Good morning. The Roper Technologies Conference Call will now begin. Today's call is being recorded and all participants will be in listen-only mode. [Operator Instructions] I would like to turn the call over to Zack Moxcey, Vice President, Investor Relations. Please go ahead, sir..

amortization of acquisition-related intangible assets and the financial impacts associated with our minority investment in Indicor. Reconciliations can be found in our press release and in the appendix of this presentation on our website. And now, if you please turn to page four, I'll hand the call over to Neil.

After our prepared remarks, we will take questions from our telephone participants.

Neil?.

first, we continue to perform extremely well and had a very strong second quarter, another demonstration of the quality of our portfolio of businesses. Second, we're increasing our full-year guidance both in terms of total and organic revenue growth and adjusted debts. Third, Generative AI.

We're very excited by the promise of this technology and outline reasons why today. And fourth, we remain very well positioned for disciplined capital deployment. As it relates to the first takeaway, a strong start to the year and a solid second quarter, we saw total revenue grow 17% and organic revenue grow 9%.

Consistent with our longstanding strategy we continue to not only scale our enterprise, but also simultaneously improve its underlying quality and recurring revenue base. Importantly, we had very strong cash flow performance with free cash flow growing 17% in the quarter.

Our results this quarter are another proof point that our higher quality, less cyclical portfolio was purpose built to consistently perform at a very high level.

Given the strong second quarter, we're increasing our full-year total revenue growth to be around 13%, increasing our organic revenue growth to be around 7% and increasing our full-year debt guidance to be in the range of $16.36 to $16.50 or up $0.23 at the midpoint versus our previous guidance of $16.10 to $16.30.

Third, relative to Gen AI, we feel we're structurally advantaged and excited by this technology as our vertical and application specific businesses, we use our specialized market positions and knowledge to provide context to these enabling technologies both to create customer value and internal productivity gains more on this during today's call.

And finally, we continue to be well positioned relative to capital deployment. We remain active in the market as we evaluate and actively diligence many high quality opportunities. Jason, I'll turn the call over to you so you can walk through our second quarter results and our very strong financial position.

Jason?.

Thanks, Neil, and I hope everyone is doing well this morning. Turning to slide six, the seconf quarter was another good post in 2023. Revenue came in at $1.53 billion, which was up 17% over prior year.

Organic growth was 9%, which was led by 8% software recurring revenue growth across the enterprise and outsized growth 19% in our tech enable product segment. EBITDA increased 20% to $617 million with EBITDA operating leverage of 46%. Notably, margin expanded across all three segments in the quarter.

DEPS of $4.12 was $0.12 above the high-end of our guidance range and 20% above prior year. DEPS growth was in line with EBITDA growth given the offsetting impact of a higher tax rate and lower net interest expense. Moving to free cash flow.

As a reminder, the second quarter is always our lowest conversion quarter in the year as we make two federal tax payments. We delivered $295 million of free cash flow in the quarter, which was up 17% over prior year.

As I previously mentioned, Frontline’s cash flow is seasonally weighted to Q3 and Q4, especially in Q3 and this is in line with our K-12 customers' annual renewals. So we expect a meaningful increase to cash flow in the second half.

Taking broader view of cash flow on this slide, recall that we acquired Vertafore in 2020 and had a one-time cash tax benefit of $120 million, of which about $60 million benefited the second quarter of 2021. We've therefore had very strong multi-year cash flow performance when normalizing for this 2021 tax item.

For the year, we are confident that free cash flow will be greater than 30% of revenue. Turning to our balance sheet on slide seven. Our net leverage sits at 2.2 times at the end of the quarter with about $6.7 billion of debt and just under $1.5 billion of cash against our TTM EBITDA of $2.35 million.

Also our $3.5 billion revolver remains fully undrawn. To summarize, we have significant acquisition capacity and remain quite active in many bespoke processes.

To that end, in Q3, we expect to close on Replicon, which is a bolt-on acquisition for our Deltek business with a purchase price of $450 million or about $370 million net of a long-term cash tax benefit. Neil will discuss the details around this exciting addition to the Deltek platform in the segment discussion.

So with that, I'll turn it back over to Neil to talk about our segment performance and outlook.

Neil?.

Thanks, Jason. Let's turn to page nine and walk through our Q2 highlights for our Application Software segment. Revenues here were $770 million, up 6% on an organic basis and EBITDA margins increased to 43.7% in the quarter. In this segment, we continue to see consistently strong performance across the entire group of companies. We'll start with Deltek.

Deltek was once again solid across both our government contracting and private sector businesses. Importantly, Deltek continues to see momentum build with our SaaS offerings and retention rates remain at historically high levels.

Also in the quarter and as Jason mentioned earlier, we announced the acquisition of Replicon for Deltek, Roper’s largest bolt-on today. Replicon is a market leading timekeeping and workforce management SaaS solution focused on professional services firms and it's highly complementary to Deltek strategy.

We expect Replicon to contribute north of $70 million of revenue and $24 million of EBITDA next year and we expect the deal to close during the third quarter. Finally, as it relates to Deltek, we wanted to brag on them for a moment. During the quarter, the Washington Post award Deltek, the number four top workplace at the D.C.

Metro Area for large companies. As you know, we have a closely held belief that talent and culture can create long-term competitive advantage and this is certainly the case for Deltek.

During Roper's ownership with Deltek, the company has increased its organic growth rate, retention levels, recurring revenue and margin structure and a big contributor to that success is the structural talent advantage that Deltek continues to build. Congrats to Mike and congrats to your entire team.

Aderant, our software business focused on the needs of law firms continues to be excellent. In the quarter, Aderant saw record bookings and continued success in the adoption and cross-sell of their SaaS solutions. Also and importantly during the quarter, Aderant launched their Generative AI enabler, MADDI.

Today, MADDI is enabling two solutions outside counsel guidelines management and time entry, with plans to extend this to AR cash receipt matching and docketing over the coming months. Over time MADDI will be integrated widely across Aderant’s product platforms. Generative AI for a legal space has tremendous potential.

One such example in the market today is Onyx. Onyx powered by MADDI solves a massive challenge that all law firms face, namely how to navigate outside counsel guidelines or the billing requirements that clients impose on their law firms. It's fairly common for a large law firm to have to navigate 100s of 1,000s of bespoke client billing requirements.

Today, Onyx uses Generative AI to extract contractual terms and convert them into business tools used in the time entry and billing processes, a true game changer. More broadly across Roper, we're excited about the potential of Generative AI and large language models.

We believe given our deeply verticalized and application specific business model that our businesses are structurally advantaged given that all AI, computational and generative need context specifically dated workflows and wish to train or target the technology.

Internally, we're working closely with our businesses on the productivity and product enabled opportunities associated with Gen AI. Certainly much more to come on this. Now back to the segment performance in Vertafore, our software business at tech-enabled property and casualty insurance agencies.

Vertafore continues to be a great asset for us with solid performance across our core P&C business and their recent MGA Solutions bolt-on. Our Healthcare/IT businesses also performed very well in the quarter with growth in each of our Healthcare/IT franchises, Clinisys, Data Innovations and Strata. Frontline also continues to deliver for us.

Frontline's mission is to empower the frontline of education. As many of you know, the hiring of teachers and administrative staff is particularly challenging and frontline software solutions better equip K-12 school district to navigate these challenges.

Because of this, frontline solutions are mission critical and of high importance to their school district customers. As such, frontline's net retention is consistently strong. Looking to the second-half of the year, we expect to see organic revenue growth to be in the mid-single-digits area for the segment.

Overall, very strong results and outlook for this segment. Turning to page 10. Revenues in the quarter for our Network Software segment were $358 million, up 5% on an organic basis and EBITDA margins were strong at 54.2%. As with our Application Software segment, growth and performance was solid across the segment.

Relative to business specific comments, we'll start with our U.S. and Canadian freight matching businesses, DAT & Loadlink, both of which grew in the quarter despite continued challenges across the broader freight and logistics markets.

I'll remind you that our businesses are critical to the operation and execution of the North American spot freight market. In addition and importantly the spot market is a long-term secular beneficiary in terms of the volume of future great ships.

Throughout and across the freight and economic cycle DAT & Loadlink continue to innovate and launch new products and offerings to help drive enhanced customer value and share of wallet. As we speak, DAT is launching a Generative AI enabled solution among other initiatives targeted to combat freight industry fraud.

This is in addition to their existing set of computational AI and data science driven solutions like DAT iQ, which they deploy at scale over the last three or four years.

By pipeline, our network software business that tech enables the distribution channel for life insurance and annuities had very nice ARR gains in the quarter driven by strong retention and customer expansion activity.

Foundry continued its string of strong performance and had terrific growth for their flagship product Nuke, which enabled continued double-digit recurring revenue growth.

As we mentioned last quarter foundry commenced their subscription pricing transition for Nuke and the first-half of the year had north of 60% of their new units sold under their new model ahead of their transition plan. Finally, our alternate site health care businesses led by SoftWriters and SHP were strong in the quarter.

Execution was solid and the business has benefited by an improving census and skilled nursing assisted living facilities and home health reaching the highest occupancy levels in patient volumes since the onset of the pandemic.

Turning to the second-half of the year, we expect to see mid-single-digit organic growth for this segment based on sustained ARR momentum. As we turn to page 11, revenues in the quarter for our tech-enabled product segment were $403 million, up 19% on an organic basis. EBITDA margins for this segment were strong at 36.4% for the quarter.

Across this segment, business performance and execution was exceptional. Importantly, the broad-based supply chain issues continued to ease. Neptune, our water meter, and technology product business continues to be great. In the quarter, they had record revenue performance.

Importantly, Neptune continues to see increasing demand and momentum for their residential and commercial ultrasonic or static meters. We remain bullish about Neptune and the market in which they compete.

Given this market tends to be quite steady as Neptune's customers’ budgets are typically fixed year-to-year and not tied to broader macroeconomic trends or cycles. Verathon was awesome in the quarter as well with double-digit order growth and tremendous operational execution.

Specifically, Verathon saw strength across their reoccurring single use products, both Bronchoscope or B-Flex and video innovation or GlideScope, as well as bladder scan capital purchases. Northern Digital or NDI was also strong in the quarter setting a record revenue for the business.

A group of smaller businesses here, IPA, rf IDEAS and Inovonics were fantastic in the quarter as they substantially work through a series of nagging supply chain challenges. Relative to the second-half of the year, we expect to see high-single-digit organic revenue growth. Recall, we have a tough Q3 revenue and margin comp to lap from the prior year.

Now please turn to page 13, and let's review our increased 2023 guidance. Based on our strong second quarter performance, we're raising our full-year 2023 guidance for total revenue, organic revenue, and adjusted DEPS. For 2023, we now expect total revenue growth to be around 13%, an increase from 12% plus last quarter.

In addition, we're raising our full-year organic revenue outlook to be in the 7% zip codes, an increase from 6% to 7% last quarter and 5% to 6% in our original guide. As a result of our improved revenue outlook, we're increasing our debt guidance to be in the range of $16.36 and $16.50, up for our prior guidance of $16.10 to $16.30.

Assumed in this guidance is a tax rate trending to the high-end our 21% to 22% range. Specific to the third quarter, we're establishing our debt guidance to be in the range of $4.16 and $4.20. Now please turn with us to page 14, and then we'll look forward to answering your questions.

We want to leave you with the same four points with which we started. First, the year started strong and we delivered solid second quarter results. In the quarter, we saw revenues increased 17% to $1.53 billion. This growth was underpinned with 9% organic revenue growth and 8% organic software recurring revenue growth.

In addition, EBITDA margins were quite strong at 40.3%.

Second, based on the strong second quarter performance, the recurring nature of our revenue stream and the importance of our solutions to our customers, we're increasing our full-year total and organic revenue growth outlook and increasing our full-year DEPS outlook to be between $16.36 and $16.50.

Third, we're excited by the potential of Generative AI, both as it relates to internal productivity and using our application specificity to provide context for new product development ideas. We look forward to sharing progress and updates in coming quarters and years.

And finally, we continue to be active with our capital deployment activities as we have north of $4 billion of available M&A firepower.

As we've been discussing over the past several months, we have a very large pipeline of opportunities, though as always, we remain super patient and highly disciplined to ensure the continued optimal deployment of our available capital.

Now as we turn to your questions and if you flip to the final slide our strategic flywheel, we'll want to once again thank those of you who joined us in New York for our first ever Investor Day and for the 100s who have watched the replay over the past few months.

During that long form overview of Roper, we were excited to share with you our long-term strategy, the high quality nature of our portfolio of businesses; our operating ability to improve our businesses, our process driven capital deployment approach and our compelling long-term business model that compounds cash flow in the mid-teens area.

So thank you for your continued interest in Roper. And with that, let's open it up to your questions..

Yes, thank you. We will now go to our question-and-answer portion of the call. [Operator Instructions] And the first question comes from Julian Mitchell with Barclays..

Hi, good morning. Maybe just the first question around in Network Software, you had a very strong margin performance up over 200 points of only mid-single-digit organic growth.

So I just wondered if there was anything driving that perhaps on mix or anything kind of one-time? And then also in that division, how are you thinking about second-half growth in DAT & Loadlink versus first-half?.

Hey, good morning, Julian. It's Jason. So yes, I mean, I think we had the strong performance across a lot of the businesses. I think the -- by the one standout is our ConstructConnect business. We acquired a bolt-on that we closed last year and we're seeing -- realizing the benefits from that deal.

And then like I said, beyond that, it's just across the segment..

And relative to your second question, second-half for DAT & Loadlink, our freight match businesses. We continue to be cautious there and conservative. We've been held that posture the whole year. DAT performed very well in the quarter, it grew high-single-digits.

The broker part of the business and the data analytics part of the business remains super solid, high retention rates. But as we all know, the carrier side of the market, the excess carriers are trading out of the market and that has a weighing effect on DAT.

So we've modeled that in all year long and it's playing out generally in line with what we thought here in Sarasota, maybe a touch better, but we'll just stay in line with Sarasota's expectations. And relative to the second-half for DAT, the big wildcard is what happens with Yellow and [EPSI] (ph).

I mean, so we'll see what happens there could be a pickup for the spot market, if something were to turn negative on either one or both of those..

That's interesting. Thank you. And then just as we look at the second-half guidance, you called out in TEP the tough comp for third quarter. Just one other thing I wanted to check on the back half. It looks like the guidance implies fourth quarter DEPS doesn't really go up much sequentially in Q4.

Historically, you've had often a mid-single-digit type EPS increase in Q4 sequentially. I just wondered if that was just kind of conservatism in the construct for this year.

Or if there's anything specific going on?.

Nothing really specific sequentially. I mean, I think we've talked about a little bit about just the seasonal shutdown at Neptune. We've had that historically, but I wouldn't point to any conservatism and we've got, sort of, networks still at mid-single-digits.

So maybe in the prior year, you might have seen some acceleration coming in the fourth quarter, but nothing really unusual there.

What is your first question, sorry, Julian?.

Oh, no that was really just around if there was anything on the fourth quarter to kind of call out, but it doesn't -- it sounds like this year should be fairly typical in terms of seasonality..

Correct..

Correct..

Great. Thank you..

Yes. Thanks..

Thanks, Julian..

Thank you. And the next question comes from Deane Dray with RBC Capital Markets..

Thank you. Good morning, everyone..

Good morning..

Good morning..

Hey, can we start with just broadly the tone of business. There was a reference in the first quarter and I think also at the Analyst Day that you were seeing some slower customer decision making.

But the way I look at this quarter with the upside on the organic side and the outlook, has that improved? And very specifically, would you measure that in new logos and SaaS conversions, but just kind of that tone of business, please?.

Yes. I would characterize it. Our software businesses are playing out -- about as we expected coming into the year, right, expecting a little bit of a slowdown. So you see delayed decision making that has pushes out net new sales, but it also has the impact of having higher gross retention, because decisions are being deferred.

And then also just the amount of expansion activities that we have activity we have with our customers is a little bit less, as our customers are just more cautious as they look forward. So that's playing out about as we expected. It's not acute and any one of our businesses is just sprinkled across the universe of our portfolio.

Relative to TEP, I mean, it was just fantastic. We had a lot of demand in the medical businesses remains very strong especially at Verathon and CIVCO, a lot of supply chain clear up in the first-half, especially in the second quarter.

And we called out very rarely do we call out the three small businesses that we did on the slide, but they had just terrific supply chain sort of performance and operational performance in the quarter..

Yes. That's really good to hear. And just as a follow-up, can we talk about the impact AI is having and how you're evaluating M&A candidates. So is there an eye towards the barriers to entry Roper is focused on these deep domain expertise types of deep vertical.

So how do you look at where and how AI might be a threat to these? How do you look at the candidates in terms of where and how AI might advance their business model and just what has changed there?.

Yes. I think it's certainly a consideration today. We're computationally, AI has been a consideration for a few years. Generative is newer this year. I think the thing that is nice about our portfolio, our M&A strategy is it just happens to play into the strength of where generative AI and computation AI is best suited.

So more verticalized, more application-specific, more intimacy with customers. And so our M&A approach is well suited given the development of these technologies. And as always, you've heard us say this for decades, we're looking in our capital deployment. If there's a zero in the Monte Carlo, we can envision a doomsday, then we're out.

We're just not going to lean into that. So we'll look at -- we always look at that. And to the extent we can dream up as zero in the Monte Carlo, because of generative computational AI, then we're not going to consider it in any way. So that's not a new thing for us.

Anything to add, Jason?.

No, I think that's right. And any sort of content type business, we've always steered away from, and I think this is just accentuates that with the advent of AI and Generative AI..

Thank you..

Thank you. And the next question comes from Joe Vruwink, Robert W. Baird & Company..

Great. hi, everyone..

Hey, good morning..

Hey, good morning. If I go back to last quarter, I think you referenced the Leadership Summit and the business unit presidents coming together. This quarter, there was an announcement about iPipeline and Vertafore partnering together on product.

Is it may be possible to connect these two things together? So by doing more to share best practices across the operating divisions, can Roper actually uncover incremental product opportunities and maybe offering a broader suite when it comes to certain end markets that are jointly served today?.

Yes. I think there's definitely and demonstrably benefits for getting our leaders together unequivocally. It's going to be more in sharing best practices, sharing leadership philosophy, sharing failures and what they learn from the failure.

It's going to be more about how do you lead, how do you manage, how do you inspire teams for terrific performance it's going to be less on connection with the product teams, because most of our businesses are in independent and disconnected markets and swim lanes. So if there's something that makes sense, we'll certainly do it.

If it doesn't make sense, we won't. The good news about this particular iPipeline and Vertafore is it happened organically between the businesses without any push from the center. So you know that's authentic and it's going to drive value for our customers..

Okay. That's helpful. Just on the topic of generative AI. As you say, your businesses, they provide the context that the applications need, so growth retention if anything, is biased higher in many aspects. How do you think about net retention and just participating in new avenues for growth.

So with some of the early products discussed today, does that really strengthen the core? Or is there a separate monetization that can happen?.

No, no. I think there's definitely monetization that could happen. It will happen over time. There's no silver bullet in the short run. We play the long game, build for long-term customer value of relationships. But there's just massive amounts of value that can be created by doing things with both computation on generative AI.

And our relationship with our customers are such that we're, at least for the last 20-years, we're able to capture our fair share of the value that's created. So I don't know why that would be any different going forward.

And then as we all know, there's a tremendous amount of value or productivity to capture inside the four walls of our businesses using Generative AI as well..

Great. Thank you very much..

Thank you..

Thanks, Joe..

Thank you. And the next question comes from Allison Poliniak with Wells Fargo..

Hi, good morning. I saw the announcement with IntelliTrans sort of stepping out and partnering with the product sensor business.

Is that something that's just unique to IntelliTrans? Or is it something that you're doing to sort of leverage that sort of asset-light business that you have? Any thoughts there?.

No, that's very, very bespoke to IntelliTrans. I mean there's not an enterprise-wide strategy to do anything like that nor would we -- if there was, we wouldn't push it down. It's anathetical to what Roper is about. So it's very bespoke to IntelliTrans. Gold star for asking IntelliTrans question, by the way..

It helps also covering transports. So -- and then just on tech-enabled products, that business continues to outperform organically. You mentioned difficult comps in Q3. Is there any more color you can give us to the cadence between Q3 and Q4 to, kind of, reach that target? And what sort of drove that outperformance this quarter? Thanks..

Yes. So this is Jason. I think it's a pretty consistent cadence in terms of the quarters. What I would say is the outperformance in Q3 was really across the board. We had -- Neptune continues to execute really well in their backlog. Their daily sales are up over their plan. Health care is doing really well in terms of procedures.

So just executing on a kind of book-and-ship basis there. And then our -- some of our [Technical Difficulty] product businesses had some backlog that finally got cleared. So that really drove the Q3. And then the second-half, like I said, organic growth should be fairly consistent. It's just what we had last year.

We had a lot of backlog clear in the third quarter that with very high-margin products. So that's sort of the comp issue that we're lapping in the third quarter..

Great. Thank you..

Thank you..

Thank you. And the next question comes from Terry Tillman with Truist..

Yes. Good morning.

Can you all hear me, gentlemen?.

We can hear you perfect..

Yes, all good..

Wonderful. Happy Friday, Neil, Jason, and such. Maybe the first question, it's almost technically two questions, but I'm going to call it 1.5 questions, is actually back on Deltek, one of your biggest businesses, if not biggest business on the app software side. I'm just curious on the relative health and demand.

Somebody earlier asked about macro, but how the government side is performing versus private sector side? And the second part of that first question is it seems like something with Replicon, and I think you said it's about $70 million. You could have some pretty good revenue synergy opportunities.

And how do you think about that $70 million business, kind of, unleashing that product into that large Deltek installed base? And then I have a follow-up..

So we'll call that two questions, 50 degrees. But the Deltek demand, as we talked about in the prepared remarks, our performance was solid across both government contracting and private sector. We are encouraged by the pipeline build in the quarter for Q4 and early ‘24 in government contracting.

There definitely was a little bit of a lull or an air pocket in government contracting relative to the debt ceiling. And so it was nice to see activity get back to normalize or maybe slightly better than normalized activities relative to early pipeline build, so that was encouraging to see. You've got to see how that plays out, for sure.

Replicon, you know, we really like this bolt-on. As we said, it's the largest bolt-on we've done at $450 million, $370 million net of the tax benefit. It's time entry without attachment to an ERP. So time only is a highly demanded solution in the PS world. It is not sold today in government contracting.

And so we have not underwritten into a revenue synergy opportunity. That's not part of the $70 million or the $2 million that we talked about. But it is certainly the expectation over time is to get Deltek takes this product in other core market of government contracting..

Got it. And thanks for being generous, yes, I guess this technically is the third question. Then on the idea of the M&A pipeline and you talked about you're just kind of working through opportunities and bespoke situations, et cetera.

But compared to like 90-days ago, would you suggest that there's more -- it's more actionable on the bolt-ons versus the potential platform deals. Just maybe a temperature gauge on the stack ranking of the two types..

Yes. So it's been an interesting 90-days. So we continue to be active. Our pipeline still skews more towards bolt-ons for sure. More broadly in the market over the last 90-days, we are encouraged by the fact that there are a couple of sizable deals private that did not happen, because the buyer universe rejected the seller's expectation on value.

And so we view that as in the deal ultimately did not consummate. So we view that as actually an encouraging sign around as an early indicator that valuations are going to pull in to being a more normalized with cost of capital. So we're encouraged by that. But still, our pipeline leans into the bolt-on opportunities..

That’s great. Thank you..

Yes, I mean, I would say. Yes, [Multiple Speakers] are down dramatically year-over-year. And so there's just a lot of assets that, at some point, need to go. And it's been 1.5 years now, so we think it's getting closer..

Thanks..

Thank you. And the next question comes from Christopher Glynn with Oppenheimer..

Thanks. Good morning..

Good morning..

I wanted to touch on foundry.

Curious if there's any risk of any followed or perturbations from labor strike risk? And also, if you could revisit the comments on the transition plan for that?.

Sure. So foundry, for those that aren't familiar with it, it's a business and media entertainment, that's used in post-production for a process called compositing, where you take a live action image and a computer-generated image and push them together in the single scenes.

So think Game of Thrones, pretty much every seen in Game of Thrones was used as composite with foundry software as is almost any high-end production or streaming series. So as it turns out, I think this is the first time since 1960. We've had both a writer's trike and an actor's strike concurrently. So the current production of content is ceased.

There is still a very active pipeline of things in post. And so it has no impact currently on foundry. The current expectation is the strikes will be resolved this year. And if that's the case, then there'll be very little impact foundry next year as they'll be back in production and sort of catch up.

If it extends beyond this year, then yes, foundry will likely be negatively impacted to some extent next year. So that's just a lot of item for us. And your second question, Foundry this year commenced the transition to a subscription pricing model for their core product of Nuke.

So this year, there are -- you can buy it either as a license or a subscription. As we mentioned, about 60%, north of 60% of the new units were sold on a subscription basis this year. So it's a nice transition ahead of our plan. ARR is growing double digits.

And then beginning next year, it will be 100% subscription opportunity to buy in the license format. So going a little bit better than planned..

Thanks for that..

You bet..

Thank you. And the next question comes from Steve Tusa with JPMorgan..

Hey, guys. Good morning..

Good morning..

Good morning..

Are you okay?.

Am I okay?.

Yes, okay. You sound a little froggy there, okay..

No, no, no, no, it's a little bit early. Thanks for the [Multiple Speakers] I appreciate it. So just a couple of things.

Can you just talk about what you expect for third quarter free cash? Maybe just talk about the deferred revenue drag you guys have had in the first-half, what's driving that? And then just what are organic bookings year-over-year for the software businesses in the second quarter? Thanks..

Yes. So we mentioned before, Frontline is a new dynamic, right, for Roper, where all of their renewals happen in the third quarter. So we're already tracking really strong just month-to-date, if you will, for the renewals there. And they actually consumed cash in the first-half, just to give you a perspective on that.

I mean also, I think we historically have very strong second-half seasonality. So that, plus just some of the -- I think some of the timing of working capital in the second quarter points to a much better second-half. First-half, we usually -- we pay out incentive. We had -- this year, we had that legal settlement.

So that points to sort of that seasonal change for this year. And so we're still on track to deliver north of 30% of free cash flow to revenue. And then you asked about the trends on. So if we kind of look at enterprise software bookings, and it was up sequentially a bit and up year-over-year.

Not quite as strong as the first quarter, maybe like low-singles in area, which is about in line with what we had. It's obviously embedded in sort of our slowdown for the second-half for new activity..

Great. Thanks, guys. Appreciate it..

Yes..

Thank you. And the next question comes from Brent Thill with Jefferies..

Hey, good morning, guys. This is [Dave] (ph) [Multiple Speakers] on for Brent. I appreciate you are taking some questions. Maybe just on the AI theme. I appreciate some of the color that you guys gave.

I was curious, is there some sort of AI playbook that you guys are laying out for the portfolio of companies to be thinking through? Just curious how you're approaching that across the portfolio, and I appreciate some of those one-off case studies..

Yes. So Playbook, I would say, no, accelerated education across multiple fronts, yes. So what is it? What's are the possible? What are the risks? What are the IP ownership issues? What is how do you get productivity with -- in R&D, how do you get marketing lead productivity, marketing content productivity, customer service productivity.

We're doing a series of teach-ins and learnings that is highly subscribed by our businesses. And so that's how we're sort of accelerating the learning across the enterprise..

Got it. That's helpful. And then maybe wanted to just ask about you guys often talk about the portfolio being mostly macro insulated. I think the macro hasn't been as bad as many have feared.

But as you guys kind of think through that, have there been any companies that as things have softened a little bit that maybe have stuck out and maybe were a little surprising where you thought, hey, maybe these were a little bit more macro immune than they've been showing up to be?.

Look, Jason, I think, to our surprise, no. I mean, obviously, the one that gets a lot of attention is our DAT business, which grew. It's just truly exceptional the last couple of years. And then this year, it's moderated, still growing. And we talked about that quite a bit last quarter. We -- so really nothing. I mean, Neptune is solid.

As we said in the prepared remarks, their customers' budgets tend to be very fixed year-to-year and not tied to housing starts, which some people think is the case, but it generally is not.

Jason, anything, so surprises?.

I don't think so..

There's really nothing surprising on the cyclical piece..

Yes. I mean, Shannon has pointed out, maybe there's a little bit around government contracting, as I mentioned earlier, on the debt ceiling. It's not a macro point per se, but that's not clear at Deltek..

I understood. Thank you, guys. Appreciate it..

Yes..

Thanks..

Thank you. And the next question comes from Joe Ritchie with Goldman Sachs..

Thanks. Good morning, guys..

Good morning..

Good morning..

Hey, so maybe just to round out that free cash flow margin point going forward now that the seasonality has maybe changed a little bit.

Should we think about them like the second quarter as being kind of like a free cash flow margin around 20% going forward as you kind of think about modeling that business?.

I mean it's going to be lower. I'm not sure if I point to a specific margin for every year. But we do make 2 federal tax payments. So that obviously just drags on the second quarter. But so it's always going to be lower than the full year. So that's how I would model it..

Okay. All right. Great. That's helpful. And then I guess, lastly, we talked a little bit about technology-enabled products and the growth this quarter, tougher comps going forward.

I'm just curious, is there a way to potentially quantify the supply chain easing impact that occurred this quarter? And then is that going to continue? I guess is that part of the headwind then potentially as you kind of -- as you think about the second-half of the year?.

That might be hard. We might have to -- I mean mid-single-digit growth is normal for that segment. And then we got to parse how much might be strength at Verathon and SIFCO that might be a little bit recurring on top of that, but then the balance may be -- the balance would be the supply chain sort of pull and a release..

Okay, I think we can always follow-up offline. Thank you, guys..

You bet..

Thanks, Joe..

Thank you. And this concludes our question-and-answer session. I will now turn it back to Zack Moxcey for any closing remarks..

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

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