentlemen, that does conclude today's conference. And again, I'd like to thank everyone for joining us today..