Roper Technologies Aktie

Well, my name is Clarke Jeffries. I'm with the technology research team here at Piper Sandler. Very pleased to be joined by Jason Conley, EVP and CFO of Roper Technologies.

Thanks for having me.

Yes, absolutely. Welcome to Nashville. Well, let's maybe just start off with some background on Roper Technologies for those who might be not familiar. What is the history of the company? What does the business look like today?

Sure. Thanks for having us. First time, I think we've been in Nashville. So it's great. So Roper is a free cash flow compounder. If you think about Roper, we've compounded free cash flow in the mid-teens over the last 20 years. And our roots are really -- we were a diversified industrial company. And now today, we're a diversified technology company. And so over -- really since 2008, we've been acquiring vertical market software businesses. So we sort of had this industrial veneer, but a lot of software underneath it and then our GICS code changed in 2022 when we had divested our industrial businesses.

And so -- but the through line for Roper over the last 20 years is we like being leaders in vertical markets, niche vertical markets, so small markets, typical TAM size for us. The largest TAM that we're in is maybe $4 billion, right? So we're leaders, so we can extend our leadership. When you have market leadership, you can still continue to grow cross-sell, get new logos. It's a good place for us to be. So you get a low range of outcomes as a result of that. And we take our free cash flow, we reinvest that to the next great vertical software business.

Today, we're about $9 billion of revenue, 40% EBITDA margins, 30% plus free cash flow margins. We have 29 businesses, 21 of them are vertical market software, 8 of them are, call it, product tech -- vertical tech businesses with a lot of recurring revenue. And so think of us as like mission-critical across the industries that we play in, system of record application software or critical network software businesses are primarily what we own in terms of software.

Perfect. And maybe you could just briefly talk about some of those key segments or key end markets, just to give a flavor of what those TAMs look like.

Sure. And just to set the context, so we certainly are -- we love end markets that are protected. But at the end of the day, we really are thinking about the types of businesses we want to own the business models, the high-gross retention, the high recurring revenue, the ability to cross-sell those -- all those things I mentioned, good working capital efficiency and low CapEx. So those are the characteristics from a fundamental standpoint.

But if you think about -- as we've acquired over the years, we've just sort of naturally fallen into really good kind of protected markets. So we're in health care, we are in GovTech. We're in like kind of education, institutional tech, insurtech, and then a variety of sort of, I'd call them, just broadly industrial tech type spaces.

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

Sure. And I'd say just from the outside, if you talk to sponsors, you talk to bankers, they think of us more as a public -- private equity, sorry, private equity versus a sponsor or versus a strategic. And that can be true, but I think the way we differentiate is we have sort of -- we think about owning a business over decades, not over 5 years. So we can think about a business that like in 10 years is going to be better than it was in 5 years and the like because we're just continually reinvesting in that business. We're adding new capabilities, new leadership.

So I think that's a huge differentiation. The other is if we're going to buy a business, and this is part of a change in strategy to buy a little bit earlier in their life cycle, we're doing bolt-ons to increase the organic growth of that platform. And I'd say private equity does the same thing, but they also know that they can potentially buy down a multiple by doing bolt-ons. So we'll do bolt-ons really to make the platform stronger, again, just thinking over a very long arc of time. So that's -- I'd say it's a key differentiator between us and private equity.

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

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

Yes. Well, we'll definitely get to, I'd say, the work that you do with ongoing assets in the portfolio, but I'd love to talk about at least the onboarding funnel of new assets via M&A. It's been a little bit tighter of late in terms of M&A activity. Obviously, you mentioned that bolt-ons and going back to the prior year, there was about, I think, 1/3 of the M&A activity dedicated to bolt-ons. But sort of what's your expectation right now for the M&A environment? What are the things that might unlock it in the coming quarters? And what's maybe the immediate strategy for when that might unlock to go after?

Well, I'll just start, it's been a crazy couple of years in terms of capital markets and specifically in private equity. What you've seen is businesses that were acquired in the '21, '22 cohort with lower cost of capital. So there's sort of that dynamic of exiting at a potential lower multiple because just the cost of capital alone. And then obviously, we've seen what's happened in the public markets with SaaSpocalypse. That's sort of gummed up the system as well because the sponsors are trying to figure out like what can I -- when can I actually exit at a more reasonable multiple.

There's been bit pressure, though, for several years now on -- for DPI, right? So LPs are pressuring to get return on capital. So we think those -- we think -- so all those things kind of switch on -- private equity has to continue to return capital, and that's how they fundraise. So that, coupled with -- you also have impending private credit cliffs in '28 and '29, and they're going to have to work backwards a year kind of and minus 1 on that. So they're not faced with that cliff because we think that is close to -- going to be pretty substantial. It's going to be hard to put more debt on a business.

They're going to have to put more -- probably have to equitize as well. So, I say all these things to say like all the ingredients are there to have a much more robust market. We think it's probably going to be somewhere closer to '27 than the end of this year. But we're encouraged by that because all those factors mean reasonable prices, but it's just hard, right? It's the kind of stages of coping with buying something for really high and then having all these external factors sort of force the hand to sell at a more reasonable multiple, but we're going to be a buyer of choice. We're having a lot of constructive conversations. So I talked about all the macro at the micro, having really good conversations with a variety of sponsors, proprietary looks, management meetings, those sorts of things prior to any process. And so we're hopeful that, that will provide some unique opportunities.

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

Yes. And I would just say we've been at this for 2.5 years. We've really pivoted to and our M&A team primarily work with private equity sponsors, but we've increasingly had a lot of constructive conversations with venture. Part of it is to see what's in their portfolio and more so just like what are they doing and where are they going after? And I would say broadly, like they're not going after vertical market software.

They may go after some new part of labor that needs to be automated. And that part might not even be attached to a system of record. It could be like a front desk type software, right, at a company. But we're not seeing anything sort of -- there's a couple of things that have emerged in a couple of markets, but nothing that's wedged in. We've actually had an example in one of our businesses where someone had a little wedge product, about 10 of our customers on it. But the customers were -- they were frustrated because the integration was sort of wonky and they had to do a lot of manual. They came to our CentralReach business, came to CentralReach and said, can you create this wedge product? And within 8 weeks, we did.

And those customers are all -- that competitor is now gone. So not that, that wants to be your primary strategy, but the ability to innovate much faster with AI allows us to kind of -- again, our customers trust us. They want -- they'd rather consolidate with us. And so we do get a lot of feedback from them on things that they want or any sort of fringe start-up that might be out there.

And again, most start-ups are not going after kind of where we play. They're kind of going after other parts of labor, which we're going after a lot of that, too, but more so the things that are connected to the current workflow or things that can sort of change the workflow that we're in and then how that attaches back to the system of record. So kind of rethinking our processes work. That's part of what we've been focused on.

Yes. And then last part on the sort of the funnel of onboarding assets. You have had a strategy that shifted to earlier-life-cycle companies. Maybe you can give us some background on what prompted that change. And even if you are in a position of acquiring earlier-life-cycle companies, you still able to do a medium-term target of cash flow outcomes for those businesses? Or how do you have to adjust expectations for those assets?

So yes, we kind of -- we pivoted the strategy a little bit in 2023. And so we deployed about $10 billion of capital against that. Part of that is also doing more bolt-ons, as you mentioned. So it used to be 10% of our capital. It's been more like 1/3. And again, that's all to increase the organic growth for the platform that we're attaching it to. And so I think for us, there's a couple of reasons why we want to do it, obviously, higher organic growth in general, which equals higher year 5 and further cash flow. And so we have to underwrite a little bit higher growth.

But the businesses we're looking at are the same businesses we own in our portfolio. It's just -- think of it as like the TAM has not been digitized yet. So there's still more adoption. There's still a lot more white space in those markets. So we understand the markets. It's just we're underwriting it to a little earlier part of their life cycle.

And this isn't venture, right? This is first term private equity typically not third turn, which is where we -- second or third is where we used to play. So we like that. We like the ability to capture more growth for shareholders. And then also, as I mentioned, to be able to do bolt-ons, these businesses haven't been -- hadn't had a Frankenstein bolt-on sort of scenario that we can kind of put our print on that business and have our own platform to grow from there.

Yes. Well, let's shift gears to maybe the strategy around commercializing AI. And I think something I've heard from a variety of companies that are acquisition-minded as some of the functionalities for AI can maybe supercharge integration. It can be product types across the portfolio and these sort of individual businesses may not -- they can share some learnings. So maybe you can talk about the big pillars on how to commercialize AI, and sort of the agentic products that have been released and maybe any specific segments that have the fastest traction so far?

Sure. That's a lot, and I'll try to capture it. Well, look, it's been -- this has been a fun year. I mean, we kind of really got into building agentic solutions on top of the software towards the end of last year, early part of this year. But I think we've learned that the adoption can have -- it can vary widely depending on kind of what's happening in the end market, what's happening from a top-down perspective at those customers in terms of like pushing change management. And so we're adopting as we go along.

But I would say like our central -- each business was sort of first out of the gates in terms of AI adoption. But they were -- if you think about -- so CentralReach plays in the autism space. So you've got a huge disparity between demand and supply for autism therapy. And we were able to provide solutions right in the workflow that enabled scheduling to be faster, claims to go smoother and be first pass through. So we were right in the workflow and it had high ROI for the autism center, immediate ROI and made the therapists existence better because they didn't have to spend as much time with the administration, more time with learners.

So in that case, and what they did, too, is they did a freemium model for, call it, 6 months. They could track the telemetry. They could see that there was adoption and then said, okay, now we're going to start charging, and we're going to start charging above and beyond the core system of record. And you had sort of quick uptake on that. And it was good because it was seamless and you didn't -- the therapist wasn't, by the way, lose -- worry about losing their job because there's just so much demand in the industry.

You go all the way to another sort of think about in our freight match business, our DAT business, we're automating workflow for the spot freight market. So a broker doesn't have to make 10 phone calls now to match a load. We have the technology right there. Well, it turns out that's a different app because the broker thinks, wait, that's my secret sauce. I can negotiate. I can get on the phone, I can do this. So -- which is true.

So for maybe 90% of what they do, they're still going to be able to do that. But for 10% where there's high-density loads, and it's pretty obvious what the rate is going to be because we've got all the data there, that could be automated. So -- but that's change management, right? So there's all of that, that sort of goes into it. And then you can paint a brush and there's a continuum of that sort of going on throughout our businesses. But I would just say the good thing is we've got the learnings from CentralReach reach in terms of the freemium. We applied that to Vertafore. And so it's really great to be able to kind of learn from each other successes and failures as we go forward.

Yes. I think something that people may not appreciate with some end markets is just that the labor growth has been stagnant for a very long time. And this idea of impairing the labor or replacing the labor, like we needed that 2 years ago for a lot of these end markets. And so well, maybe just on the strategy of how to achieve that of commercializing. -- introduced an AI accelerator team as part of the shared learnings, increase the velocity of tools. Maybe you could talk about how you hire that talent, the size of the team, maybe some intentions for growing that team or targets for the coming quarters?

Sure. And just to be clear, the AI accelerator team is mostly about helping our businesses develop agents, right, for revenue, not for productivity. Having said that, they're definitely helping them with AI SDLC, right? How do you agentically code. So there's a benefit to that. So we hired a couple of leaders from an enterprise software company at the end of last year, and we're now up to, I think, between 25 and 30 folks. And so think of them as just a team that can come in and so they're at, call it, like 4 or 5 businesses right now, they can come in.

The businesses provide the product road map, the agentic product road map and then they help teach and then build at least the initial agents so that the customers or the companies can then take that to market. So we've had great success. Vertafore was our first business that they went to. And we've got, I think, somewhere in the realm of 10 agents now that are out in market that are at least developed, I think 4 or 5 are out in the market now. So that's something that Vertafore on their own probably would have taken them a lot longer to do that.

And so now it's this whole thing of teaching and building the teams from within the businesses to take the ball and run with it. But I think it's been a great experiment because if you think about Roper, and we're certainly -- we honor the autonomy and the decentralized model that we have. But this is such a compelling opportunity for all our businesses that like there's just been a pull for this. And so I'm just delighted that we've decided to make this decision, and it's going well so far.

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

Well, I think it's a different way -- first of all, it's a different way to do software development, right? This isn't linear coding. This is, like I said, it's a 10x AI SDLC first of all on the coding and then to actually build the agents, do the evals, understand how the product works, it's a different muscle. And so we are teaching them. Strata is a great example, though. I mean, we've been able to elevate some folks in the organization that have said, I want to be a part of that. And the Strata is called the FDI, Financial Decision Intelligence. And it's a great product.

I can talk about it for a long time. We have a long queue of -- we actually have a lot of folks that are testing it out right now, a lot of large health systems, and we expect bookings this year in that. And it's essentially -- if you think about health systems, so Strata is -- think about it as FP&A on steroids for health systems, and we're able to marry up the financial, operational, and clinical information. And we've always been able to do that. But now with AI, it's using -- we've got the data structure that we've built over many decades.

So you think about like how to split it between department centers or operating rooms, like there's many different cuts, and we've kind of have that structure. There's the semantic layer in terms of how you actually calculate margins. And I know it sounds like trivial, but like in a hospital, it's super complicated. And then the ontology, like the ontology of how a patient moves through the system. So the combination of all that is super powerful.

And now with AI, it's kind of moving from, let's just say an analyst before would have to kind of go and pull some things together and get the report they needed for their boss. It's like now in the morning, they can get up and they have actual insights because they can prompt the Strata FDI immediately. So we're getting great feedback on it. We're really excited about it.

Before I transition, any questions from the room that'd like to be asked?

[indiscernible] Anything to be disrupted by AI, existing.

Anything that we're seeing that -- you mean like our business is getting disrupted...

[indiscernible] everything that.

Yes. I mean, I mentioned before the AI start-ups. And so it's -- so far, it's been pretty quiet. We've had one business where it's within our Deltek business, about -- call it, it's about 10% of their revenue. And what they do is they help -- they pull RFP data, public RFP data, off and then help the businesses prepare proposals for bidding on work. And so that business, because it's public data, obviously, that's more commoditized. So we've had -- we've always had a lot of small companies on the fringes, and don't go after smaller government contractors.

So what we actually -- our response to that has been we also, at Deltek own cost point, which is the ERP for project-based businesses. So now a customer can marry all of their historical cost point. What did I win on this project? What do I and incorporate that into this bidding solution. So that's different. And so once I think we're going to -- that will help sort of bolster that business. But that's like the biggest where we're actually physically seeing competitors come in.

I will say in the insurance space, there are more startups kind of going after the work that the labor pool is there. We are, too. We have a Velocity AI platform that's going to be the orchestration layer for a lot of the tasks because if you think about an insurance brokerage, it is super manual processes. I used to manage insurance for Roper. It's like battle of the forms. Carriers have all their different ways of wanting to see things, different portals. So we think that's a huge TAM that we can go after for Vertical, but there's others that are trying to do the same. But that's probably the 2 that I would call out.

That you've been observing obviously the impact of AI. Now that you have been serving it for maybe a year, 2 years, what is the characteristic resilient [indiscernible].

Yes. So for us, there's many to that. I think it's -- if you're critical to the workflow, there's a high cost -- there's a risk if things go wrong, right? So you've got to have -- things go wrong, a regulatory overlay that's probably embedded in that. There's high like config at the customer level. So that's a huge part of like how easy is it to rip out, how critical is it to interface with all the other systems and then also just the network effect. So like if you think about our segments, Application Software, is, like, the first 3 of those. In our network business, our DAT business, it's all about that interconnection between participants, and that's very hard to break unless you have critical mass.

So the ideal business at all of them together?

It can't. Sometimes you can have 3 or 4 of them and not like, let's say, in Application Software, you don't really need the network as much, but you do need to be like super entrenched. And the other part of this, this is what's exciting about AI is like every customer -- this used to be like the word customization used to be a 4-letter word. But now you can actually kind of -- you could customize the AI on top of however their workflow is configured. And so you have high entropy because that customer is different than another one, and we can actually scale now with AI across the customer base. So that's exciting.

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

Yes, absolutely. All right. Thanks.

Okay. Welcome, everyone, to day 3, the final day of Citi's Global TMT Conference. We, of course, save the best for last. We have the team from Roper here, Neil and Jason. Welcome.

Thanks.

Thanks for having us. Yes.

Maybe just to start, Roper is a company that has undergone several evolutions in its history. If you could just walk us through the high-level journey for anyone kind of newer to the story and then where the business is today and how you think about setting up for the next phase.

Thanks for having us, and thanks for the opportunity to just go through a little bit of the transformation of the enterprise. Most may not know this, but we grew up as an industrial business, right? And so Jason joined 20 years ago, I joined 15. We're 75%, 80% industrial pumps and valves then. But -- and then we closed that chapter really in 2022. We divested all those businesses, about 40% of our enterprise revenue-wise. We divested those businesses and went full towards vertical market software and technology-enabled products that were not cyclical.

The history, though, between sort of the old and the new is there's still a lot of common components. In Industrial days to the current portfolio, it's been we like leaders in small markets where there's strong product market fit, high gross margins. So we compete on customer intimacy, a tremendous amount of asset efficiency, so high cash flow generative assets. So those have been consistent between the 2 chapters.

Once we divested the industrial businesses, then it really became about growth. And so we've been on this growth transformation about leadership, growth mindset, the assets in the portfolio, the enablement of growth. We can get into that later. I'm sure you'll have some questions. And then obviously, a couple of years ago, it's another transformation to become AI native in everything we do.

And so it's been the one constant for the last decade or so in Roper has been this pace of change. We've come very comfortable with it. But there -- again, there's this steady but through line of the portfolio, leaders, small markets, customer intimacy, high gross margin, high gross retention, compete on intimacy.

The enterprise today is about $8.5 billion of revenue, 40% EBITDA margins, 30-ish percent free cash flow margins. We then take all that cash flow that the 29 business units generate, then we bring it to the center and we deploy it on the next best idea, whether it's a new acquisition, tuck-in or platform or the buyback. And taken together, it's a mid-teens cash flow per share compounding sort of low range of outcome enterprise. And we go to work every day to sort of turn that into a high teens. We're not there yet consistently, but we're working to make the double rate every 4 years versus every 5.

Great. And I think that's a great overview. When I think about the Roper model, decentralization is one of the first things that comes to mind. It's been one of the core defining characteristics of the business. And yet as you kind of alluded to, there's been a lot of work under the hood of developing these kind of shared infrastructure that these different portfolio businesses can lean on. You already kind of alluded to some of these pieces, but maybe you could talk about that journey of the development under the hood, kind of how you still think about this decentralized approach versus how you're kind of supporting these businesses from the center.

Sure. So first, just the context for why decentralization. So as I've said now twice, the portfolio construct is we're the largest player in a small market which means, by definition, all of our competitors are smaller, right? It's a common thing they all have, which means probably they're able to execute at a fast, nimble pace. So to match the pace of the competitive environment in which we compete, we need to be highly nimble and fast in execution and a huge byproduct of being decentralized is we have massive amounts of accountability, like ownership, entrepreneurial-based accountability. So we match the portfolio construct and the competitive environment with the organizational structure. So we're deeply committed to it. About 20,000 people in the company, and there's about 130-ish at the corporate center, right, to give you a sense of the scale of this.

Now at the same time, we have 29 businesses that while the end markets are very different, the business model is remarkably similar. So there's tons of pattern recognition on what the best practices are in terms of how to build a business that is very effective in improving its organic growth rate over the arc of time. How do you do strategy well? How do you run a talent offense? How do you run a structured operating environment? How do you build it on principles of continuous improvement? How do you become AI native in everything you do? How do you drive faster product velocity, commercial excellence. And so this growth system is something that we sort of put together over the arc of time, and it's very much the combination of the and. How do you lean into this decentralized local accountability, highly autonomous structure, but then avail all these sort of best practices of the portfolio to these leaders so they can be most effective in the way they operate their business.

Got it. One of the pieces here you referenced was talent offense. I think that's maybe, I would argue, one of the more underappreciated parts of the Roper journey over the last few years. If you could just talk about maybe some of the more specific impactful recent hires as you see it and then more generally, kind of the infrastructure of identifying and developing and placing leadership.

So we have been working on this for a long time for a decade. I mean, 8 or 9 years, we've sort of introduced the concept of a town offense to our business units. We have a lot of admiration for a company called Stryker. It's a medical products business, like a remarkable business and a lot of their success is built on their town offense, and we best benchmark that, worked with their -- understood from their CEO and their teams what they do and brought a lot of the core principles to what we do.

And I will say that like most things in business, this is not like a particularly novel idea, but the execution or the brilliance or the good things that come from it accrue because you're consistently applying the principles with a great -- a high degree of rigor. And so we've done this in all 29 businesses runs a talent offense is focused on employee engagement, employee selection, employee development.

At the leader level and the employee base, there's management routines around this. I think every business twice a year, 4 to 6 hours is a deep talent review where they're making commitments across all these dimensions. We've seen the enterprise engagement score as measured by Gallup across the enterprise go from like the mid-50s to the mid-70s over this period of time. So becoming a truly top quartile in terms of employee engagement and sort of what you get the discretionary effort. And so this has been like a consistent thing.

Now when we see these things happen, better selection that's objective, better engagement, better development of the high potential talent, you see a very clear corresponding increase in business results in the business. And so you see employee attrition go down. You see product velocity go up, you see commercial excellence go up, you ultimately see growth go up. This is very clear connection. But it takes time. There's no like silver bullet. This just takes the grinding effort of building sort of a true sort of talent DNA in the business.

On top of that, when we said in the second transition or transformation here going from the industrial business to a more growth-oriented software business, we've had to re sort of think what a growth-oriented leader looks like inside the business. And so we're very behavioral-based. We hire leaders that are competitive, intensely competitive, curious learners that love to build that can connect the long term to what every person organization does tomorrow.

And so we hire on these attributes, and we get this intense growth mindset at our leader level, that then sort of sets into their organizations. And so it's -- you can have a growth system and all the best practice sharing, but if you don't have a growth-oriented leader, it's for not. And so when we look at our portfolio of leaders, it's substantially more growth-oriented today than 6 or 7 years ago. We're seeing more internal promotions from leader from CEO to CEO. I think 4 of the last 6 or 7 CEO promotions or hires have been internal.

And then finally, on a talent perspective, we've supplemented from an AI perspective, a tremendous team of about 30 people that then is an accelerator team that's now working with our technical teams across our portfolio to sort of go faster. So yes, talent is a huge focus for us.

Anything you want to add to that? I covered a -- okay.

Okay. Great. Yes. Maybe we can segue there into that AI centralized resources and the team that you've developed there, the accelerator team. Maybe if you could just talk about the components of the value that they're delivering to the portfolio of businesses? How far does that extend? And what do you see as kind of the long-term vision?

Do you want to start?

Sure. Yes, I can start. So we've hired around 30 folks. We started with 2 last October. So it's been a -- I'd say, successful. So they're -- the model is they're either going to be -- it's kind of a continuum of providing consultative support all the way to like working shoulder to shoulder with our technical teams, as Neil said. And really, it is the businesses are serving up all their ideas around agentic workflow that can be agentified and then our teams are helping to actually help build their teaching and then helping to build. And then the goal is for them after they've teached and they've built to then dismount and go to the next company. So that's really the process. And I would say, so far, it's gone really well.

You're always going to skin your knees a couple of times with maybe some folks in the business that maybe don't work at the same speed as this team. But what you're also seeing is there's others in the organizations that have raised their hand and say, I want to be part of this, right? I want to be part of this next wave of development. So they're working at sort of 10x in terms of agentic development of code, and that's also been an accelerator across the portfolio.

I think there's clearly an opportunity there on the product development side. I'm curious now it seems like the main or an increasing focus is the commercialization side. Is there a component of that centralized resource today or maybe in the future that can help your businesses kind of come up the curve on that piece of it?

So the short answer is yes. Are we equipped to do it today? No, right? So it's been about -- what we've added to the central sort of kit, if you will, in the last 12 to 18 months is a true point of view on product velocity, like organizationally, how do you drive faster product velocity. This is more than just using the models. It's like the whole organizational design approach, team structure, what they focus on proximity to the customer. So product velocity that obviously the enablement of the agentic use cases with the Center team.

We're going through a massive amount of commercial learnings right now. Now that we have products, agentic products that are hitting the market across 13 to 15 -- 12 to 15 of our 21 software companies. Now we're starting to see the patterns emerge about how do you sell, how do you price, how do you deploy? How do you drive utilization? And we very much could envision in the growth system, if you will, a commercial excellence function or capability. I don't want to overstate it. I mean these are like 1 or 2 or 3 people. These are like calling best practices and then teaching them. It's not like they're doing it. But yes, we could definitely see commercial excellence as part of the kit.

Got it. When you think about -- there's been a few notable successes in the portfolio businesses in terms of development starting to come up the curve and on the commercial side, seeing some notable impacts. When you think about how to broaden that across the portfolio, how that journey has gone, what kind of comes to mind in terms of maybe patterns where you're seeing more and less success and how to kind of bring the medium company up more quickly?

Just to make sure we answer the exact question. On the commercial side or development side or both?

Maybe both.

Okay. So on the development side, I mean, again, the good news is vertical market, our pattern is vertical markets, leaders in vertical markets, there is just -- and the surface area or the remit of software has just expanded massively because of AI. Obviously, AI is about what software can do versus just how it's delivered, which is on-prem mobility and SaaS. So it's about what software can do. And it just can do more. And when you're close to these [indiscernible] have to go do is like incredible, like high ROI ideas. So that's not the gating problem. The gating problem then -- the next gating problem is then how do we get to these products fast and furious, hence, the velocity in the AI team.

I think some of the patterns, by the way, is smaller teams are better than large, obviously. Closer to the customer is better than not. Solving problems versus creating features is what the objective should be. And Jason said it a few times, probably ultimately a smaller number of total development headcount, but the dollars might not be less because you're going to pay more for the 10x engineers and they're going to obviously have the token cost of sort of companions with them. So we're not viewing this as like a productivity as a savings, but more how do you get more throughput out of the system.

On commercialization, I think the early patterns are how to monetize and how to price. What's very clear across the portfolio from our customer conversations is it's not going to be straight consumption-based. Customers have to have some sense of what the budget is going to be, what the spend is going to be. And the bulk of what we're doing is, I'll call it like an old-school cell phone or mobile plan, which is you buy a chunk of credits or usage capability against the tool, but it's going to be a fixed amount, whatever the number is, $50,000 a year for x amount of consumption. But it's going to be use it or lose it, so we can take it as recurring as opposed to reoccurring revenue.

And then as you go through that, you need to buy the next bolus, you'll buy another sort of subscription tier on top of that another $20 or $50 or whatever number. So you have some sense of planning and predictability. You also get commitment from the customer. This is not about like just trialing and testing. It's like making a commitment that I'm going to change my workflows to do this automated task, you're going to make some commitment to the dollars. So we would expect -- I think that's the pattern that's very clear. There'll be some exceptions to that on the tails of the portfolio, but that appears to be like the primary monetization sort of methodology.

Interesting. You referenced kind of high ROI workflows. I think that's been kind of a core theme debate at this conference in terms of how do we think about quantifying and capturing the ROI from these AI products. When you think about the most tangible proof points, the highest impact use cases that you've seen, what are some things that come to mind?

I'll give you a couple. I'll give you -- 3 come to mind in this example of like low dollar, high volume, like relatively high dollar medium volume and then very high dollar low volume, but the use case is slightly different. So we have a business that's in pharmacy automation for pharmacies that serve long-term care and skilled nursing facilities. These are not like the retail pharmacies that you wouldn't even see a sign on the door, but they're basically factories that are -- sort of tens of thousands of prescriptions get pumped out on a daily basis. Every one of those prescriptions has to be verified by a pharmacist today, manually verified. The time and motion study on that, it costs $1 to $2 of human labor to verify one of these prescriptions.

Our first agentic tool does that at a quality level that's higher than a human, and we charge about $0.30. So it gives you a sense of the value capture and the value share with the customer. So very tangible hard ROI from the day you turn on the product.

Similar concept, different end market in transportation, we are today, those that know us, we own a business called DAT. It is the organizing force network for the spot market in North America for trucking. So we organize all the brokers and all the carriers in the marketplace, and we're the hitching post to where 750,000 loads are brokered or advertised every day, unique loads. We monetize that today on the subscription on both sides. To make a load of brokerage happen, it takes about 10 phone calls between the broker and the carrier. There's about $100 to $200 of labor on the side of the broker to make that happen.

We have the capability in market today to do the full matching, the full sort of transaction closing, the factoring of that transaction, the financial sort of reconciliation of that transaction for $40 to $60 depending on the transaction. So again, very hard ROI.

The final one I would say is in our utility business. So we have -- they're talking about like a niche of a niche. So we're the leader in tax accounting software for investor-owned utilities for their assets. Like it's a niche within a niche within a niche. And there's a process that has to happen. All these utilities are investing all their capital and they can only get a return on the capital once they -- in the rate base once they sort of get it sort of perfect -- I'm sorry?

In service.

In service and they sort of perfect the asset. They get it, and so that's when they start getting a return on it. Today, to sort of put the assets in service and sort of curate the asset, it's a consulting project. So that's why these utilities have billions of dollars of WIP that they're not earning a return on. So we have an agentic use case that's releasing right now that does that for the customers in lieu of a consulting service. And that's a button that will be pressed a few times a year, but has high value as opposed to the button that's pressed thousands of times a day in the pharmacy automation, but you get a sense of a range of hard value that happens.

Interesting. To shift gears a little bit. Last earnings call, you called out an expectation for maybe a potential warming of the M&A environment. It's obviously been slow this year. Maybe you could just talk through your confidence there of maybe potentially seeing some activity towards the back end of this year and into next year? What are kind of the tangible points that you're seeing there?

Yes. I think, well, we've been talking about this for years, right? It's -- the DPI pressure continues. The hold periods continue. There's not many transactions that have happened this year in software, as we all know. There's credit cliffs that are coming in the next couple of years as well. So to be able to recap is going to be very difficult for the sponsor. So all those -- that's sort of at the macro, I'd say, and kind of what we're observing on the ground is just much more constructive conversations about value. We're getting a lot of access management meetings sort of on a one-off basis, getting a lot more access to information than we normally would.

So I do think to keep the to keep the wheels moving in private equity, there does need to be some transactions. So we feel good. Again, just time has been our benefit. We're going to be super patient. If I -- on the bolt-ons, that's been much more liquid, much more active for us right now. We're putting a lot of deposits for platforms. We think that's probably going to be more of a '27 time line versus later this year, but that's sort of what we're seeing on the [ round ].

On your approach to identifying and selecting potential targets, obviously, it is a very dynamic time in software. You guys have historically had more of a risk-averse mindset, trying to bat 1,000 as best you can. How is maybe that targeting changed at all? How do you think about incorporating a company's AI strategy? What are kind of the things you would look for to say, we think this company is maybe better or worse positioned?

Yes. So we are definitely a -- the whole concept of a cash flow per share compounder is you need to have a low range of outcome, right? It's -- our whole business model is built on like a steady, consistent low range of outcome, not highly cyclical sort of compounding methodology. And inside of the portfolio over the years, we believe that the best way to do that is you need each individual asset to have the same sort of low range of outcome as opposed to have a bunch and assume the portfolio effect dampens it. And so we've always been, call it, like a low range of outcome sort of investor.

With AI, certainly, it adds to the range of outcomes. And so we have to just assess that. But we've always been the ones that sort of try to evaluate existential risk. If a company can go to a 0, conceptually a 0 in the Monte Carlo, we're just out. Even though it could have like a 5x upside, it can go to 0, that's not us. That's the opposite of a low range of outcome. So when it comes to AI, we have both an offensive and defensive moat framework that we built for our own portfolio. We apply it to every acquisition going forward. Increasingly, it's more objective versus subjective evaluation of the criteria. It's things like network effects, regulatory overlay, obviously, the level and amount of proprietary data and the knowledge graphs of the various companies, the configuration density of the software, things like that, that we look at.

Regulatory.

Regulatory overlay for sure. And certainly then the stability of the end customer. You can have a business that might have scored very well on all those dimensions, but if the customer is going to be fundamentally disintermediated by AI, then you don't want to be in sort of that end market. So right now, it's -- we apply the framework to our best ability as objectively as we can. We obviously have the pattern from our own portfolio, we apply prospectively to these targets.

And this only is going to get easier over time as the AI winners emerge and you see more bookings contribution, more revenue contribution from the agentic SKUs and they're emerging as the winner and they have the RL on their products, so getting higher quality and more deterministic in their outcome. Those are going to be the clear and obvious ones to acquire, but that's going to be a couple of 3 years from now, not right now. So we have to be prospective in the analysis on that. That's how we think about it.

Are there any more quantitative metrics? I think the framework you laid out makes lot of sense. Are there any more quantitative metrics that you're able to use today? I mean, I think, for example, in the software -- in the public software space, a lot of people are looking for acceleration stories. Is that something that's part of your framework as well?

Certainly. I mean all this is about like we fundamentally believe, I think most people -- this is not a fact in dispute that AI is TAM expanding for software. The debate is who's going to be the claim that TAM expansion. We have a strong thesis that incumbents have a high, high, high right to win for all the reasons we get into or we've been into in the past. But yes, I mean, it's -- ultimately, this has to manifest into accelerating growth, second positive, second derivative growth for sure.

Maybe just more broadly on your capital allocation framework. It seems like that's been shifting. Obviously, you had the buyback this year, reduced share count pretty meaningfully. If you could talk about positioning yourself, developing kind of a dry powder bank, how has that mindset changed?

Yes. I mean we're really pleased with the buyback over the last 8 months. But back to the point of what I was talking about earlier in terms of the opportunity and the option value around M&A, we think it's a unique opportunity. And so we are delevering right now and preparing our balance sheet and the belief that things will fall in 2027. And so we've got the proceeds from our Indicor minority investment that are -- we've got the instrumentation piece with flow control probably get in the fourth quarter, that's about $1.6 billion or so, and then we'll have strong second half cash flow. So that will prepare us and allow us to be able to do $5 billion or more of M&A in the next 12 months.

And then in terms of your decision framework between buybacks and M&A, how is that...

Look, like I said, it's an option. So if the M&A markets don't cooperate, we have the buyback. So it's really just a time value of money sort of deferral of the buyback if the M&A markets aren't cooperative.

I think it's important that the folks here listening this we say this on a repeat. But for us, capital allocation is simply just a math exercise. There is no emotion tied to this in any capacity. We're not trying -- what we say at the beginning, we're trying to build the best cash flow per share compounder, that is what we're attempting to build, we're working to build. We think about it all day every day. We're not trying to build the biggest fill in the blank, transportation software business, right? So that gives us tremendous optionality and tremendous discipline in just what the math says for the best long-term cash flow per share compounding.

Now we focus on how the 5- and 7-year or about compounding. So not what's the best in the next 12 months, but what's best in the next 5 to 7 years. And so mathematically, when we did the acquisitions of the church management and autism therapy acquisitions 18 months ago or 12, 15, 18 months ago, we paid -- this was a different valuation era. We paid 22x next 12 months for those deals. We underwrote those to be about 9 or 10x year 5 EBITDA. At the time, we could have bought our stock back at about 15x. So there's a -- I'm sorry, year 5, we could have bought ourselves back in year 5 at about 15x. So about a 50% risk premium to do -- to deploy the balance sheet towards acquisitions.

Then valuation change, our valuation changed, and we can all of a sudden buy ourselves back at 9 or 10x year 5, where the public -- or the private markets are still wanting to price on yesterday's valuation. So it made no sense to could have about any company you wanted for 22x trailing or forward, but it makes no sense because there's no risk premium attached to it. Now we think that math is going to tilt even further towards M&A, right? So if you can get a 20% to 40% discount on the private companies versus where we paid a year to 18 months ago, now we're going to underwrite to something like 6, 7, 8x year 5 EV EBITDA and you're back in the risk premium makes sense and the cash flow per share compounding accelerates from that 0.4. It's just a math exercise. Any time that math changes, it changes the way we think about how we allocate the capital.

Interesting. Maybe I'll pause there if there's any questions in the audience, this gentlemen. We have a mic coming to you, one moment.

Just to pick up on what you said there about capital allocation math exercises, kind of wanted to know, and I heard your point about delevering here into '27, kind of how does the balance sheet fit into that math exercise?

Yes. So we run a levered -- an investment grade but levered play, right? So we attempt to be between 3 to 3.5x leverage over a long arc of time, sometimes above, sometimes below. And it just provides a cost of capital advantage versus the people we compete with. We borrow at whatever, 5.5% plus or minus, and our competitors borrow at 10% plus or minus in private equity. And so it's a cost of capital advantage for us, and we run the levered play, which helps on the equity return. Modestly levered play. I mean we're always going to stay investment grade.

Any other questions out there? Okay. Maybe we can just talk about the organic growth outlook. I think there have been this objective of returning the business back to kind of high single-digit growth organic growth. There's been a few kind of stumbling blocks along the way that derailed that. Each sort of feels idiosyncratic, but when you sort of stack them all together, Deltek, Neptune, arguably DAT. If you could just talk through some of those. To what extent do you feel like those headwinds are behind us, where do you still see maybe potential to linger or a wider range of outcomes?

Sure. So yes, so with Deltek and they are heavily exposed to government contracting space. And so it's been -- as you can imagine, last year was -- it was idiosyncratic when you had DOGE, you had agencies that were sort of gutted and then we have the shutdown, prolonged shutdown. So this year, starting to see appropriations flow. We're second and third sort of derivative demand on that because they got to get the money and then they provision the licenses. Usually now, it's more when they actually get the funds. It used to be a little -- we used to not have the sort of lag. But we do think there should be some recovery, the timing of which is still sort of TBD. We saw some green shoots in the second quarter, but we're not ready to call a market yet. But when that does happen, we should be the beneficiary. There's a lot of OBBB that's going to be flowing in for Deltek.

The other sort of catalyst for Deltek, and this is more bookings, probably not in-period sort of revenue is they have announced end of support on their cost point solution for the first quarter of '28. Now that won't all happen through the '28. It will still continue. Customers will stay on-prem, but that's a catalyst to move from on-prem to the cloud, which should move it over 2x from maintenance to subscription. And then -- and so that's sort of what's going on at Deltek.

DAT, I think we've mentioned that we've seen a freight recession. We had a freight recession for 3 or 4 years. It's been positive in the first half of this year. And so we hope that continues. It's more of a supply-driven rally. And so we're a little cautious, right? We're not seeing constructive demand, but it is certainly -- we like the trends in that business.

And then at Neptune, it's sort of, I would say, kind of doing okay, sort of bouncing along the bottom. They did perform better in the first half than we thought they would, but we'll see how -- the market sort of is still settling from COVID. I would say it's not completely -- we're not out of the woods yet. But we're sort of -- we are in sort of -- it's in our guide, and we would expect that in the coming years, it will sort of -- volumes will start to normalize back. The good news at Neptune is we've been able to sort of offset some of the market volume declines with the move to static from mechanical meters. And so that's been the story at Neptune.

Okay. I think that's great color. Maybe if we think about just bridging that organic growth to the free cash flow per share framework that you gave kind of mid-teens growth. Maybe you could get us -- walk us through the math to mid-teens growth and then how do we bridge that up to the aspiration of high teens?

Yes, I think it's simple, right? It's the -- getting that organic growth is a major component of that. And then I think -- so that's sort of one component. You get a point or 2 of organic growth. And then I think capturing more value out of M&A, and that's really just some of these maturing leaders, obviously, as Neil mentioned, paid a little bit more upfront for those. But as they start to compound over time, then you're capturing more value out of M&A. And I would also say the bolt-ons -- doing more bolt-ons. So we're doing a lot more bolt-ons than we did 3 or 4 years ago, and those are obviously very cash accretive, but they also improve the organic growth. So it sort of ties back to increasing the organic growth of our platform. So that's how you bridge the sort of mid-teens to high teens.

Yes. And the baseline is I think you have -- and not any -- like for this year or next year, more like the model, you have 6%, 7% organic growth. You had a little bit of margin expansion, so sort of high single-digit sort of organic EBITDA growth. Then we have our baseline capital deployment, which then bridges you to like mid-teens. And then as we get a little bit more organic growth and a little bit more return on the baseline capital deployment, it goes from mid-teens to high teens.

Perfect. Maybe just with our final minute, what gets you most excited about the position of the future and the journey ahead over the next few years?

I've never been more excited than I have in my career about the opportunity in front of us with AI. I mean it is the resonance that our customers have with things -- I mean we're literally delivering a button when you press it magic happens. And I've always been in like the boring part of software and all of a sudden, software is not boring. And just the reaction, like I've said this a couple of times, but the local -- the guy who runs a local health system in Sarasota, we had lunch. He's like, hey, I hear you have a pretty cool new AI tool with this with a company called Strata. We'd love to learn more about it, like that never happens. Like we have a conversation, they got in the early developer group, and we just did a great teach-in with 1,000 of Strata's customers a couple of weeks ago on launch day. So it's just really fun to sort of see the magic that's happening in the product base and the reaction from the customers.

Great. I think we'll leave it there. Thank you, everyone for coming.

Thank you, guys.

Thank you, gentlemen, for being here.

Thank you.

All right. I think we're ready to kick it off. Day 2 of the Communacopia and Technology Conference. My name is Joe Ritchie. I cover the multi-industry sector at Goldman, also co-head our U.S. Industrials and Materials Research. Really happy today to have Roper with us today. We have Neil Hunn, President and CEO; as well as Jason Conley, CFO. Thank you guys for joining us today.

Yes, thanks for having us.

Yes, thanks for having us, great to be here.

So Neil, year 3 at the Communacopia and Technology Conference. So at this point, you would think that folks would be pretty familiar with the Roper story, but for those that aren't, maybe just provide a little overview on your value creation framework, and we'll take it from there.

Yes. Just real briefly, think of us as a durable, steady, low range of outcomes, cash flow per share compounder. That's the mindset of the organization. In terms of the profile of the assets in the business, about $8.5 billion of revenue, 40% EBITDA margins, low 30% free cash flow margins. And perhaps interesting for investors is the portfolio of businesses are hard for investors to own individually because they're small. They're tiny businesses that are leaders in small markets.

So we're the leader in a small TAM. So we have the scale advantage locally, but we compete on intimacy with customers. We have strong product market fit, strong gross retention. And collectively, the cash flow could generate the capacity of the enterprise is quite compelling. Now stand-alone, each of business -- each business would not be particularly uniquely productive in how to deploy the cash flow they generate to their own individual purpose. So therefore, we take all the cash flow up to the center, the free cash flow, excess free cash flow and deploy it to what is, we think, the next best opportunity, whether it's a new platform, a tuck-in acquisition, a buyback at the enterprise.

When you put that together, the cash flow compounding per share capacity is in the mid-teens. And we go to work every day trying to find a way to get that to the high teens at the rate of double goes from every 4 years -- excuse me, every 5 years to every 4 years. So low range of outcome, durable cash flow per share compounder, one of the largest, if not the largest vertical market software businesses that's publicly traded. That's a collection of 29 businesses underneath the hood. But I'll stop there. We can take where you want to go to.

Yes, super helpful. Before we get into the whole AI discussion, which I'm sure will dominate a lot of this discussion, we've talked historically about being very focused in niche markets, vertical software, why is the disruption risk low when you think about the horizontal players that are out there potentially coming into your markets? Like how do you think about like the defensibility of your -- of the businesses that you're in?

Yes. I think there are several defensive aspects to it. I mean the first, and this is proving to be the case even in the AI era is the size of the prize is quite small. When I say our TAMs are small, our largest singular TAM for one of our business -- our biggest TAM is about $4 billion a year. This is pre-AI. Most of our TAMs are $1 billion or less. So the size of the prize is just quite small. It's already very, very well vended, particularly by us and a very small number of competitors we have in each one of our verticals. So that is the case.

I think 18 of our 21 software businesses work in a regulated end market. Oftentimes, the regulatory regime is why you need very specialized software in a vertical, whether it's education or insurance or government contracting or whatever it may be, health care for sure. And that specialized end market, there's something unique about the way that end market operates that isn't suited particularly well for horizontal software. Every one of our businesses were created sort of in the nooks and crannies of the horizontal.

So from the day that they were born, the businesses were born, they had to create differential value from the generic application of horizontal software. And those are some of the reasons why it's historically durable. Going forward on an AI front, if you think about, in our opinion, like what are the attributes for an AI winner, well, first, you have to be able to take this probabilistic outcome to deterministic. That's largely done with the context and data knowledge graphs that we have across all of our businesses.

Then you have to apply that in a workflow with essentially no latency and you have to have the customer trust to be able to do the first one of those. And so it's the aggregation of those that is, I believe, an incumbent advantage in AI, which I'm sure we'll get into as we get further into the questions today.

Yes. So let's start. So since last year, you have given a ton of examples on earnings calls, in particular, about how AI adoption is accelerating across the portfolio. Maybe just level set us on what parts of the portfolio are already monetizing AI and like bookings or retention ratios and how you're monitoring it.

Yes. So just to step back in a little bit of context. So when the AI gun went off a couple of years ago, our decision at the enterprise level was we want to take all of this goodness of these tools and drive into the product stacks to drive customer value to drive growth and play offense. And so from the very beginning, that's been the mantra and the mindset, not how can we do what we do substantially more cost effectively and take it to margin.

So we're playing sort of a growth game knowing that over time, we'll get the productivity and maybe there's some margin of benefit, but we want to take all the productivity gains and go play offense. So what that manifested is all of last year and this year, it's been how do we develop these agentic SKUs that are doing these task replacement sort of things across a large swath of our portfolio, not domiciled in like 1 or 2 of our businesses, but essentially all 21 of our software businesses.

That's been largely successful in the first wave, and now we're in the commercialization sort of learning phase of that broadly across the portfolio. Now when you have a portfolio of our size, you definitely have companies that are -- that lead the pack and ones that lag. So your question, like are the early adopters and where we've had real success in autism therapy, legal, increasing success in some of our other health care IT franchises, early success in insurance, early success in pharmacy automation, just to name a few.

But it's -- I call it early, like we've got to scale this. It's got to get scaled across dozens of our -- a dozen plus of our software businesses, not just the product releases, but the commercialization, the retention. But the signs are encouraging early, but it's too early to call like the trajectory of that.

So maybe you have a disparate group of 21 software companies, right? What is it about the ones where you've had early success versus maybe more kind of like you think the adoption is going to be a little bit more gradual. What are -- what are some of the reasons why these companies, like whether it's CentralReach or Aderant is having a little bit more success than others?

I'll start and Jason can add some color. And so I'll paint like 2 distinct points on this map. And then I think the world will -- most of our adoption will live in the middle. So in autism therapy, there is a huge demand for the service in the United States. There's something like 800 million therapy hours that are demanded every year. There's 300 million therapy hours supplied.

There is a line outside the door of every autism therapy clinic for families that need these services. And so our 3 categories of agentic SKUs basically allow the therapists to have more hands-on physical therapy time with the learners. So instead of 15% administrative time, it goes down to like 5%. So they see more learners, the line gets shorter, more families will see the care, the practice makes more revenue. And so it's a win-win-win. It's just a win all the way around. So that's been a very fast adoption, faster adoption pace for us. So there's -- it has been.

On the other side of the coin, same conceptual setup. In freight matching in the spot market, we own the business that organizes the spot freight market in North America. It's called DAT. Roughly 750,000 unique loads are advertised on our network every day between freight brokers and carriers. And the capability that we built -- bought and built now can automate entirely the matching process of a freight broker to the carrier.

Today, it costs between $100 and $200 of manual labor to do that. There's about 10 phone calls that happen in each one of those matches. Are you available on Thursday? Can you do it for $3,000? Can you drop it off on Friday by 3? This happens back and forth. I need your insurance. We collapse all of that, do it automated, charge $40 to $50 to do it. That rate of adoption has been slower because the person pressing a magic button is like, that's my job, right?

So the human adoption that sort of has to sort of go through. Now the unit economics are so compelling, it will happen, but the rate of adoption is going to be a little bit slower. I think the reality for most of our agentic tasks are going to live in between those 2 because in the case of DAT, it's not entirely replacing a freight broker job, but a big swath of it, it is. Most of what we're doing and whether it's pharmacy automation or insurance automation, we're replacing and augmenting individual tasks.

And so I think the propensity to sort of -- yes, I don't like doing this reconciliation task. Of course, I don't like to have confirm every script every day for 4 or 5 hours of my day, if the software can do that, I'll let it do it. So then the people can go do higher value-added tasks. So I'd expect the rate of adoption for the bulk of what we're doing to be between the 2, not super fast, not super slow.

The only thing I'd add is we are in small markets. And so what we've seen at least on cloud adoption as an example, I'll pick on legal. We thought it was going to be the slowest to adopt cloud. And then when COVID hit, you had this tipping point.

And then when law firms knew that others were implementing it, you had -- it's sort of an acceleration. I do see parallels here where you're going to come back a year from now at these user conferences, you're going to have reference customers, and they're going to show the benefits of it from a productivity standpoint and say, I got to -- so there's a lot of sort of conversations that happen within the industries. And so I think we just need to seed enough of those to get that tipping point.

That's right.

Super, super helpful example. So last year, at this conference, I asked you about disruption risk. You mentioned Foundry as a potential portfolio company that could be disrupted maybe sometime down the road. And then this year, Foundry returned to growth, you launched more AI tools. So has anything changed about the long-term risk of Foundry? And then as you think about the broader portfolio, any further thoughts on whether there are other parts of the portfolio that could be disrupted?

On Foundry specific, the context here just everybody has it, Foundry is less than 1% of our revenue. So if we're wrong in this statement, it's not hugely impactful to Roper. What Foundry does, by the way, is it has a very clear market leadership position in post-production, high dollar per minute, Netflix streaming, theatrical releases that takes the live action and the computer generated graphics and composites that into a single frame. So think the Game of Thrones Dragon and the humans putting it into a single screen. It all happens in post-production called composing, and we have a very, very strong market position there.

If you believe that all high-dollar content is going to be completely generative, then there's not a post-production step to do. So that's like the existential threat for that business. So the current course and speed is that is not what's going to happen. AI is being used to generate more CG and more CG means more compositing. And what Foundry is doing is making the compositing step even more automated. And so in the intermediate term, multiyear term, it feels like there's wind at the back of Foundry, but we can all draw individual conclusions on where the future, 10, 15, 20 years of high end, like $1 million-plus per minute sort of releases will be in terms of content creation.

So that's sort of the framing of the existential risk. For the balance of the portfolio, we feel very comfortable. Like we think that's ultimately with Foundry is like what is the -- does the end customer exist? Yes or no. Does the compositor exist? For the other 20 software businesses, we feel very convicted that the end customer exists. There's going to be an autism therapist. People are going to go to church.

Insurance is going to continue to be sold for complex sort of business insurance, like the customer exists, and it's been our job to automate as much of that customer's activity to sort of service that end market as possible. So we feel very comfortable with that opportunity. But it tilts very in favor of growth versus contraction.

Very helpful. Think about -- maybe talk a little bit about the pricing models that exist, right? I'm sure they're disparate across the different portfolio companies. So...

Yes. No, and it is disparate. Some of that is inherent with whatever the business model was before. So we have a couple of businesses like parts of DAT where it's automated already, it's based on per transaction or as SoftWriters based on per script. So the agentic charge meter is going to be similar to that and the customers are used to that consumption. But that's more of an exception. I think what's starting to be apparent, and I think everyone's heard this is that as a CFO, especially I want to have certainty on the budget.

So something like a credit system is what we think is going to be probably the preponderance of what's going to be out there. It's something that Vertafore put in place in the market. So essentially, if you're a customer, you can draw down credits based on the task that whatever agent you want to choose, there's different meters based on different tasks. And so that's good because it's a use it or lose it type policy. We get recurring revenue out of that, more certainty to the customer. And so that's where we see things headed.

Got it. Okay. Great. And then we talked a little bit about some of these efficiency gains. You talked about DAT and maybe some of the slower adoption. One of the things that we've talked about historically has been that AI could reduce some seat in some of the workflows. Have you seen any kind of seat compression today across your portfolio or no?

We've not. Gross retention is -- continues to be very strong, mid-90s at the enterprise level is the number we sort of talk about earnings calls. We obviously monitor that. We've also used inventory like the pricing model, this goes back 1.5 years, 2 years ago. And there's only 3 of our businesses that have a pricing meter that we might potentially have to adjust the meter over the medium mark. Nothing we have to do like we change it like in a nanosecond. And the reason there's only 3, I think like health care IT, to the extent we have seats, it's like the total number of health care workers. So we're not -- we don't need to change that.

And insurance is the one that we have a very clear line of sight, property and casualty insurance on how we need to modify the pricing meter. We have the plans in place. We have the telemetry is being built. The first wave that will go out in the first part of next year. It's completely aligned with the customer. We're not trying to price grab or change total price. We're just changing the underlying meter from a seat to something that's more indicative of the growth and the unit economics of the insurance agency itself. So that's the one that is sort of front and center.

The next one would be our legal business, which we charge a number of fee earners, but this is not -- sort of once you hit a fee tier, then you basically can't drop down. So we might sort of introduce a secondary pricing meter with that. We may or may not. And those are the 2 that we have to sort of work on in, I'll call it, the shorter term and then -- and possibly over a multiyear period of time, maybe modify what we do with Deltek, but not something in the short term.

Got it. Is your customer changing, who you're actually targeting within each organization?

So interesting on this is it's hard to generalize across all 21 software businesses, but I'll take a stab.

Yes, please.

Our customer profile is typically a medium-sized business. Think a 3-facility day care center or a 4-facility closed door pharmacy or a 500-person insurance agency. We certainly sell to large enterprises in the government contracting business, and there are very large insurance companies for sure. But the preponderance of the number of customers that we deal with, we are the IT budget. Like they don't have Salesforce administrators. They don't have big IT departments. We kind of -- like we are the IT department, if you will.

And so in that regard, the customer is not really changing because we're generally selling to the principal or a very close proxy to the principal. Maybe the CFO of a large insurance agency, maybe not the owner or the CEO. And so in that regard, no, it doesn't change that much. At the enterprise level, like we do sell to larger customers, I would say that we have typically sold -- that's where it might change a little bit more to the end user than the IT department where we're sort of selling like a tool to make the user more efficient, then they have to take it and sort of work with the IT department. But that's like a minority of the sales motion that we have.

That's helpful. You mentioned earlier, Neil, that you're trying to take all your productivity gains to play offense, right? So maybe discuss like where you're seeing the biggest kind of efficiency gains within your own portfolio?

Okay. So like I said earlier, a couple of years ago, when [ AI went off ] is like how do we go drive product velocity and play offense and get first products to market and sort of accrue the AI agentic learnings at accelerated pace and compound that. And so without question, where we've seen the most productivity in the organization is where the emphasis has been in the software development life cycle. And it's all -- it's directly -- it's direct -- it's straight up offense. As we get -- we have more product velocity, and this is not just using the models to code faster. There's a whole workflow.

Coding is a small portion of the software development life cycle. It's the whole software development life cycle that we've got a very clear model on what it looks like, the way you organize your people, smaller teams closer to customers, solve problems versus build features to drive product velocity. And we've seen really encouraging, super encouraging results in pockets of enterprise and are on track to sort of be fully agentic SDLC across all 21 software businesses by the end of this year. So like not 30% to 50% improvement, but multiple fold, like 3x to 5x sort of product sort of velocity sort of releases.

So that's great. We just now have the organizational sort of mandate to get other functions together to sort of share best practices about what they're doing on the AI productivity, finance team, sales team, support teams, services team, implementation teams. There's pockets of real goodness because the incentive is like, hey, if you can drive productivity to go -- put more in go-to-market or product, then every company is incented to do that. It's just how do we sort of get the competitive juices flowing inside the portfolio like, oh, that company is doing it. I want to do it better. I want to at least adopt what they're doing. And we're just like literally this month getting the other functions together, sort of tap into that.

Great. I'm going to ask one more question, and I'll turn it over to the audience before we move beyond this topic. But just in terms of contribution, right? So I think you've said AI is not going to be a material revenue contributor this year. You're going to see it flow in bookings first and then into some of your recurring revenue streams. How are you thinking about potentially the '27 contribution? And when would you expect it to really kind of inflect for you?

Well, I think the second half will be telling in terms of the early signs of bookings. And then from there, I think it's just adoption. So I think adoption is the ultimate question. I think we're getting signal from customers like, wow, this is really going to kind of revolutionize what I'm doing or -- so I think the signal is really strong. But in terms of like when it's actually going to materialize, this is a $100 billion question, and we're just not there yet.

Okay. Fair enough. I'm going to turn it to the audience to see if there's any questions before we move on. Please, just give me one second for the mic to come.

So in terms of the value proposition of playing offense by increasing productivity in AI, maybe how much growth do you think you can get by executing this strategy and changing our trajectory from now on?

Again, that goes to the same question. I mean what we know is -- we know it's TAM expanding. I mean I think that is -- that we went from theory to real. I think that's clear and obvious for us in our portfolio. What's less clear and obvious is the ultimate magnitude of growth and then the pace to get there. We're sort of a 5% to 7%, 6% to 8% sort of organic growth business. I think this is hundreds of basis points, but it's not a doubling of the growth rate of the enterprise. I think we can say that just to put big parameters around it.

But again, we're going to be very cautious on like what the ultimate destination is and the pace to get there until we have more -- like we see it in the trailing numbers because it's -- we're speculating on like 2 different parts of a trajectory that we don't quite know yet.

Question here.

Do you feel now is a good time for shopping for more M&A targets, given like everyone else is quite depressed.

Jason, do you want to start?

Yes. The question was what's the M&A environment. I think it is a great time to shop. We just need more products on the shelf. So I think there's lots of conversations about products that are going to be on the shelf, but they're not there yet. And what I mean by that is we still have this kind of bid-ask spread between where the public markets are trading and sort of where private equity thinks their assets should trade. And so -- but there's a lot of, I think, tailwinds for us in terms of LPs need liquidity. There's some credit cliffs coming in the next couple of years, what we've seen in the public markets.

And then -- and so I think all those things and we've been having very constructive conversations with sponsors over the last really 2 years, but I think they've gotten increasingly more constructive like really wanted to transact. And so we do think, though, that because there's been so much volatility in the public markets, they're probably going to try to wait this out as long as possible, and it's probably going to be more of a '27 where we'll see like kind of meaningful platform size deals that will come to market.

But also just look at the decision like the actions we took in the last earnings call. So from November to June, we bought 8% of the company back in 8 months essentially. And then we said we're going to prepare the balance sheet and build M&A capacity on the prospect that what Jason just said is going to happen.

So the early signal that there's some beginning stages of seller capitulation in the private markets appear real and it takes more than a month or 2 to prepare the balance sheet, but the returns that we can potentially drive to the enterprise and the cash flow compounding that could accelerate to the extent we can buy the businesses we bought 18 months ago for 30%, 40%, 25% lower prices are quite compelling. So the option value for that is worth exercising.

Following up on the M&A question. How does the rising rate impact your M&A decision? And at what point does it become prohibitive for you?

Yes. So cost of capital is -- I mean it factors heavily and it goes to ultimately the underwrite case. What we try to do in the underwrites is we know that in the cash flow compounding, what we need in terms of capital deployment to drive the cash flow per share compounding we need, we need to underwrite somewhere in the 10x year 5 EV to EBITDA as a baseline. So tax effect that inverse that formula is sort of get year 5 ROIC. That's what we underwrote to -- with 1.5 years ago.

With the cost of -- the asset prices coming down prospectively, that will help sort of underwrite substantially below 10x, but then cost of capital push that up a little bit. So it's just -- it all goes into the math equation of where it's best to deploy the capital. Certainly, increasing cost of capital will put some deflationary pressure on the asset prices for sure.

And that impacts sponsors more than it does us. They can't put as much debt on the assets. Mezzanine capital is not available. So that should drive down prices.

Any other questions from the audience? Just continuing along with the M&A side for a second. In the pipeline that you see today, are you seeing more opportunities in earlier stage, faster-growing companies? Or are you seeing it in more mature platforms and bolt-ons?

So again, just to reground everybody, in 2022 time frame, we made a modification to our capital deployment framing, which is more value to be created, more long-term compounding for the shareholders instead of buying a, call it, nearly perfected asset. So buying it from being the last owner of a long string from venture to mid-market to sort of scale private equity to us. We essentially want to buy the same asset, a leader in a small market, high gross retention, strong product market fit, but being an owner or 2 earlier. So we buy more from mid-market.

So we're catching businesses as they're still growing a little bit faster, still have margin opportunity to improvement opportunities. So more value for our shareholders to go -- for us to go execute the grab for our shareholders. So that is still the archetype that we lean. So the businesses in the portfolio definitely lean more growthy relative to the pre-2022 time. Now whether or not it's -- I wouldn't distinguish too much if they're 10% or 20% growth, but they're not like mid-single-digit growers because we're just not tuned in that part of the portfolio.

The other is to do -- if we could deploy all of our capital in tuck-ins, it would be a great outcome. Just the time and motion study of that doesn't allow us to do it. We don't have a portfolio that's large enough and the tuck-ins are small dollars. So we'd love for that to be 1/4 to 1/3 of the capital deployment bless you over a long arc of time. And that's always the first call of capital for us is the tuck-ins.

And the portfolio is always a good mix. I mean our Janet and her team do a great job of looking at every portfolio of every sponsor, meeting with all the companies, having them in various sort of quality quadrants, high business quality attractive end markets. Spend more time, obviously, in the box that's attractive and attractive, cultivating the relationships and understanding the timing of those. So that has substantially improved over the last 3 or 4 years in terms of understanding the actionability and sort of having us be an attractive owner of those businesses.

Yes. And you've had some great outcomes so far with CentralReach and Subsplash, maybe a less favorable outcome thus far with Procare. I guess when you think about this shift, what's been the hardest thing to underwrite? Is it the management capability? Is it go-to-market? Like is it scaling? Like what's been difficult?

Thinking about this, we had to almost like through process elimination, like what's the easiest, what's hardest. And so what we've been able to prove, and this is a learning sort of process. We're always learning, by the way. So it's -- we're never perfect in any deal. We're always trying to learn like what we did well, what we did not do well. So we apply that to the next one both internally and externally. We game film everything.

Every deal of every size goes to our Board for a postmortem after the first full year. If it's not good, it goes to a second year. And so there's discipline around this. I would say the easier parts for us in diligence is sort of market attractiveness, competitive intensity, market growth rates generally that we generally do a pretty good job with. On the business-specific things, we've done a pretty good job on the tech stack, understanding if it's a hornet's nest, understanding the stability or scalability, extensibility of the tech stacks, obviously, the product market fit, the right to win, the customer attribution of why they buy and why they don't.

And so almost by process of elimination, like what's left is like the go-to-market. And I think it's -- and generally the commercial function. And this has like been the most difficult challenging part of Procare. And it's what is -- I think the hardest part is like what's driving the historical success? Is it, like, a cult of personality of a leader that's driving it? Is it like real process repeatability? Sometimes those things in a diligence process can be masked a little bit where you can get to like the real root of that. You can see the pipeline, you can sort of vet the pipeline, but how did the pipeline get built. And so that's been the -- almost by definition of like what's left over, it's been the commercial parts.

Yes. That makes a ton of sense. Jason, maybe turning to you, and you talked about maybe the opportunities being more kind of like 2027. But your leverage right now is about 3.4x net levered. You guys have talked about having $5 billion of annualized capital deployment capacity. Like what would you be willing to lever up to in this current environment?

Yes. I mean, look, it's -- over the past 10 or 15 years, we've levered up to a couple of times for some larger assets, and we've always delevered after that. We generate a lot of cash flow. So obviously, we're mindful of the environment. But if there's -- back to the point of shopping, if there's just some very unique opportunities to compound free cash flow per share, then we're going to do it. But we're also committed to delevering shortly thereafter. So we want to stay investment grade, of course. That's a table stakes for us.

And then, Neil, you mentioned buying back 8% of your shares this year. How are you thinking about like that decision, whether to continue to buying back where your shares are today versus deploying capital via M&A?

Right, wrong or different. We think about the capital allocation is just math. There's like -- there's no emotion attached to it. It's just math. Now our math is what's better on a cash flow per share compounding basis 5 and 7 years in the future, not like in the next 12 months. And so we're constantly evaluating, is it better to buy our stock back? Is it better to do capital allocation to M&A, this bolt-on? And so that's the way we think about it.

Now mathematically, as we all know in the room, the numerator compounds faster than the denominator. So mathematically, M&A has an advantage, just it compounds faster. And so that's how we think about it. It's just a capital allocation trade-off. Put in perspective, what we did 1.5 years ago, the CentralReach and Subsplash deals, those were, as I mentioned, they're like 22x NTM, obviously, different valuation era than we are in today. We underwrote those like 9x or 10x year 5, as I talked about earlier.

At the time, we could have bought our stock back at roughly 15x year 5. So there's like a 50% risk premium, which I think is -- that's extraordinary risk premium. We don't need that 50% risk premium. We just bought our stock back at 9x or 10x or something -- call it 10, around the 10x, something like that. So that's where we can buy our stock back-ish today, so we need to underwrite to a risk premium that's 20%, 30% better than that.

So we need to underwrite to 6x, 7x, 8x EV to EBITDA in year 5 to make the math work on a risk-adjusted basis. That's like in today's valuation environment, this is very dynamic because where we can buy our stock back and versus that private prices, I mean it's always just -- it's a teeter-totter balancing equation of capital allocation of that.

Makes a ton of sense. So you talked earlier about like your kind of like organic growth framework. And today, it's kind of like mid-single-digit plus, but we've talked in the past something closer to like high single digits. Clearly, this whole discussion around AI is going to be an enhancer over time. You're buying businesses right now that are growing faster than the portfolio. Is there potentially more addition by subtraction in the portfolio today? And then like how are you thinking about the other pieces to get to that like high single-digit longer-term growth profile?

So on the portfolio construct, we've been pretty aggressive over the last 5 or 6 years on the portfolio. I mean we sold 40% of our revenue in '21, '22, basically exiting our industrial and project-based businesses. And so we're certainly not afraid to do something if there's value to be unlocked for a shareholder. The math, though, is we're not a public private equity firm. We own things on the Roper balance sheet from a tax perspective, there is leakage when things exit the portfolio.

But we would -- under certain circumstances, we would -- if there's a buyer to pay extra price, we have the tax leakage, we can redeploy it and put the shareholder back in a better position. When we started, we would consider that. It's a math exercise like I went through before. Unfortunately, that math is quite hard. And so it just doesn't pencil out that frequently. But basically, that was penciled out. But conceptually, it could.

On the growth side, I would say it's interesting. I'm simultaneously encouraged and frustrated on the organic growth. I mean it is -- we have the potential, very clear potential pre-AI to be a high single-digit consistent organic growth business. It has been frustratingly difficult to get our chin on that. We're doing all the right things in the portfolio. The leadership teams, the leadership CEOs, the teams themselves, the product velocity, the go-to-market commercial execution is all sort of theming in the right direction. And AI is going to be on top of that. And so this is -- we just have to demonstrate that across a broad swath of the portfolio.

Last year was frustrating because 17 of 25 of the businesses did what they need to do and then 3 or 4 of the larger ones had market sort of challenges. And so it looks like there's a macro thing. When underneath the hood, there's a lot of good stuff happening. And so I feel very comfortable we'll deliver the organic growth. It's just taken us a little bit longer to get there than we wanted to get there. About systematic structural repeatability, not just flashing the...

So we're bumping up on time. Assuming we're here a year from now, what are you hoping to be able to say to us a year from now based on what you see? Where you see the business trending over the next 12 months?

I think it'd be fantastic if we could say -- answer the question a gentleman asked in the audience, like what is the rate of growth acceleration going to be in organic growth because of AI. We can say, hey, we got these 18 or these 12 businesses that are doing this, which adds up to that, which means there's x basis points of growth on the fleet enterprise growth rate. It'd be great to be able to say that in a year.

I hope you can.

Yes.

All right. Good to see you guys. Thanks for coming.

Good morning, everyone. Welcome to the Oppenheimer Technology Conference. Ken Wong here. I think most of you guys know me, your software analyst. Happy to have with us the team from Roper. I've got Jason Conley, EVP and CFO; Zack Moxcey, VP of Investor Relations. Good morning, guys. Welcome aboard.

Good morning. Good to see you, Ken.

Great to see you guys also. [Operator Instructions] So with that, Jason, welcome aboard. Look, I think a lot of folks now, especially in the tech world, are generally very much aware of Roper. You guys have made a fantastic transformation from an industrial company to a software company. But even still, I think it'd be great to provide the audience with a kind of a quick background on Roper, and then we can dive into the formal fireside.

Sure, love to. So yes, Roper is a vertical market software and technology company. And -- we're focused on sustainably compounding free cash flow per share in the mid-teens over a long period of time. We are kind of an N of 1 in the software space because we have this sustainable M&A motion, so we have a lot of M&A optionality.

With that, we own 29 businesses, they're leaders in their niche vertical markets. And typically, we choose fairly smaller TAMs. We think they're attractive because of their protective nature and with our market leadership and especially with AI, this provides multiple paths to growth.

So today, I think organically, we're sort of mid-single-digit plus, and that converts to sort of high single-digit cash flow just because of the margin and the low CapEx and working capital intensity is very low. So we take that cash flow and then we just use a little bit of investment-grade leverage to acquire first call on capital is bolt-ons for our businesses because they just have such great returns or, of course, buying the next great vertical leader. And so with this, you get this sort of continuous growth flywheel.

And then obviously, in the last 3 quarters, we've been much more active on the share repurchase front, just given we think are really attractive valuations at Roper and I'd say, I'd call it a somewhat paralyzed private equity market for the last several years and increasingly over the last 6 months because of everything that's happened with the public market.

We have a proven track record of acquiring great businesses for reasonable valuations, and we make them better over time. And I think we're increasingly harnessing the collective learnings and value of those learnings and best practice methods across the portfolio, anything from AI product acceleration to what we call the product operating model and deploying that to continuous improvement methods and even into commercial excellence. So I think we're still getting going on how we think we can increase the organic growth across the portfolio and also just capturing more value from M&A. And so that's sort of Roper in a nutshell.

Fantastic. And actually, Jason, I'd love to start on that last point you made, the increasing organic growth. I think when you guys went down this journey, you guys were buying more mature software companies. You guys were probably sitting, let's say, more like low mid-single-digit organic growth software companies. And now you guys have leaned into perhaps earlier-stage software companies.

Perhaps just give us a sense of why that shift kind of where we are on that journey. I would love to get an update on that particular pivot.

Yes, sure. I'd love to. And so -- about 3 years ago, we decidedly said it's an opportunity for us to look at businesses that were maybe think of first-turn private equity that had sort of a faster kind of growth that we could capture and help professionalize and mature that business under our ownership, build a bigger platform, right, put on bolt-ons that make strategic sense for that business because we have a permanent ownership versus maybe buying later cycle where some bolt-ons were done, maybe they weren't great for the long term and so you inherit that and you sort of have to work through that. So buying businesses that have faster growth currents and that we can help them continue to grow and then capture margin opportunity as they scale, not cost takeout, but just kind of scaling as the business grows.

And so in the last couple of years, we've acquired CentralReach and Subsplash. We've done some interesting bolt-ons for our DAT business in a business called Convoy and also Alco. And we really -- we put together a much tighter governance structure around that. We have a value creation thesis when we're looking at a deal and then a value creation plan. And I'm happy to report that the platform deals of CentralReach and Subsplash have performed against our VCP in the first year. They're tracking against our forecast on revenue and EBITDA.

It's just been great to have this tighter governance, coupled with greater collaboration with our management teams. And so we built on the lessons of some of the earlier deals that we did and especially with Procare. And so these are tracking quite well.

And then the bolt-ons are continuing to be a motion for us. So we've invested in a team here to go and source deals for -- help source our deals for our businesses and collaborate with our businesses to be much more proactive and do more reach outs. And so some of the product of that is like our DAT business where we've now acquired a technology called Convoy. We bought that, it was owned by a broker at some point and then ultimately came into our hands. And so we're essentially automating the freight -- spot freight market instead of it being 10 calls between a broker and a carrier, we're trying to reduce that down to an automatic freight match ultimately.

And so we're pleased with that. We've also bought a factoring technology business. And both of those are tracking well. It's going to take time. You're developing a new market. So it's a little bit of a wider range of outcomes in terms of timing, but we really like the dynamic kind of work that the DAT business is doing to create demand generation to build that network and then be sort of iterative on the tech. And so they're moving a pace. It's going to help our organic growth a little bit in the second half as that rolls organic.

So I'd just say broadly, like the buying faster growth businesses is obviously good for organic growth, but also allows us to just capture more value for shareholders.

Understood. Maybe shifting gears from the broader strategy to more recent results. You guys recently delivered your -- a very positive second quarter, improved your outlook for the year. I guess, as you look back on the first half, how would you say that progressed relative to your expectations at the start of the year? And what were some of the underlying factors that drove that improved outlook?

Yes, sure. Yes. So we started the year, our initial guidance was $21.30 to $21.55 and now we're at $22.15 to $22.30, so we had the -- obviously, the buyback was a component of that. So that plus better operating performance has enabled a 4% raise at the midpoint.

I think operationally, we've been very pleased with the first half progression. Growth is particularly in our Neptune business, we sort of had a more sort of took a cautious approach given where that business was in its cycle relative to kind of COVID demand and how that was turning through. But they've actually executed very well in the first half. So they helped drive some of the outperformance at our Technology Enabled Products segment. And it's just been better than expected. So this allowed us to raise our organic growth from 5% to 6% to now 6%.

Also, I'd say software has performed well, in line with expectations and a little bit better at our DAT business. So we're finally starting to see improvement after 3- to 4-year freight recession. So what you're seeing is carriers are -- or freight -- spot freight rates are better. Carriers are now coming into the market. So we're steadily seeing truckers come back into the market. And of course, there are subscribers entering our network. So that's been good.

Our Deltek business, on the private sector side, we think architect, engineering, construction, that's been going well for the last several years, but our GovCon, our government contracting business has been slow. I would say second quarter, we saw a little -- some signs of life with a large license deal that got through that we didn't have in our forecast, but actually made it in. And the pipeline for Deltek looks strong.

But we're not really ready to call a recovery yet just because we're sort of second- and third-order demand derivative in government contracting spend. So indications look good, pipelines, appropriations and the like, but we're just going to kind of take a wait-and-see approach on Deltek. But overall, feel good about sort of how we finished the first half and then how we roll into the second half as well.

Got it. And in the back half, you have baked in an acceleration in organic growth. I guess how -- what are some of the factors that are driving that? How much of that is within your control? How much of that requires further execution to potentially hit those marks?

Yes. I would say mechanics play a key role in the second half acceleration. So I mentioned CentralReach and Subsplash. CentralReach is in our Application Software segment that turns organic in the third quarter. Like I said, it's growing north of 20%. It's in line with our value creation plan. A lot of that's recurring. So we feel good about the security of that.

And then our Subsplash business is in our Network segment, and that turns organic in the fourth quarter and again, growing above the segment average, so that will add to organic.

And then in our TEP segment, our product segment, we forecasted that to grow high single digits in the second half, and that's especially -- and it will be higher than that in the third quarter. Our Neptune business was challenged last year with some tariff and some copper headwinds that we are comping against. So I feel good about the comp there, but also just some of the fundamentals that are happening in Neptune with a little bit more service work that's in backlog and just some of the mix of more static versus mechanical meters. So that's going well.

And then I'd say just lastly, kind of a little less mechanic, but also a little mechanic, which is our DAT first half performance should continue in the second half. So just think of like a June exit sort of rate, how that carries into the second half. We're not assuming, right now, we're not assuming carrier counts get much better, but just that will sort of just the natural June rate carrying into the second half helps us with that acceleration as well.

Got it. And shifting gears again. I think as you guys are aware, I feel like everyone in the audience is aware, if AI has been a kind of -- for good or bad, a big topic within the software ecosystem, would love to hear what Roper is seeing out there? What is Roper doing to address this ridiculously fast pace of innovation. And yes, we'll start there and there's a few branches to...

Yes, of course, all those many branches. Look, so again, we really were thinking about AI as far as 2 years ago. We really took this as a real opportunity for Roper. And so it all started with kind of the journeys of learning and sharing of best practices, which we've always done, bringing in thought leadership and really just getting at the mindset was kind of the first part of this and the urgency, which I think Neil did a good job of cascading that through all constituents, presidents to the Board members, to all of us.

And so that really got the compounding of learning starting early. And part of that was that every business had to kind of reimagine what their markets and their business would look like in an AI world, and that was as far as 1.5 years ago. So we really got the -- I'd say, the juices flowing on that and the experimentation going earlier than most. We got agreements across all the frontier models 1.5 years ago. So we've been at that for a while in terms of experimentation.

And then we really leaned in, in the third quarter of last year and hired some leaders to lead our AI function and that's been a real, I'd say, turbocharge to the learnings and also to the actual product development. So we're up to 20 people now, as we sit kind of halfway through the year. We plan to continue to add -- and we've been -- it's just been very successful.

The interesting part is the folks who are attracted to Roper because they -- we're allowing -- there's not a lot of politics. There's not a lot of boundaries that we put up in blockers. So these folks are getting to ship products. They're like addicted to shipping products, and they get to context switch, right? So they go from Vertafore to PowerPlan to these other just smaller businesses where they can make a real impact. So we've had a lot of success with that opportunity and to work with a really high-impact team.

And the chemistry, I think, between that the team -- the AI team and our businesses has been good. Obviously, you have bumps along the road because you're moving at such a faster pace, but I'd say overall, like early days, the experiment that we've done there has worked incredibly well.

Got it. And can you talk about kind of which verticals you're starting to see some early successes as far as adoption. And I realize everyone wants to put the monetization cart before the horse, but any color you can give as far as kind of that particular journey and your -- kind of how we should think about that path to revenue?

Yes. Well, I'll kind of break it up. One is our -- we acquired CentralReach in the second quarter of last year, and they were in the really early -- I would say, really early stages, but fairly early stage of bringing products to market. And so we had about, call it, I don't know, 4 or 5 months of actual revenue when we bought the business of AI revenue. And what we observed there, there's a lot of learnings we observed there in terms of how you deploy products into the market, how you observe what the uptake is, how you sort of do a freemium model that then cuts off and turns into something you can charge and that's been a nice learning across the portfolio in terms of how to think about it.

So they've been really successful in being able to charge in addition to the core enterprise health record just because it's a demonstrable value in terms of what they do for therapists and what they're able to do in terms of claims accuracy. And so -- and that's in a market where you think about the -- we've talked about the dynamics. It's in the autism space where the demand is so much higher than the supply. And so you're trying to get therapists to be as productive as possible. And also to actually enjoy their jobs, they're not doing a lot of administrative work because the turnover is really high. It's a really tough job at the front line there. And so that's what our solutions do. And so when you have that sort of -- that real need and you're able to fit it into the workflow, you get immediate uptake.

I'd say in other areas like I mentioned DAT, what we're doing is trying to automate the spot freight market. Well, if you think about a broker, there's an art in their mind for -- in terms of how you negotiate different lanes for a load. And so -- but there's always going to be a subsector of that -- or a subsection of those loads that are going to be much more sort of homogeneous and those need to be automated. So you have to go through the change of management with those customers and that there's a journey that goes along with that. So adoption is relatively lower there than let's say, a CentralReach.

And then there's all kinds of -- you can paint a broad brush in between depending on the kind of the use case and the industry that they're in and the urgency that's needed at the time. But I'd say, over time, the solutions that we are creating are going to make the competitive intensity higher in terms of productivity in those industries. And once you get some of the first users then the other customers will say, "I got to do that too" to remain competitive.

So we think it is going to happen. It's just, as you know, it's -- you're changing the entire way of working, and that just takes -- that takes time. And so we're -- part of the learning too is how you sort of redeploy some of your historical implementation folks to sit side-by-side with customers and help sort of increase that adoption.

Understood. And a common question I get from folks is like you guys run a decentralized portfolio. Is that -- do you find that to be an advantage? Is that an issue as far as kind of getting everybody on the same page? What processes have you guys put in place to make sure that all your 29 businesses view this as a strategic initiative?

Yes. And I think it's more than an initiative. I'd say it's a strategic pivot in terms of -- and not pivoting from being a market leader and being intimate with the customer, but in terms of how you develop software, like that is -- we've done a student body right on full Agentic coding. Now it takes time to move that through the portfolio, but every single business is committed to doing that by the end of the year. And that's sort of not facilitated but ensured through our group executives who make that commitment.

And again, it's all about sort of materiality, it's all about impact. So you don't have to boil the ocean all at once. We kind of look at the opportunity and then the risk around AI and then we can sort of -- we can phase these things in. But I actually think because we see so many different use cases, we see so many failures that happen in various ways to develop software and this didn't work, we learn from this, don't do that. We actually -- it's an advantage for us because we are part of our job is to harness, like I said, when I started today, we're really focused on harnessing the learnings and best practices and methods. And we're much more intentional about proliferating that out to the portfolio in a very structured way. So I do think it's actually an advantage, especially when you're dealing with something so nascent as AI, I think it gives us an advantage.

Got it. And then one more AI question here, and then I'll shift back to some other topics.

The competitive landscape, I think there is, again, a lot of fear out in the market that software is being disrupted. I think there's a perception that you guys buy like strong verticals, which should be a little insulated but a little more niche. So is it easier to attack. So I would love to understand whether or not you've seen any shift in the competitive environment from AI native start-ups, kind of where do you guys feel you may or may not need to kind of fortify the walls, the moat, whatever -- what have you?

Yes. I mean we really have -- I mean we haven't seen anything of like significant threat at all. And we've got not just us. Obviously, our businesses are keenly aware of this. They're -- think about it, they're the leader in their markets, they're close to their customers, their customers provide them feedback if they're seeing anything. So we have had a couple of instances where point solutions have come in, not part of the full workflow, but something that our business didn't do. And we were able to replicate that in a matter of weeks and kind of shut out that competitor or that potential startup just because we're so embedded in the workflow.

So I think that's still holding true. And there's -- the only area that we have one business that repackages public company information, and it's a data business, and it's part of one of our businesses. We have seen some AI native start-ups there, but they're really nipping at the low end of the customers. They've always had that sort of risk even before AI. So I think if you have a solution that is just pulling public information, you've got more risk there, but it's a super small part of our exposure. So yes, we're not -- and I think the starts are kind of going after obviously bigger TAMs now. And so we're working like heck to box that out.

I think -- to me, I think the work we're doing on AI is as much defensive as offensive. If you think about what Vertafore has done and putting out several agents already, like the customer going, okay, I'd rather stick with one vendor as long as you're delighting me and doing the things that the startup can do. And we've got all of that proprietary data and sort of the entropy, the uniqueness of each one of those customers, we can create solutions that are unique to their workflow, which I think is sort of hard to replicate.

Understood. Makes a ton of sense. And perhaps shifting over to sort of the other half of what you have to do besides kind of making sure all these businesses are operating in a very strong fashion.

There's the kind of -- the pipeline of acquisitions. You mentioned earlier that perhaps the market was paralyzed, but you also more recently have indicated seeing a looser M&A environment. Would love to dig into that comment. What are you seeing out there? What gives you confidence that perhaps things are starting to pick up on the M&A side?

Yes. I mean we've been wrong for 3 years. So with great humility that I'm not a good predictor of this. But I would just say that the -- we have obviously a lot of contact with sponsors. And so it's the -- these bespoke conversations and the tone of those conversations with sponsors directly that give us some indication that they're going because they're sort of reckoning with the current realities, be it cost of capital is the first thing and then sort of what's happening in the public markets for software. So that's probably the strongest signal we get.

And then just I would say the investment bankers are also giving indications that their pipelines are filling up and processes are starting to kick off. And then the third, I would just say is the commercial diligence firms out there are quite sold out right now.

Now on those last two, the bankers and the firm, we saw that before. So -- but I think these conversations with sponsors again, they're much more constructive. They're much more sort of I don't want to say off the record, but just kind of like more like let's have a real conversation versus like let's sort of -- they're trying to kind of test things out. I think it's more like, okay, let's see if we can get something done. So that's encouraging.

Got it. And has sort of this kind of AI landscape, has that changed how you guys go about sorting through which companies might make sense for you guys? Has that changed?

Again, I'm not sure if there's a particular set of criteria that you guys are looking for. But yes, I would love to understand how that might have shifted the mindset of your kind of potential targets.

Yes. I mean we've always been, I think, pretty good risk managers in general, like if there's some risk out there that's going to take the business to 0, we don't want to own it. And so this has just been, I think, to us like kind of just an extension of that.

We're -- I'd say we're acutely focused on AI risk and opportunities in deals. On risk, we have developed a moat scorecard that we sort of have initial hypotheses on deals, and then we confirm it through diligence through a variety of ways, right, both on the commercial side and through technical methods. With our AI team now, we're able to sort of really tease out some of the components of that.

So -- and it's been -- it's a blessing too to have 21 software businesses where you can sort of compare contrast and poke through all the sort of AI risk and opportunity in our businesses and use those as sort of parallels to the things you're looking at out in the market. So I think that's super helpful. And we always -- it's not only the business, but like I said earlier, about kind of reimagining your market like we're keenly aware of like how it will transform the way work gets done in the end markets they're in, like a workflow that's there today might be something totally different in the future. So you have to kind of think through how Agentic workflow will change that for better or worse and then like how you assess if that's going to be a good long-term investment for you.

So yes, certainly, we've -- and it's been part of the build-out of the AI team. We have these investment partners, and we've been really focused on going through our portfolio in a very detailed way, kind of scoring those businesses and then using that same framework to then due diligence on businesses.

Got it. And as you touched on earlier, one of the better returns on your dollar right now has been to buy Roper stock. I guess how are you thinking about kind of the use of capital going forward? Does it kind of shift back towards the M&A direction? Is Roper stock still attractive to you guys at these particular levels to be as aggressive as you have been?

Well, look, I think it's an opportunity cost conversation. And for all the reasons I've just described about the length of time that we haven't seen transactions, the cost of capital reality on the '21, '22 portfolios versus where it is today, what we've seen in the public markets. Those all point to signs that we think it's going to be a good -- a rational private equity market for us to buy things at reasonable valuations.

And so -- this is really about keeping our options open. We still think at these levels, Roper is an attractive investment, but we also think that the potential opportunity for M&A is going to be great. So we are planning to sort of put the pause on the share repurchase for now. But look, like I said, I'm a terrible forecaster. So if a year from now, things aren't transacting, and we're still in this kind of AI valley of despair in terms of perception, we'll continue to lean into the buyback if that's -- if we -- we'll have a lot of capacity by then.

Got it. Now shifting back to AI again. So we touched on a lot of the competitive dynamic, the top line dynamic. But I think the other piece of the equation has been like how this may or may not impact your margins, right? So you can execute it fantastically, and you drive a lot of AI revenue, but then there's sort of a flip side to it, which is -- the margins are always going to be a little lower than SaaS because of the inference costs. So what are you seeing as far as margins? How should we be thinking about that going forward? What kind of policies do you have in place to potentially prevent a lot of these kind of token-maxing headlines that we're seeing from some of your other tech software peers?

Yes. Well, that -- so I'll handle the kind of the gross margin first and then we can talk about the token-maxing. I think once you get -- just what we observed so far, so take it for kind of -- we're still early days. But I think when you develop AI agents, there are certain ways to codify certain rules and not have to use inferencing on every transaction, right?

It kind of depends on the thing that you're doing. So that actually can increase your gross margin. And then it really gets down to like what exactly do you need to call a model for what specific kind of subtask. And I guess our experience is your gross margins may start off worse than SaaS, but you can work that down over time as you have more experience and you have sort of better methods or cheaper, of course, cheaper models. We don't use any of the frontier models for our products. We use them to develop them and to do sort of exploratory work. But once it's into production, there's really no need to use the -- because we're not doing any -- this is just -- this is task work. It's agentic task work. It's not rocket science.

So I think that's what we're observing. And so -- and I don't -- based on the nature of the things that we do for our customers, I can't imagine us having to use a frontier model for some basic day-to-day tasks. I just don't -- I can't picture that. And I do think at the lower end, as you know, the model costs are getting -- like the older generations are getting much cheaper.

So -- and I'd say even things like how you the types of prompts you do like caching or batching, you can get your cost down there, too. So it's not just the types of models, but then the types of prompts you do. So a lot of that goes into it.

So long story short, I don't see it today us having a gross margin challenge with AI products. Now as compute goes up and it gets more scarce, those are the conversations we're having about how do we think about broadly across the portfolio, do we need to think about buying ahead for compute? Those conversations are happening, so that we can make sure that we're servicing our customers. We don't want to get into this situation where we don't have the capacity, but that's just kind of thinking ahead as electricity and compute becomes more scarce.

On the token-maxing, I think the -- we've gone up so like just in terms of costs, we've gone up maybe 3x or so since January, it's certainly going to continue to go up by the end of the year. But the good news is we've got -- I think the local ownership really helps kind of balance both speed and control because every business is keenly aware of what their kind of budgets are and then thinking about routing certain prompts to certain models like -- so we're pushing out a lot of best practices around that. Some businesses are doing that auto routing. Some are using spend management controls and dashboards. We've got -- we have visibility to -- or almost close to having visibility across the portfolio around that, so we can think about -- not to micromanage them, but really, again, to think about the future, how we think about compute across the portfolio.

So I'd say the hallmark of Roper is kind of that local sort of obsession with kind of local business activity which actually is a strength for us. So we don't get into this like runaway in token-maxing because there's just so much accountability across the portfolio.

Got it. And then how are you guys driving efficiencies internally? Kind of where are we on that journey? I think we've seen some of your peers are already starting to extract a fairly meaningful margin expansion. What about Roper? Is this something that you guys anticipate being able to squeeze out incremental margins going forward as you guys implement AI more across your organization?

Yes. I mean we're certainly seeing -- going back to Agentic -- Coding Agentic development. So we've got three or four businesses that have completely moved to that. We want to continue to push that, like I said, by the end of the year, every business is committed to doing that. We do think there's clearly a lot of productivity that we're seeing orders of magnitude at the developer level.

Our goal, though, we've said this, so we're not looking to expand margins dramatically as a result of that. We're looking to take that put it back into the road map to continue to just have that flywheel of continuous innovation so that we can inflect -- continue to inflect organic growth. There may be a point where the productivity is sort of outpaces that level of innovation. But I don't think we're anywhere near that in terms of the opportunity that's in front of us.

And I'd say most -- like most companies, it's primarily in RD&E right now, a little bit in sales and obviously, customer support. But we really -- back to what I said earlier, like the 2 years ago, when the gun went off or whatever, we were really more focused on revenue because it's so much harder getting the efficiencies, not easy by any means, but certainly a more commoditized skill to develop over time.

Got it. And then the last piece on the AI side and something I'm sure all software vendors are trying to figure out is the licensing piece I guess how are you guys thinking about licensing on your end? Are customers -- well, I don't imagine customers are looking to necessarily change the consumption basis, but yes, basically, I would love to understand how you guys are blending those particular models, do you see a situation where down the line, you will have to pivot to more of a usage token-based model.

Yes, it's early. I mean I think we -- so like with Vertafore and some others, like the -- we're building a platform of agents, and it's going to be more of a credit model so they can sort of as they're using the agents, there will be a drawdown on that. So think of it Ken as like recurring revenue, but it has some form of consumption. And if there's overages, there'll be a true-up after the period is over. Maybe it gets rolled into the next period. There's probably some flexibility around that.

So that's like one end of the spectrum. Then you have like our SoftWriters business, so this is pharmacy automation software for long-term care pharmacies. They have sort of an agent that helps with taking orders from long-term care facilities and getting into the system, which sounds somewhat mundane, but it's actually quite challenging and we've been able to sort of identify that. That's more probably going to be transactional because that business -- a lot of that business actually has a lot of transactions already, so the customers are used to it.

Then take another example of like our Deltek business, where we've said we're going end of support on our Costpoint solution in GovCon in the first quarter of '28. We're trying to get customers into the cloud, which obviously has a 2x to 2.5x lift. And all the agentic features are going to be in that Costpoint solution in the cloud. So trying to kind of get the price through that method.

So I say all this -- then we get to the CentralReach where it's the AI is based on per learner. So that's kind of a form of consumption, if you will, like if you have a learner for 6 months, that's going to be the method of charging. So it kind of -- we get to see -- we get a good sampler flatter across Roper, and we're just trying to educate all the folks. I'm actually creating a pricing agent from all of the different artifacts that we have, just kind of share that best practice out to the businesses and considerations and different modeling modalities that you can do based on what we've seen at other companies. So I know it's a long-winded answer, but it's a little bit of everything.

Got it. And this one might j-- this last question of mine might be a long, with a little bit of everything as well. But now kind of bringing it all back to, let's say, more of the near-term operations. So we've got the beat and raise from Q2. I guess as we think about kind of where things can go right, where things can go wrong as we enter the back half, I would love to get a sense for kind of how we skew towards the upper end or the lower end of your guidance ranges.

Yes. I mentioned Deltek, right? I mean I think we're taking a somewhat cautious approach rightly so because you could have a lot of perpetual there. We don't know if it's going to land or not. We'd love for it to not be -- that's the other wildcard is based on what I just said about Costpoint being end of support. We could have more go to the cloud, so it won't impact the current year as much as it will next year. So that's -- I'd say that's still a wild card.

I think as you go through DAT, I talked about, I think that's in good shape. It could get a little bit better if carriers continue to enter the market, but we'll see how that plays out. And so the good news is we don't have a lot of, right? The range of outcomes for Roper isn't that great.

So as we sit here today, our most higher beta segment in terms of just growth is the TEP segment, if you talk about quarter-to-quarter, but we feel decent about the comps in the third quarter. Fourth quarter is going to be a little bit lower probably. But they don't -- they're not a high backlog business, so that can swing a little bit either way as we get through a quarter and get into the fourth. But that's sort of where I would look to in terms of variability relative to our forecast.

Understood. And I think with that, we're right up on time, and I am at the end of my question list. So kind of laid those out perfectly.

You did great. I appreciate the conversation, Ken.

Yes, Jason. Always happy to have you. Zack, really appreciate all the help you always give us. Thanks a lot for supporting Oppenheimer.

All right. Have a good one.

Thanks Ken.

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 Zack Moxcey, Vice President, Investor Relations. Please go ahead.

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; Jason Conley, Executive Vice President and Chief Financial Officer; Brandon Cross, Vice President and Chief 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 prepared slides to accompany today's call, which are available through the webcast and are also available on our website.

Now if you please turn to Page 2. We begin with our safe harbor statement. During the course of today's call, we will make forward-looking statements, which are subject to risks and uncertainties as described on this page, in our press release and in our SEC filings. You should listen to today's call in the context of that information.

And now please turn to Page 3. Today, we will discuss our results primarily on an adjusted non-GAAP 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, financial impacts associated with our minority investment in Indicor; and lastly, cash collected on Outgo's beneficial interest, which is the residual amount owed to Outgo after it sells receivables to a third party and is classified within cash flows from investing activities. Reconciliations can be found in our press release and in the appendix of our presentation on our website.

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

Thank you, Zack, and thanks to everyone for joining us this morning. You can see our agenda on Page 4. So let's get right into it. Next slide, please. As we turn to Page 5, I want to highlight 3 takeaways for today's call. First, we delivered solid results and are raising our outlook for the year. Second, AI momentum continues to build across the enterprise at an accelerating pace. And third, we continue to execute our capital allocation opportunities with our long-standing discipline. Let me double-click each point.

First, second quarter results were solid and ahead of expectations. Total revenue grew 9%, organic revenue grew 5%, EBITDA grew 5% and free cash flow grew 11%. Importantly, enterprise gross retention remained strong consistently in the mid-90s. On that foundation, enterprise software bookings remained solid with core bookings up mid-single digit plus on a TTM basis. At a high level and across the portfolio, Deltek had an encouraging second quarter, but we're not ready to call a turn in the GovCon market. Relative to Neptune, they had better first half performance than originally expected. And finally, at DAT, we're seeing improving freight market conditions for the first time in many years.

On the back of this quarter's performance, we're raising our full year DEPS guidance for the second time this year to a range of $22.15 to $22.30, that is up $0.30 at the midpoint and up $0.80 to our original guide in January. In addition, we're raising our full year revenue growth outlook, with total revenue now expected to be north of 8% and organic growth expected to be in the 6% range.

Second, we continue to build momentum around AI and the automation of tasks and workflows within our end markets. During the quarter, our product release cadence accelerated, and I'd like to highlight both the breadth of what we're doing and the vertical market depth of what each of our businesses is delivering on the AI and agentic product front. Since we last spoke, Deltek released agentic capabilities across both its GovCon and private sector solutions, including RFP development and month-end financial close.

Vertafore released its AI velocity platform with 6 agentic SKUs, which I'll get into more depth into later. Strata released in beta, its AI-enabled financial decision intelligence product. Aderant shipped its first generation of agents across collections, billing appeals, talent and time capture. Procare shipped its first of many agentic features RoomRunner, which helps daycare operators optimize enrollment strategies. CentralReach deployed its next generation of AI solutions focused on clinical documentation quality and audit readiness.

DAT continued the evolution of its ML-based freight match automation capabilities, including its first proactive AI recommendation engine, which services load opportunities to carriers who have not otherwise come across them. And SoftWriters, iTrade, Foundry and ConstructConnect rounded out this quarter's AI and agentic product releases. So I know this was a long list, but that's precisely the point.

We continue to see very positive signals from our businesses and their ability to build and ship agentic features and products. Our right to win is grounded in the same advantages that have always made our vertical software businesses strong; deep domain expertise, embedded customer workflows, unique data assets, high trust customer relationships and scale distribution.

Product velocity is also increasing within our businesses. Each company develops AI capabilities close to their customers and their workflows while our AI accelerator team further increases velocity and scales reusable patterns across the portfolio. This model is working very well. Demand is strong, but these products are interactive and in many cases, they change how customers do their work, so the pace of adoption is still developing.

What is powerful, though, is that these products will improve with use. As adoption expands, the products get better, knowledge graphs compound and the value to customers increase. That creates a flywheel. More value drives more adoption, more adoption improves the product and the cycle accelerates. So while we're still early in the commercialization curve, we like the progress we're seeing.

And third, we continue to execute with the same consistent disciplined capital allocation approach that has defined Roper for years. During the quarter, we repurchased another 3.6 million shares, and we expect to soon receive proceeds from Indicor's divestment of its instrumentation businesses to AMETEK. So let me turn the call over to Jason, so he can walk you through the details of both of these and our financials and balance sheet position. Jason?

Thanks, Neil, and good morning, everyone. I'll first take you through our second quarter financial performance, beginning on Slide 6. At a high level, this was a solid second quarter. We finished above the high end of our DEPS guidance range, and organic growth was slightly above expectations. Revenue of $2.1 billion was up 9% with organic growth of 5%, and acquisitions contributing 3 points. Organic recurring revenue across our software segments grew 7% in the quarter, consistent with our Q1 performance. Further, we expect organic recurring revenue growth to inflect higher as we move into the second half.

EBITDA of $815 million -- was $815 million with EBITDA margin of 38.6%. Core EBITDA margin was down 70 basis points. The reduction was mainly driven by lower margins in our TEP segment, given similar dynamics to Q1, which are: We had higher input costs at Neptune and a mix of more reoccurring consumables at NDI and Verathon. As we move into the second half, we expect margin improvement at Neptune and easy comparisons in the segment.

Importantly, in the quarter, core margins across our software segments were down a modest 10 basis points, which includes investment in our AI team. Diluted earnings per share of $5.38 was above our guided range of $5.25 to $5.30 and up 10% over prior year. This outperformance was driven by the combination of solid organic growth and additional buyback activity, which generated $0.03 of accretion in the quarter relative to our guidance.

Free cash flow was $447 million, up 11% over prior year. On a trailing 12-month basis, free cash flow is now at $2.6 billion and has compounded at 18% over the past 3 years or 15% adjusted for Section 174. So growth in free cash flow, coupled with share repurchase activity resulted in free cash flow per share growth of 19% in the quarter.

Now if you turn with me to Slide 7, I'll walk you through our financial position and capital deployment. We exited the second quarter at 3.4x net debt to EBITDA, up from 3.1x at the end of Q1, reflecting the capital deployed towards share repurchases in the quarter. We finished with $365 million of cash and $2.9 billion drawn on our $3.5 billion revolver.

As Neil mentioned, during the quarter, we repurchased 3.6 million of shares for $1.2 billion, at an average price of approximately $341 per share. That brings our cumulative repurchases to 9 million shares, spending $3.2 billion since this program began. Said differently, we have repurchased over 8% of our shares in 8 months, which gets us back to our 2013 share count position.

Also, Indicor announced an agreement to sell its instrumentation businesses to AMETEK, which is expected to close in the second half of this year. As a minority holder in Indicor, we expect gross proceeds of approximately $1.4 billion or an estimated $1.2 billion after tax, which further strengthens our balance sheet and deployment capacity. Of note, the flow control businesses remain in the Indicor portfolio and will provide additional liquidity following a competitive sale process, which is not yet factored into our capacity framework.

With good visibility into forward free cash flow and the expected Indicor instrumentation proceeds, we retain more than $5 billion of annualized capacity for capital deployment. We expect M&A activity to break loose later this year and into 2027 and plan to prepare our balance sheet to take advantage of these opportunities.

That said, we will remain patient and disciplined and deploy capital to the highest risk-adjusted return investments.

With that, I'll turn it back over to Neil to discuss segment performance and our outlook. Neil?

Thanks, Jason. As we turn to Page 9, let's review our Application Software segment. Revenue grew 8% in total, with organic revenue growth of 5%, slightly better than our expectations. EBITDA margins were 42.8% and core margins declined 20 basis points year-over-year. Organic recurring and reoccurring revenue, which represents about 85% of the segment, continued to grow in the mid-single digit plus range while nonrecurring revenue was down low single digits.

Looking across the segment, a couple of themes spike out. First, our SaaS transitions continue to advance meaningfully. Several of our larger businesses made real progress on ground to cloud conversions and on bringing new cloud-native products to the market. Over time, this should continue to be a positive trend for this segment. And second, as discussed earlier, AI momentum continues to build across the portfolio.

Turning to business highlights. Aderant was once again excellent in the quarter. The business continues to win in the market to drive accelerating adoption of its cloud offerings and build momentum with its agentic AI solutions. Deltek was solid in the quarter driven by strength in its private sector solutions.

GovCon was decent, and we saw some encouraging signs. That said, it is still too early to call it a trend. Before upgrading our GovCon outlook, we'd like to see the sales pipeline convert consistently over the next few quarters. We do expect improvement over time, supported by the market tailwinds from the OBBB, but we're not ready to call that inflection just yet.

Vertafore delivered another solid quarter with continued ARR growth. More importantly, faster product delivery is turning its AI strategy into tangible customer solutions. It's agentic AI strategy targets 5 areas of insurance distribution: digital servicing, smart submissions, accounting automation, producer workflows and business intelligence. It starts with high-volume, labor-intensive work where customer value is immediate, then expands into more complex higher value workflows. Velocity, Vertafore's purpose-built AI platform, enables rapid agent development directly within systems customers already use. Recently launched with 6 initial agentic SKUs, it establishes the foundation for continued innovation.

Vertafore's high right to win comes from applications that define and run their customers' core workflows. Thousands of customer environments are configured around specific data, products, rules, permissions and processes. This allows agents to operate inside live environments with unique customer-by-customer context to perform real work accurately and securely. Three products demonstrate the strategy's breadth and value.

The reconciliation agent ingests carrier statements, matches transactions and directs employees only to exceptions, reducing up to an hour of work to minutes. The submission processing agent converts unstructured e-mails and documents into underwriting ready data, reducing processing time from roughly an hour to about 2 minutes.

The Portal Launcher Agent converts static PDF applications into digital submission experiences, enabling MGAs to launch new programs dramatically faster and compete more effectively. These are not features that merely make work faster. They automate meaningful portions of the workflow, improving speed and accuracy, increasing capacity, enabling growth without proportional headcount. That deepens Vertafore's customer value and expands its opportunity beyond software spend, into the much larger pool of labor spend.

Illumia delivered a strong second quarter with revenue ahead of expectations as it wins share and cross-sells into the combined CBORD and Transact customer base. Strata also performed well with its AI strategy accelerating faster than anticipated.

Procare remains a work in progress. The team is advancing a broader product strategy with RoomRunner released strong early usage and more innovation in the pipeline. At the same time, Joe and the team are shoring up the core product, go-to-market execution and implementation capability.

And then finally, CentralReach continues to execute at a high level, delivering very strong growth and meaningful margin improvement. As a reminder, CentralReach turns organic next quarter and after 1 year, the business is ahead of our deal model. As we turn to our outlook for application software, we expect organic growth for the second half of the year to be in the mid-single-digit plus range.

Please turn us to Page 10. Total revenue in our Network Software segment grew 12% and organic revenue grew 4% in the quarter. Organic recurring growth was strong, growing high singles, but was offset by weaker reoccurring and nonrecurring revenue at MHA and iPipeline.

EBITDA margins were 50.9%, down 370 basis points year-over-year, while core margins improved slightly, up 30 basis points. The gap reflects 2 dynamics: the acquisition of Subsplash, a faster growth business with a lower but steadily improving margin profile and our ongoing investment at DAT, particularly Convoy.

Turning to the business level highlights. DAT grew nicely in the quarter and continues to execute at high fidelity. We're also seeing encouraging growth in our digital freight marketplace solutions with increasing adoption and engagement. Broader market indicators are improving as well. Carrier additions have increased steadily throughout the year. Spot pricing is strengthening relative to contract rates and carrier rejection rates are rising. We still need to see load volumes improve before becoming fully bullish on the recovery. The 2026 benefit is tracking modestly ahead of our prior expectations, and the indicators remain encouraging as we look towards 2027.

ConstructConnect had another solid quarter with continued growth of its AI-based takeoff solution. The business is expanding AI deeper into preconstruction workflow, helping customers reduce manual effort, move faster through project documents and improve decision speed. Foundry continued to deliver year-over-year ARR growth with meaningful AI innovation across SmartRoto and Griptape. SmartRoto automates a historically manual part of the visual effects workflow, while Griptape extends Foundry's position in AI orchestration across production and post-production environments.

Subsplash delivered another strong quarter with double-digit software growth, even faster payments growth and meaningful margin expansion. The business also continued to extend AI across its church engagement and giving platform, taking its AI assistant live to all customers.

Finally, I joined our SoftWriters team, which provides the core operating system for long-term care pharmacies for a site visit at Ally Script Pharmacy. I spent time understanding Ally Script's strategic and operational priorities and where SoftWriters can help accelerate the business. Ally Script serves more than 32,000 beds across 150 facilities, so small workflow improvements create significant value. I sat alongside pharmacists processing prescription orders with and without SoftWriters' AI-powered order entry and review solution.

Without automation, a new order can require up to 90 seconds of manual entry and review. Our solution reads the prescription, populates information in the existing workflow and lets the pharmacists focus on validation rather than transcription. Processing time falls to about 18 seconds per order, an 80% reduction. The benefit extends beyond lower labor costs. It gives pharmacists and technicians more capacity for quality assurance, clinical review, answering nurses' questions, supporting customers and absorbing volume without proportional headcount. That means better patient care, better customer service and a more scalable path to growth.

Equally important, the automation is delivered in context at the precise point of work with extremely low latency. SoftWriters' derived proprietary data, domain-specific models, dense workflow integration, customer trust and distribution were evident. It showed how our vertical market moats enable differentiated AI that automates meaningful customer work. Order entry is just the beginning of SoftWriters' workflow automation opportunity.

Finally, the monetization model is also attractive and in addition to the existing software spend. SoftWriters prices the solution transactionally, directly aligning revenue with orders automated and labor savings delivered. Customers achieve a clear return while SoftWriters participates in the value created with revenue scaling as adoption and transaction volumes grow. Thank you to the Ally Script team for hosting me and for the partnership.

Now let me turn to our outlook for network software. We expect organic growth for the second half of the year to increase versus the first half and be in the mid-single-digit plus range.

Now please turn to Page 11, and let's review our TEP segment. Total revenue and organic revenues grew 7%. Results were better than anticipated at Neptune, NDI and Verathon. EBITDA margins were 34.5%, down 220 basis points year-over-year, reflecting the same dynamics discussed last quarter. Input cost pressure at Neptune, principally bronze ingot inflation and a mix shift at both NDI and Verathon towards faster-growing consumables, which carry lower gross margins, though notably more durable and reoccurring revenue profiles.

Starting with NDI. The business had another very strong quarter, driven by sustained demand for its electromagnetic tracking solutions across cardiac, neurological and orthopedic applications. EP remains a compelling multiyear growth opportunity with procedure volumes increasing, leading OEMs launching new tracking-enabled catheter platforms and NDI uniquely positioned at the sensor layer.

Neptune had an encouraging quarter. Revenue declined modestly year-over-year but came in ahead of our expectations as strong mechanical meter volumes and continued growth at UnionLink helped offset the anticipated decline in market unit volumes. UnionLink also continues to strengthen Neptune's position across the broader meter-to-cash workflow through its cloud-based utility billing and customer communication capabilities. Finally, the metering business remains on track to return to growth in the second half.

Verathon delivered solid growth driven by strong demand for BFlex and GlideScope single-use offerings. We're also encouraged by the launch of the CFlex single-use cystoscope and BFlex specimen collection system, which further expands Verathon's single-use portfolio. Finally, I want to recognize the teams at CIVCO, FMI and IPA for their excellent work in the second quarter. Each team executed well and contributed to the segment's performance.

Turning to our TEP outlook. We expect organic growth for the second half of the year to be in the high singles range and be a bit stronger in Q3. With that, please turn us to Page 13. On this page, let's walk through our increased full year revenue and DEPS guidance as well as our Q3 outlook. For the full year, we're raising adjusted DEPS guidance to a range of $22.15 to $22.30. That represents a $0.30 increase at the midpoint from our prior guide and an $0.80 increase from our original guide. We're also increasing our full year total revenue growth guidance to north of 8% with organic revenue growth expected to be in the 6% area.

Please note, this guidance outlook excludes any proceeds from Indicor's divestiture of its instrumentation businesses. For the back half of the year, we expect a tax rate in the 21% area. To reiterate a few key assumptions from our segment commentary, there are some encouraging signs of stabilization at Deltek, but not enough yet to change our outlook.

DAT's freight market is improving, and we now expect a modest benefit in '26 with the setup becoming increasingly encouraging for '27. And Neptune's first half performance was stronger than we modeled, contributing to our first half beat. For Q3, we're establishing adjusted DEPS guidance of $5.75 to $5.80.

Now please turn with us to Page 14, and we'll open it up for your questions. We'll conclude with the same 3 points with which we started. First, we delivered solid second quarter results and are raising our outlook for the year. Retention remains strong. And based on our year-to-date performance, we're raising full year DEPS guidance for the second time this year. We're also raising our full year revenue growth outlook, both for total and organic revenue.

Second, AI momentum continues to accelerate across the enterprise. Our product release cadence accelerated meaningfully in the quarter, and our businesses are shifting agentic and AI-enabled capabilities into high-value vertical workflows. Though it's still early, and we will continue learning through the back half of the year, the signals are very positive. We have deep vertical market knowledge, deeply embedded workflows, unique data advantages, high-trust customer relationships and scale distribution to win in the AI era.

Finally, our capital allocation framework remained unchanged. We'll deploy capital wherever we see the greatest opportunity for durable, long-term cash flow per share compounding, whether through acquisitions or opportunistic share repurchases. Over the last 8 months, that discipline led us to repurchase approximately $3.2 billion of equity, roughly 9 million shares or a bit more than 8% of shares outstanding, returning the share count to 2013 levels, and we're very pleased by that outcome.

Looking ahead, we believe M&A is likely to offer the more attractive long-term compounding opportunity provided assets meet our strategic and risk-adjusted financial criteria. We expect the M&A market to improve over the coming quarters and are cautiously optimistic about deploying $5 billion or more towards acquisitions over the next 12 to 18 months. Given this expected improvement and with leverage currently around 3.4x, near-term capital deployment will favor deleveraging over opportunistic buybacks. We expect to delever quickly through strong second half cash flow and the Indicor proceeds rebuilding capacity to pursue high-quality acquisition candidates.

So in closing, the ingredients for accelerating cash flow per share compounding, our most important financial metric, continue to strengthen. Our portfolio is the strongest it has ever been. Organizational velocity is increasing. AI is expanding our addressable markets, and we expect our product innovation to translate into higher growth over time. Our capital deployment capacity and flexibility remain significant differentiators and most importantly, our discipline is unchanged.

So with that, we'll open it up to your questions.

[Operator Instructions] Your first question comes from Deane Dray with RBC.

Congrats on all the AI, SKU launches.

Thank you, Deane. Before I answer your question, I just want to jump in and just say a couple of things, if that's okay, to you personally. Congrats on just a great career and also congrats on stepping away from the day-to-day. I've come to know you -- we've come to know you for the better part of the last 15 years, lots of conversations, several road shows, and I think the thing that I take away the most from that and respect the most is the way you've done your job. You're always fair, objective, principled, including the moments when we didn't see things the same way. So that's pretty amazing. So congrats on that.

Also appreciate you introducing me to a few leaders who become friends that I can call friends now. Great -- congrats on a great career and especially congrats on retirement. And I hope you get plenty of time with that family, especially those grandkids.

Oh my gosh. Thank you so much for all those kind words. It's really been my privilege to follow Roper over the years. And yes, going back to the halcyon days of Brian Jellison. So I really appreciate all the help Neil, you and the team have given me and all the insight. I've got a ton of respect for you all, and I wish you continued success.

Thank you so much. All right, let's get to your questions. So congrats.

I don't know how I pivot to buybacks, but I'm going to. Just the idea here, this is now the second quarter of some sizable buybacks. And I'd really be interested in hearing how you look at buybacks on a capital allocation versus a CRI-accretive deal equivalent what that would need to look like. And I think the key here is on a risk-adjusted basis. But if you could just share that insight, that would be great.

That's right. Happy to do it. So we always, first of all, look at what we believe will be the best way to compound our cash flow per share over a longer arc, I think a 5- to 7-year period of time. We've always looked at it this way. Until the last 8 months, the capital allocation mathematically always favored M&A. When you look at the returns, both the time 0 return, a time 5 return, whether it's a year 5 EBIT -- EBITDA or year 5 ROIC to M&A. But obviously, with the last 12 months or so, 12 to 18 months with the current share price level of Roper in the broader software sector, all of a sudden, buybacks became significantly more attractive.

Now looking forward, we expect the private values to mirror those or come down to the public values. We're starting to see some very early signs of that. As we all know, public values are ultimately the gravitational force for all private companies. And when that happens, then the math turns quite interesting, quite accretive, quite more attractive towards M&A versus buyback. And so we'll always sort of judge those 2 between what's best for the long-term cash flow per share compounding.

That's really helpful. And could you just expand on the comment about the pipeline? I think the term was breaking loose. Just the expectation on deal flow over the near term.

Yes. I should also say just on -- there is -- on the last question, we always look at the buyback of our own stock versus an acquisition with a risk premium. We always obviously know ourselves better than anything we could know externally. So we have to sort of be compensated the returns on that. And so we obviously look at that. We sort of round out that answer.

On the -- and now I forgot your second question already.

Pipeline.

Pipeline, yes, sorry. So the -- what I would say there is Janet and her team are having -- they always have a lot of dialogue. The dialogue has turned decidedly more constructive over the last couple of months-ish in terms of the sponsors sort of understanding the valuation landscape. They've had 3 or 4 years of DPI pressure. Private credit sort of pressure doesn't help their situation. The public values have been here for, like I said, the better part of 9 to 12 months sort of a bounce back, sort of their hope of a bounce back, is near-term bounce back is likely not going to happen. And sponsors just coming to grips "the new 15 is yesterday's 25" or whatever the quote is from a couple of sponsors that we've talked to privately.

A lot of proprietary opportunities right now. Sponsors saying, "Hey, if we can get a deal done, we'll just do something with you on a one-off basis." I think that's a sign of where we are both from, as a preferred buyer but also from a macro perspective. So that sort of informs our view of the pipeline. We'll always be disciplined. We'll always be patient. I wouldn't anticipate there's like a massive breakthrough of the pipeline in the next small number of months, but we want to prepare the balance sheet to be completely ready when that time comes.

I'd also just say in the channel, like, from the investment banking community, we're getting a lot of signals there. And then also those that do market diligence and consultants, their books are filled up right now quite a bit, so it's another signal.

Your next question comes from Terry Tillman with Truist.

Neil, Jason and Zack, can you all hear me okay? I've had a bad connection. Can you hear me?

We hear you great.

Wonderful. Yes, on Vertafore, it seems like it is very high value. We do a lot of work in insurtech, and I'd love to kind of double-click on it. I think you all said continued ARR growth. I mean how is the growth compared to the overall software organic, which I think was 5% in the quarter. And then on top of that, I mean, with these 6 agents, have you started to size the potential uplift you could see? And then I had a follow-up.

Yes. So the ARR growth is a little bit higher than the segment. So trending well there.

Yes, I can take the agentic opportunity. So we've worked with our partners at Bain, Amy and her team have done their own internal work about what the TAM expansion potential is at Vertafore for the agentic work in the 5 areas that we talked about in the prepared remarks. It's a doubling-ish of the market size. Now specific to the 6 agents, it's a distinct minority or a smaller portion of that doubling, but this is just the beginning.

I mean this is -- think of the scaffolding and the architecture of the agentic platform is probably the biggest part of the release here and then the 6 SKUs on top, which means the acceleration of SKUs coming from this point forward should accelerate and we'll get -- we will sort of develop product and launch product to sort of fully cover that 2x market opportunity.

And by the way, these are informed guesses. I don't think anybody really knows the complete TAM expansion, but going in and sort of automating some of these tasks and giving our customers that efficiency certainly lets us sort of monetize some of the labor spend.

Yes. And then the follow-up is kind of a hard question, unfortunately, but it is kind of -- you said guesses because I agree it is all guesses for all of us. But this kind of clearing event and the timing of it really to take hold, like I know we talked last quarter, Neil, and I'd even mentioned maybe is there some sort of like FTE layer that you have to add? I mean you said scaffolding then the agents. When do you see like the light bulb, the switch flipping where, "Hey, we're going to really run big, large production workloads." Do you think it's the second half of this year? Or just anything on that?

Yes. I said -- I think we said last quarter and we'll repeat this quarter. We -- as an organization, we just had an amazing set of learnings on how to build these commercial-grade agentic products over the last 12 to 18 months, and that's just compounding. We had just an amazing CTO, CPO event this quarter. It was the largest in-person Roper event we've ever had, a couple of hundred people.

And our AI center team, Shane and his team did just an expert job of having a dialogue in this course and training session on how to build like production-grade agentic capabilities, not agent toys, but like truly production grade, and that was incredible. So we've come up that learning curve, and we'll continue sort of springboarding sort of that knowledge compounding.

Now we're also on a commercialization learning curve. And so how do you -- how do we price, how do we deploy, how do we drive utilization? And we're getting -- we'll certainly get our teams together across Roper to sort of share those learnings Ultimately, whether or not we call them forward deployed engineers or not, I don't know.

But definitely, the customer service implementation resources will spend more time with our customers driving utilization, teaching them, going through change management, their workflows. And it's just the rate of adoption across each of our businesses is the large unknown.

So will it be material revenue in the second half? It will not be for us this year. But there's momentum building unmistakably inside the organization, and we're excited about that.

Next question comes from Brent Thill with Jefferies.

Just on M&A, I think you had mentioned you're hoping to see the thaw in the cold. But I guess what is -- what's underpinning the confidence in that? Is that just, Hey, it hasn't thought forever or you're now seeing signs underneath that we can't see that you're just giving a signal that things are in the mix? Like what's different than, "Hey, we just -- we hope it was?"

Yes. I think it's similar to what we attempted to say a little bit ago, which is the conversations we're having with sponsors are now real conversations. They understand the valuation world that we live in. They've come to grips with that reality. I would say the sponsors that are multi-industry sponsors come to grips with that a little bit quicker than ones that are specialized in sectors and software sector.

As Jason said, the consultants who do a lot of the diligence work are quite busy. The conversation we have with the intermediaries, the bankers, their pipelines are quite busy and quite full. And it's that, that informs us. The signal is there. It's positive, but it's distant, but it takes more than a couple of minutes to prepare the balance sheet to play offense. And so that's what we're doing at the moment.

Okay. And sorry, for the first half of the year, what has been the capital you've deployed?

Well, outside the buyback, there are 2 small bolt-ons. So in aggregate, about $50 million.

$50 million. Okay. Okay. Great. And then just real quick, Jason, for Deltek, can you just give us a sense of how things are going, what you're seeing into the second half of the year?

Yes. So actually had a good second quarter. We had mentioned a large license deal that we had not put in our guidance that they actually executed on. So it drove a little bit of outperformance in the segment. Pipelines look really strong. I think what Neil mentioned in his prepared remarks is that we're really waiting for some of those conversions to be more of a trend before we call it. Certainly, the contractors, the appropriations are starting to move into the contractor world. I think you'll see some of the public company earnings releases have been good. So we have really good signal that things are going to move in our direction, but we haven't called it yet.

Your next question comes from Joe Giordano with Cowen.

Can you like -- I know it probably varies a lot business to business. But when we talk about these AI solutions that you're deploying, can you like help us think about what the hit rate internally is? Like when you're drawing these things up on the whiteboard, like how many ideas is it taking to generate something that's actually getting into production versus like how these businesses operated in like a pre-AI world when you're thinking about improvements?

Yes. I mean it's -- I really appreciate that question. The hit rate right now is quite high. Now if you think about -- if I step back about really what the -- if you will, the transformation we're going through on the product side is our historical approach to software development being the market leader in each one of our 21 software verticals is sort of methodical and lower risk.

In the AI world, you want to go at a frenetic pace and actually work at a little bit higher risk because the cost to develop is much lower. So the risk of a mistake is much lower. So that's been the -- if you really sort of condense the learning over the last 2 years, that is the learning of the organization. And so we're moving at just great pace and the development here has been great.

Now also the learnings have been you start with putting AI chat in your products, not a lot of value there, you can monetize. Then you sort of do lighter weight agents that have lower entropy. And then you get into like real commercial-grade differentiated high-value agentic workflows, which is what now is being released to the market. But the customer signal that we get is incredible.

I think I put on social and LinkedIn and Procare released their first agentic feature. I mind you, it's not monetized in this particular case, the first one. But within 4 hours of release, I think 20% of the customer base engaged with the feature, unheard of engagement in the software landscape that quickly.

Strata with their financial decision intelligence tool, they hosted a call and they had more people on the call seeing the demo of this product than when they merged with Syntellis to give you a sense of the energy in the market. The number of customers in the beta and the early adopter for some of the Vertafore agents, normally, they're capped at a dozen or 2 and Amy left it uncapped and there were more than a couple of hundred. So the early signal is quite high. I just try to give you some -- a couple of data points on this. Now -- but if the hit rate is if we miss on a few, that's okay because we want it -- we've added a little bit of that, if you will, risk given the speed in which we're developing.

And then on the M&A side, as you evaluate these companies, like I know the multiples are weird and we're maybe talking about like what multiple should you pay on a trough type result. How willing are you to underwrite inflections in these businesses. So like maybe you're willing to pay a headline sticker price that's way a higher multiple than we normally see from you because you're willing to underwrite something in the business? Like how confident are you in ability to kind of pick that here in this world?

We've never really -- we've never been the buyer and fixer of an asset ever, at least intentionally, right? We think that we're buying winners that have good momentum behind them, and that's what we're focused on. And increasingly, that will become easier to discern an AI era because the targets will have AI growth and earnings, AI-related growth -- product growth and earnings. And so -- but the concept of a core business that has some headwind attached to it and then somehow we can own it and magically improve it, not really what we do, and I don't see us doing that in the future. We're going to buy the winners and make them better.

Your next question comes from Clarke Jeffries with Piper Sandler.

I wanted to ask kind of 2 interrelated questions around the core margin momentum in the business. Just where do we stand on the quarter-to-quarter movement of the input costs or the mix in TEP? I think core margins were down 70%, but with less contribution from software. So I think that implies that TEP improved from a core margin perspective, but love to get sort of the background on what you're seeing and what you expect for second half?

Sure. I'll take that. So yes, you're right. It's mostly concentrated in TEP. So core margins were down for the enterprise 70 basis points and TEP was down substantially more than that. And it's really the same dynamics that happened in the second quarter are consistent with what happened in the first, which is at Neptune, they had more of a mix of mechanical meters that shipped, and those have carried higher input costs.

A big input cost for them is ingot, which has -- ultimately has copper in it. And you've seen what's happened with the price of copper and fulfilling data center demand. So that will -- in the second half, we've got some offset to that, that will -- on the price side. So we'll have some better offset. And we'll also have more static meter shipments in the second half that don't have as much that input cost.

And then on -- and then we just have more mix of reoccurring consumables across our NDI and Verathon business, which we love because that's higher recurring and it's more secular and more predictable, but they do carry a little bit of lower margin. So that's really the primary thing that's going on there. And then that dynamic in the second half just comps a little bit better. So if you look at Q2, it's usually -- it's been our high watermark, but it was a little bit lower this quarter. And then as you roll into the second half, we'll have better comps in the segment.

Perfect. And then just on the other side of it with the -- I think you mentioned core margins in software being down based off of the investment in the AI team. Just curious how you expect the investment to play out. I would imagine that it's heavier today in application software versus network software. Do you have insight to when investment might peak? Just any insight on the relative magnitude of investment in the AI team maybe between the segments for the sort of next 12 months?

Yes. I think you're right, right? Most of the, I'd say, activity right now is in application, but all the businesses will have some level of interaction with the AI team. We're sort of -- I think we're at maybe the halfway point of where we think that investment is going to be in terms of headcount, but probably much higher on spend because we've started at the more senior level, and then we'll add some more entry level and more junior folks as we go through. So a lot of that is already in our second quarter base and won't be that much incremental as we go forward.

Your next question comes from Brian Peterson with Raymond James.

Neil, I know you're addressing a lot of different markets, but I'm curious, in where those markets do you think you have the earliest appetite or demand from customers for AI solutions? And then maybe what verticals do you think will take a little bit longer to kind of test out those solutions before they step in and buy?

Yes. It's -- we spent a fair amount of time thinking about this. And I think it's -- maybe try to answer that on like on 2 different axes. I mean, there's certainly the industry end market. And I don't know per se if you're in insurance versus health care that the mindset is different in those end markets, one more aggressive, one more conservative. So I don't think that's really the dynamic.

I think the other one is we can compare and contrast like CentralReach, which is autism therapy and freight matching automation at DAT. And we have incredible take rates, adoptions in autism therapy and methodical week month-over-month growth rates are quite nice at DAT, but they're not like at escape velocity yet. And why is the difference?

And my -- our discernment on that is pretty simple, which is in autism therapy, you have something like 800 million therapy hours demanded, 300 million therapy hours supplied. There's a line outside the door of every clinic for care. And so to the extent that we can deliver AI solutions to give therapists more time to see patients, they're seeing patients, patient families are getting the services, the clinics revenues and earnings are going up, just everything is aligned.

And the DAT example, we can automate the manual -- the dozen or so phone calls to broker a load into no phone calls and do it for a fraction of the labor cost. But there, you're having to do a change management in the workflow about how loads are brokered. There's a human element of that. There's a change management element of that.

And then there's going to be flavors of that in between. And like, for instance, Vertafore probably sits somewhere in the middle between those 2. So I think it's going to be more about just the level of human change more than it is like industry that drives sort of the rate of adoption.

No, that's great color. And maybe just -- I know you mentioned some of your conversations with sponsors. Do you have any sense of where they are in terms of their AI investments? And if those are really ramping up, how do we think about that investment or margin cadence of the targets you would be looking at, assuming we do see a swing of activity in the next couple of quarters?

Yes. This is probably unfair for us to characterize all sponsors the same. We'll try to do this out. We'll do it without naming names. But there's a small number of sponsors that when the gun went off a couple of years ago with AI, like us, decided to put all of their energy around AI into playing offense, driving product velocity, driving revenue growth, and that was the principal focus.

The vast majority of sponsors when the government off said, "Oh, my goodness, I've got an opportunity to take a bunch of cost out of my business, and I'll be able to capitalize that. And now they've realized, "Oh, boy, I've got to get on the product journey because I can't sell a software business unless it has a viable AI sort of product road map in front of it."

So as a general matter, I think we're ahead on the product side versus the sponsors, but they're catching up. I mean it's -- they know they have to do the agentic SKU delivery and show some defensible increase in growth rate to be able to sort of sell a business at a premium price, whatever the definition of premium is going forward. And -- but there -- it's a broad landscape, and you can imagine there's different shades to gray across the sponsors on the AI front. I hope that answered your question.

Your next question comes from Daniel Jester with BMO Capital Markets.

I think we've maybe talked about this in a couple of different ways, but maybe I'll just double-click on it. I really appreciate the color around SoftWriters and sort of the detailed sort of in the prepared remarks about the opportunity there. And it sounds like there's incremental monetization from AI. You had a whole bunch of features that you talked about that have been launched across the portfolio in the prepared remarks as well. Can you help us maybe understand the direct monetization opportunities versus sort of the feature and functionality and quality of life improvements that you're launching? Just as we think about going into next year, how much potential monetization uplift from AI is coming in the pipeline?

Yes. So maybe I can spend a minute on how we're going to monetize and then I'll try to -- we won't be able to give you a lot of color on the exact '27 monetization amounts. But I think let me walk through this, and I think it will become evident. So I think we talked about this last quarter, but the principal way we're going to monetize these agentic SKUs is not going to be the SoftWriters example, which is straight transactional. Our customers have been very clear. They need to have an amount that they can budget and they can sort of understand an envelope -- financial envelope in which they can operate in.

So I believe the vast majority of our agentic SKUs will be sold in, if you will, an agent layer, an orchestration layer, the customers will pay a subscription for access to that. And then based on the consumption of the agents and the value that we deliver, they will buy larger tiers of utilization, but it's not going to be straight consumption. Imagine it's going to be stair step consumption. That will be the majority of the way that we monetize. There'll be a few businesses, DAT SoftWriters that already have transactional pricing for the core of what they do that will transactionally price to AI solutions.

And then a couple, the most notable will be Deltek is they're piling the majority of their AI agentic features into their cloud product, and they will sort of monetize it on the uplift of their on-premise to the cloud and drive pricing -- sort of additional pricing in the lift and shift. So based on some of the questions that have already been asked today, the big X factor, and we're just going to call it as we see it, is what's the rate of adoption at the customer level, right?

We have the products. We're going to have more products in 3 months and more products in 6 months. And that we're on that train, and we're excited by that velocity. But what's the pace of adoption at the customer level? That's the unknown. And so until we get clear signal on that, we have to be unfortunately vague on the magnitude of impact in the near term.

No, that's really helpful context. I appreciate all that color. And then maybe just as my follow-up, I think in your prepared remarks, you talked about sort of ground to cloud conversions starting to improving. I guess maybe can we just spend a moment, I guess, why do you think that this is improving? And I guess, the confidence level that we should continue to see that improving for the rest of the year into next year?

Sure, Dan. I can take that. So yes, I think we're seeing it, and we have seen it for a few years now at Aderant, and it's picked up velocity there. So that's a legal end market, and we started with some of the smaller firms and now we're starting to move into some of the larger firms, which is encouraging. Our PowerPlan business has moved their tax solution into the cloud, and we're getting great adoption there. And now they're moving their core accounting -- tax accounting module into the cloud or suite into the cloud, and the adoption is picking up there.

And then lastly, as Neil talked about, at Deltek, they're our largest maintenance base today. Putting new features into the cloud is certainly going to increase that adoption and then actually just end of life on their cost point solution in the GovCon space, which they're going to only go back and minus 2 on that. So they've made -- they've declared that the customers are going to move into the cloud, and that will be a big sort of lift for us over the next 5 years or so.

Your next question comes from Dylan Becker with William Blair.

Neil, maybe for you, obviously, a lot of conversation around AI and agents and how that's kind of TAM expansive as you go into the labor segment. But maybe wondering on the vertical approach, right, how this validates not only as the workflow system, your ability to identify those opportunities to expand the scope, but also validate the ROI and maybe improve the attach, right, so to draw against that expanded TAM, if that makes sense? And maybe adjacently, right, like why customers would buy from you versus somebody else with an agent as you are kind of that workflow orchestration layer?

I'll try to attack all of that. Hold me accountable if I fall short. So the ROIs -- going back to the earlier question about the hit rate, the ROIs are clear and demonstrable. I mean it's -- I think I said it some of the cases in the Vertafore going from an hour to minutes, you have people that spend hours a day doing pass and now take 30 minutes. And so it's very, very clear about the value that the customer receives or $100 to $200 to broker alone and we charge a fraction of that or it's a very hard, very easy to identify ROI. So we're quite bullish by that, and that's why the hit rate early on and the signals are quite positive.

So why us is a question that we spend a lot of time on, and we're -- the signal here is just getting clearer and clearer and clearer. It matters a lot. I mean, it's the classic moat framework, but it matters a lot when you have a system of record position, which is the most of what we do, you have the data, but importantly, you have the workflow depth. So think about that SoftWriters example. Like, yes, we know how to validate a pharmacy entry, order entry.

There's the AI tool to do that, but delivering it precisely in the workflow with no latency is incredibly important. There are the effects whereas we -- there's a learning curve and a network effect, if you have a flywheel effect in all these solutions as we get feedback, the models get better, the prompts get better, the result gets better. And so if more use -- gets more use. So there's a bit of a network effect there.

I think 18 of our 21 software businesses are operating in a regulated end market. So there's a regulatory burden that is -- that sort of then leads into like a very high level of customer trust. Candidly, like why a lot of vertical market software exists is because of you have end markets that are different for some reason, oftentimes from a regulated point of view, which make its trust. And then let's just not forget about distribution. I mean it's a huge deal when you can release a feature or a product and you have a customer base that is sort of asking for that.

They didn't even know they needed it and they see it like, "Oh, I need that right now," and so all of that comes together about why OnStak AI is a winning solution in these vertical markets. And we have just a high degree of -- a high and increasing level of confidence in that.

Perfect. That's really helpful. And maybe, Jason, just a quick one for you as well, too, as we kind of think about the outlook, right? We had a strong first half of the year. We're seeing a slight kind of acceleration and improvement in the second half. I guess, given a lot of kind of the agentic opportunity we're talking about, I know it's not immediately monetizable, but probably improving buyer sentiment. I guess, how would you attribute or weight strength in the first half, kind of the mechanics of normalization in some of those larger businesses versus maybe that incremental improving sentiment, if you will, kind of across those 3 buckets as we think about the outlook for the balance of the year?

Yes. I mean, obviously, we had a good first half. TEP outperformed the second quarter and most of our races has been based on the confidence of the first half. I think the second half is a lot of mechanics as we've talked about before, with CentralReach and Subsplash turning organic. And so we haven't really baked in anything meaningful for AI above what the businesses are delivering today. And so that's more of plan for '27 at this point.

Your next question comes from Joe Vruwink with Baird.

I'll just do one. But talking about the organic recurring software, I think it was up 7% in the quarter. You then have reoccurring down 2% and nonrecurring down 4%. I guess, one, how did the latter 2 compare to expectations? And then two, given some of the early reports in software have maybe alluded to like deal timing issues around license transactions. Are you seeing anything pop up there that is at all a leading indicator of demand interest ahead of the second half?

Sure, I'll take that. So in application general, yes, nonrecurring was down a little bit. We expected that. Actually, I thought it was going to be a little bit worse because we didn't have the Deltek large license deal baked in. That was just really timing between PowerPlan and others around license and service activity. So nothing to really call out there. And then in our network recurring was down a little bit at our FFA business. So on the call, just more large customers with lower unit economics, and that actually hits the revenue line. So really, that was the only 2 things to call out.

And then actually, iPipeline also in the network segment had some service timing. But -- so overall, though, I would just say that bookings continue to look favorable. We were up. We had a tough comp on the second quarter of last year, but we're still up on a TTM basis, mid-single-digit plus. So pipelines look really strong. I think we'd like to see -- we would expect to see that number creep up in terms of TTM bookings as we move into the second half of the year. So the environment has been good for us in terms of commercial activity.

And just to spike one thing, Jason on the deal -- on the services timing, this is booked deals, and it was pushing up deliveries of deals versus bookings that pushed.

Your next question comes from George Kurosawa with Citi.

A lot of discussion in the industry about rising AI costs, token budgets kind of swelling, anecdotes of tokenmaxxing. Maybe just when I think about your position, it seems like I'm curious if there's a part of the value prop if you think about the portfolio of businesses that is built around or emerging around the more efficient deployment of AI. And then, Jason, maybe just your approach to managing AI costs and governing those internally.

Sure. So yes, obviously, spend increased for us, just like everyone else. We're up about -- on an annualized basis, about 3x since January. We've been really pushing -- we think it's going to go up by the end of the year, by the way. I think we've been pushing adoption at the enterprise level and getting the business to fully move to agentic coding, and we're in the early days of that. I will say we had our CFO Summit a couple of months ago and all of us were talking about that. We've been sharing a lot of best practices and tools around controlling spend, be it gateways or auto routing or reporting controls.

So that's fully in swing. I think the good news, it's kind of a hallmark of our model is that the businesses are driving local ownership, right, around balancing speed with control. And so that's sort of how we've managed it. In terms of how it gets into the product, I mean, I think we use a lot of the -- we don't have to use the frontier models in our product. We're using some of the lower-level tools to do that. I mean you don't always have to use AI in every case. By the way, you can codify certain rules and don't have to continue to ping and do calls when you're spooling up the agents. So overall, we're obviously mindful of it, but I think we're in a good spot there in terms of managing the token spend.

Okay. Great. And then I did also want to ask about Aderant. It seems like the business has continued to see good momentum. The legal tech space is rapidly evolving, a lot of fast-growing privates in the space, maybe not directly competing with Aderant, but at least in the same world. The hourly billings model itself seems to be maybe under some level of scrutiny. Just how do you feel that business is positioned over the long term and kind of the durability of momentum there?

Yes. We -- the Aderant business is just awesome. Just so everybody frames, a lot of what you've talked about is sort of in the practice of law. the Harvey and Legora and Anthropic of the world about how you sort of make the practice law more efficient. Aderant is all about the business of law. So we're the ERP billing collection, cash cycle, time capture, all of that. And it's just been a great business. Since we own the business, the market share has gone from like 35% to 65%. The growth rates tripled. It's just been a great business for us.

In terms of billing, yes, I mean, we -- there was -- we did a tuck-in last year, ProPricer at Aderant, which is specifically leaning into how do you help law firms think about strategically changing their pricing models to be more fixed fee or fixed fee with some overages, et cetera. It still has pretty low uptake across -- not ProPricer, just that pricing model, relatively low uptake across the industry. But you can see that happening in certain situations and Aderant, that's a business of law question that we will do -- sorry, virtual price, VPD, sorry, I gave the wrong answer, wrong deal we did there. But we're excited by that opportunity to partner with our customers in that regard as this market evolves.

A lot of the business, the practice-law lead folks, by the way, very much want to partner with us because we're the one that have the matter sort of number and matter details and they need to know what matter their AI solutions are working in so that they can be in the system the right way. So we partner with those folks as appropriate.

Your next question comes from Josh Tilton with Wolfe Research.

I'll keep it to one given the time. I guess if we step back from like a high-level perspective, it felt like we came into the year with an outlook for the year that had some conservatism in it for the different things going on with Deltek, DAT and Neptune. We're halfway through the year. The full year guide is going up a little bit. It sounds like there are signs of improvement in all 3 of those businesses.

Can you just help us understand what, if any, conservatism is left in the guide? Did anything about how you're being conservative change regarding these 3 businesses? How do we just reconcile or understand full year guidance going up for the year, but also where you're still being prudent and conservative in your outlook for those 3 businesses that I mentioned?

Yes. I mean I'll take a crack at that and then ask Jason if he wants to add any color. So just to reiterate what's already been said, it was a lot of the increase is sort of in the bank. It's first half doing better than we thought. And then there's the mechanics in the second half of turning organic and then sort of easier comps, especially in the third quarter at TEP. And then we have DAT doing a little bit better. So that's -- those are the good things. But there's still some range of outcome here that we want to remain prudent in the outlook so that we can finish the year with strength.

Your next question comes from Ken Wong with Oppenheimer.

I'll just ask one as well. You talked about DAT market improvement. Is that something baked into the guide in the back half? And then any thoughts on the freight broker liabilities ruling and how that might impact the business?

Ken, yes, so we -- the way the DAT's business works, as you know, it's main on the carrier front, it's monthly subscriptions. So we've seen good progress in the first half. That will continue -- we think that will continue into the second half, not baking in a massive inflection, have just continued slight improvement. And how that works sort of snowballs and then that will roll over into '27? So playing more for '27 growth there, but certainly have some of that baked into the second half in NS.

And on the Montgomery Scotus broker liability case, a couple of things on that. The punchline is, we think this is a good thing for us in that. What happened -- first of all, what's happened is a bunch of state laws on this basically got harmonized at the federal level. So at least we know there's one set of rules in which to play by now, which is good.

And then what this really does is put more emphasis on the brokers to vet the carriers, which is precisely what Convoy and DAT does extremely well. This goes into the whole fraud situation from a year ago. And so this is -- we're part of the solution here, and we're encouraged that we get one set of rules to play with and we'll be part of a solution that everybody is focused on.

This concludes our question-and-answer session. We will now return 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.

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

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 Zack Moxcey, Vice President, Investor Relations. Please go ahead.

Good morning, and thank you all for joining us as we discuss the first quarter 2026 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 Chief 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 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.

Now please turn to Page 3. Today, we will discuss our results primarily on an adjusted non-GAAP and continuing operations basis. For the first quarter, the difference between our GAAP results and adjusted results consists of the following items: amortization of acquisition-related intangible assets and financial impacts associated with our minority investment in Indicor. Reconciliations can be found in our press release and in the appendix of this presentation on our website.

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

Thank you, Zack, and thanks to everyone for joining our call. As we turn to Page 4, you'll see the topics we will cover today. We'll start by highlighting our Q1 enterprise performance, then Jason will walk through the enterprise financials, our balance sheet and provide an update on our share repurchase program. Then we'll discuss our segment highlights and outlook and introduce our Q2 and increased full year 2026 guidance. Finally, we'll close with a few summary points before opening the call for questions.

So let's go ahead and get started. Next slide, please. As we turn to Page 5, I want to highlight 3 takeaways for today's call. First, we delivered a strong start to 2026 and are raising our full year debt guidance. Our Q1 results exceeded expectations across every key metric. Total revenue grew 11%, organic revenue grew 6%, EBITDA grew 8%, free cash flow grew 11% and DEPS was $5.16. Importantly, enterprise gross retention remained strong, consistently in the mid-90s area. On that foundation, enterprise software bookings were also strong, core up low double digits on a TTM basis. This continues the momentum from our last call and bolsters our confidence for the balance of the year. On the back of this quarter's performance, we're raising our full year DEPS guidance to a range of $21.80 to $22.05, up $0.50 at the midpoint and more on this later.

Second, we're continuing to accelerate AI velocity across the portfolio. In Q1, AI innovation continued to broaden across our businesses, move deeper into core products and increasingly show up in both product road maps and customer conversations. Businesses like CentralReach, ConstructConnect, Vertafore, iPipeline, Aderant, DAT, Subsplash and SoftWriters all released meaningful new AI-enabled product capabilities during the quarter. The signal from our own portfolio that AI can be a meaningful growth driver in vertical software keeps getting clearer by the day.

On the AI accelerator team at Roper, as a reminder, this is a central strike team that partners directly with our operating company to accelerate AI product development and capture reusable patterns for deployment across the portfolio. The team is ramping quickly. The team's first partnership was with Vertafore, helping deliver AI agents unveiled at their customer conference last week. This is exactly the kind of portfolio impact we envisioned when we invested in this team, and we expect the pace of partnerships with our operating companies to accelerate throughout the year.

And our third takeaway centers on capital deployment. Since November last year, we've repurchased 6 million shares for $2.2 billion, including 4.9 million shares for $1.7 billion year-to-date in 2026. Importantly, our Board authorized an additional $3 billion of repurchase capacity, giving us $3.8 billion of remaining authorization and north of $5 billion of total capital deployment capacity over the next 12 months.

Our approach remains unchanged. We're disciplined and unbiased between acquisitions and opportunistic buybacks, focusing on driving the best risk-adjusted long-term cash flow compounding per share for shareholders. Our M&A pipeline today is targeted, focused on high-quality strategic opportunities where we're developing deep relationships and real conviction, and we expect to remain active and disciplined long-term buyers.

Before I turn it to Jason, one theme you will hear throughout today's call, organizational velocity across our portfolio continues to build. The investments we've made over the past 2 years in leadership, in AI, in modern engineering practices and operational rigor are working and demonstrating meaningful results. Our businesses are releasing innovation faster, executing sharper and moving with more confidence. And that's what gives us conviction in the balance of the year and beyond.

So with that, Jason, let me turn the call over to you.

Thanks, Neil, and good morning, everyone. I'll take you through our first quarter financial performance, starting on Slide 6. As you heard, we delivered a strong first quarter, finishing well above the high end of our DEPS guidance range and ahead of expectations on organic growth. Revenue of $2.1 billion was up 11% with organic growth of 6% and acquisitions contributing 5%. Importantly, recurring software revenue growth across our software segments was again strong at 7%, which continues to be the best indicator of business health and durability.

EBITDA of $797 million was up 8% over prior year. EBITDA margin was 38.1%. Our core EBITDA margin was down 70 basis points in the quarter, driven by lower gross margins in our TEP segment due to mix of more consumables at NDI and Verathon, coupled with higher input costs at Neptune. Core EBITDA margins in our software segment expanded 40 basis points, which includes continued investment in AI. DEPS of $5.16 was above our guidance range of $4.95 to $5 and up 8% over prior year. The upside was driven by the combination of stronger organic growth, a lower tax rate and the benefit of lower share count resulting from our net purchasing activity in Q1.

Free cash flow of $562 million was up 11% over prior year. On a trailing 12-month basis, free cash flow is now $2.5 billion and has compounded at a 19% CAGR over the last 3 years or 15% excluding the impact of Section 174. We continue to view free cash flow per share as the most important metric in evaluating our progress. And on that basis, we were up 15% versus the prior year, given the combination of growing cash flow and a declining share count. Relatedly and for modeling purposes, we exited Q1 with [ 102.4 ] million shares outstanding.

Now if you turn with me to Slide 7, I'll walk through our financial position and capital deployment update. We exited Q1 at 3.1x net debt to EBITDA, which is up modestly from 2.9x at year-end, given the $1.5 billion we deployed towards share repurchases in the quarter. We have $383 million of cash and $2 billion drawn on our $3.5 billion revolver. Importantly, we closed on a new 5-year $3.5 billion revolving credit facility during the quarter, which provides ample liquidity and improved pricing and terms. This also enhances our cost of capital strategic advantage in the face of an increasingly constrained private credit market that other market participants looking to make acquisitions will be facing. Even after significant repurchase activity in Q1, we maintained over $5 billion of annualized capacity for capital deployment, which speaks to the strength of Roper's cash generation engine.

Neil highlighted the share repurchase activity in the opening. To put it in perspective, our cumulative 6 million of share repurchases is about 6% of shares outstanding and brings us back to a share count we have not seen since 2017. Additionally, our Board approved expanding our share repurchase authorization by another $3 billion, which provides capital deployment flexibility and reflects continued confidence in our vertical market software position, enhanced capabilities and execution velocity to capture the AI opportunities in front of us.

On M&A, the pipeline of high-quality opportunities remains very attractive. As we've discussed, we believe the structural dynamics in the PE-backed software market and a constrained private credit market continue to create a compelling environment for Roper. We remain active and disciplined.

With that, I'll turn it back over to Neil to discuss the segment performance and outlook. Neil?

Thanks, Jason. As you turn to Page 9, let's review our Application Software segment. Revenue for the quarter grew 12% in total and organic revenue growth was 5%. EBITDA grew 13%, EBITDA margins were 42% and core margins improved 50 basis points year-over-year. The quality growth here is notable. Recurring and reoccurring revenue, about 85% of the segment grew in the mid-single-digit plus range, while nonrecurring was essentially flat.

Stepping back at the segment level, 3 themes stand out for the quarter. First, enterprise gross retention remained strong, consistently in the mid-90s area. On that foundation, enterprise bookings were also strong in the quarter, consistent with the momentum we described in our January call and supportive of our confidence for the balance of the year.

Second, our SaaS transitions continue to advance meaningfully. Several of our larger businesses made real progress on ground to cloud conversions and on bringing new cloud-native products to market.

And third, AI progress continued to build to signal of shifting from product investment to product shipping and you'll see this clearly in the 3 company highlights to follow. First, Aderant delivered a record quarter, strong revenue growth and a new Q1 bookings record. Strength was broad-based with particularly strong SaaS momentum on Sierra, Onyx and viGlobal. Aderant also launched AI-driven talent evaluation within viGlobal, continued the rollout of a Stridyn AI platform and completed a record number of Sierra Cloud migrations in the quarter. Simply put, Aderant is winning in the legal market and doing so from a position of strength.

Second, Vertafore delivered a solid quarter, steady mid-single-digit revenue growth with EBITDA ahead of revenue. Recurring revenue continued to build across agency, MGA and carrier with MGA again leading on double-digit growth driven by strong bookings and high retention. And last week at their Accelerate user conference in Las Vegas, Vertafore unveiled its new Velocity AI platform, along with a suite of AI agents embedded across the product portfolio from reference connect and reconciliation to submission processing and e-mail agent automation. AI is a meaningful TAM expansion opportunity for Vertafore, and they're quickly moving to capture it. As I mentioned earlier, this is where the Roper AI Accelerator team had its first impact and is exciting to see.

And third, CentralReach continues to execute ahead of our deal model. Recurring software revenue grew well north of 20% with margins expanding, demonstrating the operating leverage in this business as it scales. And most importantly, CentralReach continues to be one of our strongest AI proof points. AI-generated session notes have dropped from 5 to 10 minutes to about 30 seconds, giving clinicians back roughly 8 hours a week to work with autism learners. BCVAs are saving 140-plus hours a year on report authoring and review and daily claim generation is 6x faster. Customers are responding. AI and AI influenced bookings were 75% of new business in the quarter, up from 0 2 years ago. This is a textbook example of how the AI right to win, we believe exists across our portfolio. CentralReach sits inside mission-critical workflows, has proprietary data and is translating that advantage into real growing AI revenue.

Prior to turning to the outlook for this section, I'll provide an update on Deltek and the GovCon market. Importantly, Deltek grew recurring revenue in the mid-single-digit plus range in the quarter, driven by strong private sector demand, partially offset by continued softness in GovCon enterprise. SaaS remains strong with ground-to-cloud conversions trending positively. Consistent with January, we're still waiting for the GovCon inflection. This is not new. We continue to work through the tail of last year's disruption to federal procurement, agency reorganizations and broader budget uncertainty, which has delaying decision-making, particularly on large enterprise perpetual deals.

Longer term, we remain encouraged. The One Big Beautiful Bill is a meaningful positive for defense and government contracting spend, but the benefit reaches us only after our customers win awards and invest in systems, and that takes a bit of time. Consistent with January, we are not baking into our guidance any GovCon inflection or any OBBB benefit and rather we'll adjust as conditions warrant.

Turning to our outlook for Application Software. We expect organic growth for the balance of the year to be in the mid-single-digit plus range, lower in Q2 on some nonrecurring timing, improving in the back half of CentralReach turning organic and easing nonrecurring comps.

Please turn us to Page 10. Total revenue growth in our Network Software segment was 14% and organic revenue grew 5% in the quarter. The quality growth mirrored application software. Organic recurring grew mid-single-digit plus, nonrecurring declined mid-singles as customers move to our cloud offerings and bookings remained strong here.

EBITDA margins were 50.7%, down 460 basis points year-over-year, while core margins held steady, down just 20 basis points. The gap reflects 2 dynamics: our acquisition of Subsplash, a faster growth business with a lower but steadily improving margin profile and our ongoing investment in DAT, particularly Convoy.

Stepping back at the segment level, we see similar themes playing out here that we described in Application Software. First, enterprise bookings were strong and gross retention remained high across our network businesses, together giving us improved visibility into the balance of the year. And second, AI progress is tangible and shipping to customers today.

Let me highlight 3 businesses in this segment. First, DAT is executing well against a mixed freight backdrop. ARPU expansion continues and adoption of our digital freight marketplace solutions remain strong. On the macro, spot rates are up 20% to 30% year-over-year and the carrier side of our ecosystem grew in Q1 for the first time in several years, real green shoots, particularly in the second half of the quarter. That said, a sharp diesel spike compressed carrier margins late in the quarter, and our guidance continues to assume no meaningful freight market recovery.

Our early-stage investment in Convoy inside DAT represents a material TAM expansion opportunity. Today, DAT is a subscription-based 2-sided network. Brokers and carriers pay to access the largest freight marketplace in North America. With Convoy, DAT is evolving into a full end-to-end agentic and ML-powered marketplace, participating in the workflow and the economics of the transaction itself, a meaningfully larger and more valuable business over time. The innovation that enables this transformation exists and is working in the market, and we continue to enhance and extend the tech.

In the most recent quarter, DAT's RateView AI agent moved into live production, replacing manual rate lookups with instant conversational lane rate guidance. Convoy's [ Load Notes ] is turning brokers freeform emails and chat messages directly into bookable loads eliminating manual data entry and Loadlink's voice-to-post is enabling hands-free load posting. [ The AI ] work at DAT is not theoretical, it's shipping in production and delivering incredible value to customers today.

Turning to ConstructConnect, another strong quarter with recurring revenue up double digits and continued breakout from Boost, their AI-based takeoff solution. AI Auto Count, which reads construction schedules, launches this quarter. Most importantly, ConstructConnect has now moved its entire product and engineering organization into agentic coding processes and tools shipping 4x the features versus a year ago. Broadening this across the portfolio to drive multifold product velocity gains is a key priority and an exciting one for enterprise.

And third, Foundry returned to year-over-year revenue growth in Q1 with Nuke closing the quarter at record ARR. Net retention returned above 100% for the first time since the 2023 actors and writers' strikes and our recent Griptape acquisition extends Foundry's leadership into AI orchestration across the visual effects and animation pipeline, enabling studios to securely coordinate multiple AI models and agents in their production and post-production workflows.

Finally, and prior to turning to our segment outlook, I'd like to make a couple of quick callouts. SoftWriters launched its AI-enabled order entry product last week, a meaningful workflow enhancement for long-term care pharmacies and Subsplash released Trends AI, giving ministry customers the ability to generate custom data insights through natural language prompts, a key unlock for this customer constituency.

Turning to our outlook for network software. We expect organic growth for the balance of the year to be in the mid-single-digit plus range. A couple of quick callouts. Subsplash turns organic in Q4 and margins will reflect continued investment in our freight platform acquisitions for the balance of the year.

Now please turn to Page 11, and let's review our technology-enabled products segment. Revenue here grew 9% in total and 7% organic, significantly better than expected, driven by strength at NDI and Verathon. EBITDA margins were 33.6%, down 260 basis points year-over-year, reflecting 2 dynamics: first, input cost pressure at Neptune, principally bronze ingot inflation; and second, a mix shift at both NDI and Verathon towards faster-growing consumables, which carry lower gross margins but more durable reoccurring revenue profiles.

Let me start with NDI. Another record quarter driven by exceptional demand for their electromagnetic tracking solutions across cardiac, neurological and orthopedic precision measurement applications. The EP market, in particular, is a strong multiyear growth vector for NDI. Procedure volumes continue to grow, leading OEMs are introducing new tracking-enabled catheter platforms. NDI has a unique right to win as a sensor layer. Great job by Dave and the entire team at NDI.

Turning to Neptune. Revenue declined low single digits in the quarter, which was better than expected, driven by strong execution from Don and the entire team in [ Tallahassee ]. The market dynamics were largely as expected with lower mechanical meter volumes partially offset by strong static meter growth. Importantly, Neptune's cloud-based software adoption continues to scale nicely, though off a small base. Consistent with our Q4 commentary, we're not underwriting a Neptune recovery in our 2026 guidance, and we'll continue to monitor underlying demand.

Rounding out the segment, Verathon delivered solid growth, supported by strong BFlex and GlideScope demand, and we're optimistic about new product launches planned for the balance of the year.

Turning to our TEP outlook. We expect organic growth for the balance of the year to be in the mid-single-digit range, lower in the second quarter as we face a tougher Q2 comp. We expect net raw material pressure to continue in the second quarter and improving in the back half of the year.

With that, please turn us to Page 13. On this slide, we'll cover our Q2 and full year 2026 guidance. Specifically, we're raising our full year 2026 DEPS guidance to $21.80 to $22.05, up from $21.30 to $21.55, a $0.50 increase at the midpoint, which passes through our Q1 beat and the impact of our already executed share buyback. We're maintaining our full year total revenue growth guidance of approximately 8% and organic revenue growth of 5% to 6%. For the full year, we continue to assume a tax rate in the 21% area and a bit below that in Q2. For Q2, we're establishing our adjusted DEPS guidance of $5.25 to $5.30. To reiterate key assumptions from our segment commentary, full year guidance assumes no meaningful improvement at Deltek's GovCon market or DAT's freight market and modest top line weakness at Neptune versus a year ago.

Finally, on capital deployment, we're entering the balance of 2026 with meaningful optionality. We have $5 billion of firepower available over the next 12 months, a targeted M&A pipeline and $3.8 billion of remaining share repurchase authorization, giving us substantial flexibility to act opportunistically. We will remain disciplined and unbiased between acquisitions and opportunistic buybacks based on what drives the highest and most durable cash flow per share compounding.

Now please turn to Page 14, and then we'll open it up for your questions. We'll conclude with the same 3 takeaways with which we started. First, we delivered a strong start to 2026 with 11% revenue growth, 6% organic revenue and 11% free cash flow growth. Retention and bookings remain strong and position us well heading into the balance of the year. Based on this, we've raised our full year DEPS guidance by $0.50 at the midpoint.

Second, we are accelerating AI innovation across the portfolio. CentralReach, ConstructConnect, Vertafore, DAT, Aderant and others continue to move AI deeper into their products and increasingly into customer activity, and our AI Accelerator team continues to build velocity across the portfolio.

Finally, on capital deployment, as we discussed earlier, our Board authorization of an additional $3 billion of share repurchase capacity gives us $3.8 billion of remaining authorization. Alongside that, we have $5 billion of capital deployment firepower available over the next 12 months, supporting our targeted M&A pipeline. We will remain disciplined and unbiased between acquisitions and opportunistic buybacks based on what drives the highest and most durable cash flow per share compounding.

As we wrap up, some additional color on the M&A market. A quarter ago, our pipeline was at record levels. Shortly after our call, the broader public software valuation drawdown caused sellers to pause most active processes. We remain active and our pipeline leans more proprietary. That said, we expect M&A activity to pick back up, timing of which is still to be determined. But when it moves, a large number of opportunities are likely to emerge and we're in an advantaged position to capitalize on this. We remain very bullish about being a high conviction acquirer of vertical market software businesses with deep proprietary moats where AI accelerates growth. The signal on that thesis from our own portfolio is becoming clearer and clearer.

So in closing, the ingredients for accelerated cash flow per share compounding are coming together. Our portfolio is the strongest it has ever been. Our organizational velocity is accelerating. AI is both TAM expanding and growth enabling, and we're excited to see our product work translate into higher growth. Our capital deployment capacity and flexibility are significant differentiators and our discipline is unchanged. This is how we compete and win and how we continue to compound for our shareholders.

With that, operator, please open the line for questions.

[Operator Instructions] Your first question comes from Dylan Becker with William Blair.

Nice job here. Maybe, Neil, starting for you. I think it was clear in your commentary, you kind of talked about the accelerating pace of innovation and the right to win and TAM expansion -- kind of TAM expansive nature of AI. But if we think about kind of the embeddability piece and monetization of the platform, I guess, maybe how that layers in incremental conviction as well, too, right? Is that something that can lower friction around adoption? Is that something that can increase kind of the likelihood of success and value alignment with customers, but maybe how the platform positioning and embeddability of agents maybe layers in kind of incremental confidence in that right to win around agents?

Yes. I just want to -- so if you're asking about embeddability, I want to make sure you're a little muted on that. I want to make sure I'm answering the right question.

Yes. So the ability to kind of embedded it into the existing platform, right, and kind of the [indiscernible] value.

Yes. So a few things I'd start with on this. So it really starts with what sort of we talk about internally all the time about the AI, the product magic. We're able to create products now across many, if not all of our software businesses or when the customer sees in early betas and early trials like what the product can do, like their eyes sort of pop out of their head. It's like truly like a magical experience. [indiscernible] know software could do that, right? So that's what gets us like really excited. We just saw it last week, for instance, at the Vertafore Customer Conference, just sort of as an example.

So in terms of monetization, generally -- so that's one. I'll start there. Second is we believe that the right to win here is sort of on-stack AI embedded natively in workflows is a winning play, a huge incumbent advantage. So it is the second thing.

Third thing, monetization, I think, for us is -- there's not going to be a one size fits all. There are some businesses today that already price on a consumption basis, think like SoftWriters and pharmacy automation or what Convoy does at DAT. So I think those will be monetized on a consumption basis. Also those customers' unit economics generally are driven on their own consumption, so it aligns with the customer unit economics.

I think more broadly, though, the monetization is going to be one that sort of, as you alluded to your question, balances adoption and long-term monetization. So I think that's going to not be largely consumption-based. Our customers very much are saying very clearly, they need to be able to plan for and budget what the spend is going to be. So it will likely be some sort of a subscription with an overage based on utilization of the AI tools. I think that aligns nicely with adoption because then the customers are going to be focused on how to realize the magic value, if you will, and not be worried every time they press a button, it costs money. But then when that gets fully adopted and there's like deeply embedded in workflows, we'll be able to sort of grow with that utilization.

I would just add that our CentralReach business is furthest along in this journey. They've been out in the market with AI products for 1.5 years or 2 years, and all of their AI is incremental. It's based on learners, which you could say is some form of consumption, right? It's not based on practitioners but learners, but that's been -- and customers are seeing real value, as Neil highlighted on the prepared remarks in terms of workflow efficiency and better revenue realization.

Very helpful. And maybe, Jason, kind of just sticking with you quickly as well, too. Obviously, kind of reiterating the full year revenue guide, 5% to 6% organic. We just did 6% this year. We've got some mechanics kind of layering in and easier comps in the back half as well, too. But maybe kind of just give us a broader sense of how the start of the year kind of layers in conviction and maybe that kind of conservative view that we continue to take to the guidance framework here going forward.

Yes. Yes. Look, it's a strong start to the year, very encouraged by what we've seen. But we're just one quarter in. So we want to sort of see how things play out. As Neil talked about, we have a couple, like you said, mechanical things in the second quarter nonrecurring in AS will be a little bit more impacted than the first quarter. And then we're just -- in TEP, we're comping a high watermark in Q2, but that will ease off in the second half. And then as we've talked about, the second half will improve in software with Subsplash and CentralReach turning organic. And then we have just some easing comps in AS. So all that just sort of blends into our sort of holding the range at this point, but we'll see how it plays out.

Your next question comes from Brent Thill with Jefferies.

This is Leah on for Brent Thill. Neil, just curious to hear your thoughts on the private markets given ongoing volatility. Can you just tell us a little bit more about what you're seeing right now and if it's changed your outlook at all?

Talking about private markets on M&A? Talking about?

Correct.

Yes, sure. So as I mentioned in the prepared remarks, it's definitely been with the public market drawdown. It's been -- it's gone from the busiest we've been in a long time to the least busy. We're still busy. We're still active. As I mentioned, it's more proprietary. It's certainly more targeted. But it's actually -- we think the M&A setup has actually improved a bit for us over the last 90 days in the context that the LP pressure that we've talked about now for a couple of years continues to exist. That does not change in any capacity. If anything, it's maybe increased over the course of the next 90 days.

The other thing that's happened that's been -- everybody is widely reported, people understand is now we got the private credit dynamic that also is putting pressure on the asset class. So for us, it's -- we think the combination of those 2 will likely service more quality assets in the processes, and we're a very advantaged buyer in that regard. But the timing is still to be determined. We're modeling out what these maturities look like on the private credit side. There's not a meaningful maturity cliff this year. But if you're a private equity sponsor seller, you want to think about divesting an asset well before maturity. So that's something that [ Jen ] and her team are sort of lining up. So we think there's an opportunity here to get potentially, I should underscore potentially to acquire AA+ assets at differentiated values given the backdrop and the dynamics here. The timing of this is to be determined, but we'll stay active in process and prosecute the opportunities in front of us.

Yes. And I would just reiterate, we refinanced our 5-year revolver this quarter at a very good cost of capital, sort of tightened up the spread a little bit. So shout out to Shannon and Dave Baker for getting that done this quarter. Just a great job there. And just positions us well. We have a lot of balance sheet flexibility, and we'll be able to move quickly when the opportunities arise.

Got it. That's helpful. And then just on Deltek's government contracting business, did you see any impact in the quarter at all from the war in the Middle East? And is it having any impact on your outlook for the remainder of the year?

Yes. We asked that very specific question on our call down with Deltek. And the short answer is very little, if any. There certainly is a sliver of the sort of aerospace defense subsector of government contractors that are focused on munitions and sort of war efforts. So that's a small sliver of the population of the broader, I'd say, contractor population. So it had, if in effect, a minimally negative impact just in terms of those contractors are focused on the war efforts and not on contracting for ERP software, but it wasn't material in the quarter.

Your next question comes from Joseph Vruwink with Baird.

I think all Application Software is facing this question around whether AI-related spending grabs an outsized wallet share and maybe the incumbents get squeezed along the way. I think the interesting thing about Roper is you have exposure to markets like legal and health care. I think those are the 2 biggest vertical AI adopters so far. And then I think your respective software exposure there is still doing pretty well. What's your take on this topic? And have you seen any changes year-to-date as we've also seen the big ARR numbers come through from the frontier model providers that make you more concerned in coming quarters?

I would say we're -- the punchline on that, the TLDR is no. No impact on sort of the budget budgetary spend that we sort of compete for. I think the double-click on that is the obvious answer, which is -- and this is a personal opinion that I think a lot of these surveys around IT spend are a little misleading because the whole point of the AI effort is we get to go monetize labor spend. So it's about a whole different bucket of opportunity to capture and provide value to the end market. In the particular -- in the -- across the whole platform, we're not seeing sort of an impact to us relative to allocation of budget, especially not in legal and health care as we talked about Aderant, which is amazing in the quarter. It's been an amazing few years here at Aderant.

Great. That's helpful. And then I heard enterprise bookings up low double digits over the trailing 12 months. I'm curious what they were in the quarter? And I think your definition excludes price. Maybe can you just comment on pricing power in the aggregate?

Yes. So it was certainly above the double digits. We had an easier Q1 comp last year. I think the TTM is definitely the right way to think about it. Yes. And then in terms of -- it does not include price, you're right. And prices held up very well. I think what we've said historically, we're very thoughtful across the portfolio about pricing, and you have to earn the right, and companies are doing that as part of our strategic plan work that we do is understanding that dynamic. And so we've continued to do that methodically over the last half decade or so.

Yes, I would -- the only thing I'd add on pricing in addition to what Jason said is we actually think relative to what the market will bear on pricing, we have underutilized that lever in growth. And so it's not like a pan portfolio [ go raise ] pricing. That's not how we operate at Roper. But as Jason said, it's like where you have earned the right with your product, your product value and your customer relationships to take a little bit more pricing then we are doing that. And -- but it's a very strategic. It's a very earned process. And we would hope that we would see a little bit, I don't know if it's 50 or 100 basis points over the portfolio of software and pricing impact or increase over the next couple [ of 3 ] years.

Your next question comes from Terry Tillman with Truist.

I wanted to build on the prior question on legal tech because, yes, it's in the media reports and some remarkable growth from some of these SaaS natives there. But I'm curious, though, Neil, you've called out Aderant, a couple of years of amazing. And it does seem like it's like clockwork showing up in the segment level slides every quarter on record this or that. How much more sustainability is there in terms of just the momentum in terms of getting folks to move to SaaS? And just can this train keep going just on the momentum with Aderant? And then I had a follow-up.

Sure. So it's -- Chris and the team there have done a great job. I mean I'll give you a little bit -- a longer answer here. Aderant has been really good for a very long time for us. But what's been happening underneath the hood has evolved to sort of keep it good. It started with how do we just -- how do we just take it to our competitor and outcompete them in the marketplace. And that's how we went from 35%, 40% market share in large law to 60%, 65%. We just absolutely compete in one, and Chris and his predecessor team did a wonderful job in that sort of era of growth. Well, that era of growth we could see was going to end at some point, so we had to evolve. That's where we sort of said, okay, let's -- we have this installed base of customers, how do we sell them more things? And so we then prosecuted both an organic and inorganic strategy to add the number of bolt-on products that we could or sort of integrate in modules that we could sell to this large law customer base that made strategic sense. So we prosecuted -- are prosecuting that strategy.

Then came along cloud, right? This was a constituency that did not want to move to the cloud and COVID happened. So we rapidly cloud-enabled the totality of the product set. And then we're now in the -- still early innings, maybe third or fourth inning, maybe not even that late of moving this customer constituency to the cloud of that lift and shift. And now we have the tailwind of the AI benefit in terms of being able -- so there's -- it's a multiple growth driver story and I think there's quite a long way to go on this. But part of the benefit of owning any business for the long arc of time is you're always looking out horizon 2 and horizon 3 for what you have to build either organically or inorganically to sustain or improved growth rates.

Yes, that's very helpful. And the follow-up is just what we're seeing though is with particularly -- not necessarily generative agentic. I mean, that's a pretty big lift in shift in change management, customers being comfortable having things to go autonomous and even getting it beyond kind of the experimental space. So are you seeing with some of the businesses, you actually have to hire -- put in forward deployed engineers or kind of change how you go to market or help the customers and it does create some kind of incremental costs or just handholding? Just anything about how you help them consume this agentic stuff?

Yes, I think that's -- the short answer is yes. I think we mentioned last quarter that this year is going to be just a massive learning year for us across the enterprise on -- I'll put in like the commercialization bucket of these AI tools, of which FTEs are certainly a component. How do you position it? How do you sell it? How do you price it? How do you get it implemented? How do you get utilization pull-through? How do you drive renewal rates high? I mean that whole customer journey is going to be across the portfolio, a huge set of learnings for us.

We have -- I'll spare you the details on inside the portfolios, but we have portfolios where -- businesses where the uptake has just been very natural. We haven't had to have the 4 deployed engineers because when you press the magic button and you get productivity savings that immediately that productivity savings has taken in the customers' operation is something that they can go do tomorrow.

In other cases, there's some trepidation. If I press this button, do I lose my job, and you've got to sort of go through the whole change management process of that. I think in almost every case, folks don't -- our customers, they don't lose -- it's not -- lose their job. It's how do you sort of do task replacement, task augmentation and they can go play offense inside their customer to go compete and win. But it's certainly sort of an expect -- sort of something you have to overcome in that regard. So yes, we do expect across a certain part of the portfolio to do some version of a forward deployed engineer.

Yes. Final thing I'd say on that is I think it's kind of from an investment point of view, it's probably more of a reallocation or rebalancing of investment from customer support, customer service to FTE. So I don't know if it's like a huge cost increase. It's just a resource allocation dynamic.

Your next question comes from Joe Giordano with TD Cowen.

Just curious on your talk about like embeddability and subscription plus overage in the future. Like I get the view of like I don't want our customers to think every time they click a button and it cost them money. I fully get that. If these things become embedded and like the efficiencies potentially require less people at your customers, like how do you kind of judge the ROI of the investment necessary to kind of -- I say -- maybe not saying to kind of stay in the same place. Like the product is getting better, but you're getting like the same kind of subscriptions and it's like costing you more to maybe achieve that now than it did in the past. So how do you kind of evaluate the ROI on the required spend to kind of get to that place?

Yes. I think it's -- so this is -- these are very hard dollar ROIs. I mean we've said publicly, for instance, at DAT Convoy to manually broker load, it's somewhere between $100 and $200 of labor to do that. You use our load automation, it's somewhere in the $40 range. So it's a demonstrable hard dollar ROI. Similar things can be said that, for instance, at Vertafore, one of the agentic tools they released last week. It's a reconciliation tool, the time and motion study is it's like 17 minutes per reconciliation. Our tool does it in 30 seconds. Then you do these like the scores of these a day. So you can sort of see the time savings and then you can get to a financial ROI. So these are pretty hard ROI and products and that sales teams are taking that message to the market and the customer base.

Yes. And I would just say that -- sorry, Joe, I would just say we're using local smaller language models, maybe even older versions. So you're not consuming a lot of tokens when you're doing this activity. So it's -- and you can continue to change the prompts to make it more efficient over time. And so we've even -- even at Vertafore, we've taken that cost of goods down meaningfully in a matter of weeks. So I think it's still very accretive from a margin perspective.

Yes. That's kind of what I'm getting at more of the ROI from Roper standpoint. I get how -- I get the ROI from the customers. It's more like if we're spending money to develop new AI tools that are then embedded in the product that we're already offering, like how is the ROI on the increased investment do you need in 2026 versus the investment you needed in 2021 to get the same customer and keep the same customer happy.

Well, and I would just say on the development front, I mean, we're seeing demonstrable efficiencies, right, with the frontier models itself. So we're getting a lot more output and a lot more road map to consume. So if you talk about just OpEx investment, we're not assuming -- we're assuming productivity, but we're taking that back into the road map. So I don't think it changes fundamentally our P&L structure and our margin profile.

Joe, apologies for missing the point -- the thrust of your question.

Your next question comes from George Kurosawa with Citi.

On the AI strike team, led by Shane and [ Eddie ] that you put together, it sounded like they completed their listening tour last quarter and have now been put out into the field. It sounds like some really success at Vertafore. If you could just touch on how they ended up sort of stack ranking the opportunities that they see in front of them and then maybe the scope of their involvement and how much it's led to an improvement in Velocity?

Yes. So I'm delighted to double-click into that. So just to remind everybody sort of the 3 objectives of this AI, this Roper sort of accelerator team. One, and first and foremost, is to sort of coach and teach, right? This is about enablement of our 21 software companies to do what they've already learned on their own relative to AI and agentic development and then do it even better. So that's number one. Second is to partner shoulder to shoulder and build. And then the third one is to, where appropriate, build sort of shared componentry that we can -- where we can share some common run time or routines on the AI front across the Roper companies where it makes sense. So that's sort of the goal and focus of this group.

In terms of the -- where we're allocating the team, this is very much an executive leadership team focus. It is basically size of prize and impact is how we're sort of force ranking of this. In terms of Vertafore, it is one of our largest opportunities, if not the largest opportunity we have from an agentic automation point of view. I think there was 6 or -- 6 agents released last week at their Accelerate conference. That is just the very, very beginning.

The model that -- and then we -- this quarter, we'll sort of broaden that from one engagement with one business to be -- it's now 6 as the team grows and we have the now 5 additional businesses that are sort of in the early stages of partnering with.

And the final thing is about speed. I mean, I think the unlock here is, at least, I think Amy and the team at Vertafore would agree is our team, the Roper team sort of partner -- very much partnered. So you can imagine leadership resources in our team working hand-in-hand with engineers on the Vertafore team on how to do this AI development, one, because there's a little bit of art to this and not just science.

Number two, there is a speed coefficient that our team brings given their history about sort of modern day, like current very contemporary practices of agentic development and just the pace. And then there's just good old-fashioned change management. How do you sort of break bottlenecks and barriers to go fast. And we saw literally, I know it's sort of an overused term, but 10x kind of productivity gains partnering with Vertafore on some of this development in terms of speed and quality. So we're super encouraged. It's very early days. I don't want [ Shane and Eddie ] to hear this and think they've manifested fully. They've got a lot of work to do, but it could not have gone better, in my view, in the first 6 months.

Okay. That's great to hear. And then I wanted to ask kind of more broadly, when you look across the portfolio, it seems like AI commercialization is in sort of different stages. You've got businesses like Aderant, CentralReach that seem to be resounding successes. When you -- others seem to be coming up right behind them. When you look across that landscape, any pattern matching in terms of why some of these businesses seem to be moving a little faster than others? Is it primarily customer-driven? Or what would you attribute the relative successes there to?

I think it is -- Jason, I'll give an opportunity if he wants to add anything. I think if there's a pattern match there, when you have -- there's 21 software companies in the business. And while we want everyone to be going as fast as they possibly can, you have an array of where people are in their maturity. And where we're most advanced, they're the ones that got after and we're able to sort of get the agentic SKUs into the just in development first into the market first. And sort of now the next wave of this -- we talk a lot about CentralReach and Aderant and Convoy and DAT, they're the tip of the spear. Now we have like 10 or 12 companies, maybe couple more like just now just getting to market with real agentic magic SKUs versus like chatbots and embedded sort of GenAI search inside of existing products where the value unlock is. And so we can -- and we also think a little bit offline about sort of more deeper operational pattern recognition, but that's what I would say about the commercialization phase [indiscernible] you sort of had product ready first.

That's right. Yes. And I think the benefit of being part of Roper, we set our [ President Summit ] a couple of months ago, and we did an AI sort of showcase for those that are further along. So it just helps with the learning acceleration. But I would agree with Neil, that it's those that embrace and saw a true customer problem early on and they got after it a little sooner, but others are coming up the curve very quickly.

Your next question comes from Clarke Jeffries with Piper Sandler.

I just wanted to follow up on the comments around ground to cloud conversions advancing meaningfully. I'd love to understand the impact of SaaS transitions broadly in the Application Software segment? Is that contributing points of growth today? You made the comment around 85% of the segment is in the mid-single-digit plus range in growth, while nonrecurring was essentially flat. So I just wanted to know if it's something that would be of increasing benefit or already playing out in that segment? And then one follow-up.

Yes, happy to take the question. So just as you think about the percentage of products that are cloud-enabled, it's 2/3 or so today. So we have about $1 billion of maintenance. And we think that, that will convert over, say, the next 5 to 10 years or so, and that should convert at 2 to 2.5x lift from maintenance to SaaS. And so today, we're kind of -- if you think about the percentage that we have to go, we're sort of in the first or second inning of that journey. And so it does add, call it, 50 to 100 basis points of growth a year should for the next 5 to 10 years.

The only thing I'd add is we -- when we talked about this in the past, Clarke, we've also said we are very much pacing this ground-to-cloud conversion at our customers' pacing. We're not like forcing it to them. I'll say with the advent of AI, I should have mentioned earlier on the monetization, another monetization method for AI is embedding the AI sort of features in the cloud product. And that is a very compelling pull to make this transition go a little bit faster. So instead of 8 to 10 years, maybe it's 4 to 6. I don't know what the right number is, but we would expect to see that go a little bit faster.

The other thing is we made a tremendous amount of investment over the last 3 years getting product enabled that was because we're going to our customer pacing, there was an urgency to get products enabled and now we are extraordinarily product-enabled. So basically feature parity, if not more so in the cloud product than on-prem. So I think the setup here is a little bit better than it was a few years ago.

Yes. And I would just say it's mostly -- and it's going to be Aderant is a little further along. As you know, power plants in the early innings, but definitely much more cloud-enabled today than they were. And then when you think about those are a little bit further behind, it's more health care, but that's our Clinisys business and labs. That's just kind of the nature of that end market. And so those -- so we see the areas of Aderant and [indiscernible] being those that will be more near term in terms of cloud migration.

Perfect. All makes sense. And then one thing that kind of stood out to me was the margin impact in the Application Software segment. The margin impact of businesses owned for less than 4 quarters was actually positive year-over-year. Just wanted to unpack that. Is that -- is the takeaway here that even the earlier-stage acquisitions last year are getting to margin parity quickly?

So in Application Software, it's our CentralReach business, and that business is -- it's a very -- the business has ample R&D investment. I think R&D as a percent of revenue is like 20%, but they just have extremely strong incrementals. They're very cloud-native platform. And so as they expand, they have very good incrementals there. And when we talk about the acquisitions in our network software segment, we've talked about our -- the business Convoy that we added on to DAT. It's a technology investment. We're super committed to that investment to automate the spot freight market over time. So that actually has a drag on margins.

That plus our Subsplash business, which is a lower margin, faster-growing business that as they grow, they will scale margins. But you can see in our network segment, it does have a pretty meaningful drag on margins. Now over time, as Convoy continues to grow, that should be a tailwind as we go into the out years. But this year, it is a little bit of a drag on margin.

Your next question comes from Josh Tilton with Wolfe Research.

And congrats on a really strong start to the year. I will keep it to one given the hour. But my question is just basically you're very clear that the guidance still doesn't assume a recovery at Deltek and DAT for the rest of the year. Can you just remind us the confidence that you have in the rest of the application network software business and kind of offsetting that weakness throughout the year?

I'd say just to go through the segments. So that Application Software, we feel good about sort of what's going to happen in the second half. We just talked about CentralReach just having a set a really strong start under our ownership and a lot of that's recurring. And so that's just going to flow through in the second half. We've talked about being 80 basis points or so of accretion in the second half for that segment. We still feel good about that.

And then in network, DAT is looking good in the first quarter. We'll see sort of how things play out. Foundry will continue to be sort of getting better throughout the year. They had a great start to the year. And then some turns organic in the fourth quarter, and that's sure accretive to the segment. So yes, I feel good about the rest of the segment or the rest of the business.

Your next question comes from Ken Wong with Oppenheimer.

Just one for me. sounds like the kind of the downtick in 2Q is just purely due to tough comps, but just wanted to kind of make sure and clarify any geopolitical macro dynamics that you guys baked into that assumption as well, given kind of the current situation that arose?

No, not at all. I mean this is just like timing really in the AS segment. It's our nonrecurring perpetual activity. And so that's squarely what it is. We have clear visibility to that. And then on in TEP, no, I think we're comping 9% quarter as a high watermark last year. So it's just sort of a comp in the second quarter in TEP. It will get better in the second half. So nothing geopolitical at all. We are mostly U.S., as you know. So we don't see anything in the Middle East.

Your next question comes from Julian Mitchell with Barclays.

Maybe first off, I just wanted to try and put a finer point on the full year guidance. So is it fair to say that the sort of core EBITDA guide is essentially unchanged and it's really a kind of share count-driven guide? And maybe help us understand what the share count assumption is now at the sort of guidance midpoint. And I think the guide embeds has no extra buybacks beyond today. Just wanted to check that.

That's correct. Yes. So we had about a couple of hundred million of share repurchase between the end of the quarter and today. And so I think as I mentioned, the ending share count for Q1 is 102.4 million and then you've got some, obviously, dilution to add on top of that. So that's what we're assuming. But yes, you're right, it's -- we've mainly flown through the first quarter beat and then the buyback activity for the balance of the year.

In the first quarter beat for us, Julian, was partially from our [indiscernible] operating and partially buyback.

That's helpful. And within the network business, DAT has had a very tough sort of demand or macro backdrop and it's been executing well within that. Finally, the last 6 months, there's better signals in the freight markets in the U.S. maybe sort of flesh out a little bit more what you're seeing in that business? And sort of what's dialed in for that transport linked business in the U.S. for the balance of the year, please?

Yes. So as we mentioned in the call, we're not in the guide, there's not an assumption for improvement. Also, I'll just double-click a little bit on the prepared comments. So for the first time in -- look -- Jason, in a couple, 3 years, we've had carrier, the carrier count side of the network increased which is certainly a green shoot that we've been waiting quite a time. Now we've had some head [indiscernible] intra-quarter on that number in the past. And so we're going to remain cautious also the input costs or diesel costs certainly not helpful. So carrier margins or profitability would be a little bit challenging. And so -- but we're cautiously optimistic that there might be a freight recovery rejection rates got better, the rates got better as we talked about, 20% or 30% better. So we'll see how it plays out, but we've underwritten no improvement in the outlook.

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

This is Kenny [indiscernible] on for Deane. I wanted to ask about Neptune business. So one of your peers have some meaningful project delays disruption in the quarter for their water meter business. Have you seen anything similar in terms of the industry dynamic or even any market share changes during the quarter?

Yes. I appreciate the question. So for us, on our Neptune business, we would say largely no. We've not seen a project -- any project delays. Now the backdrop on that is slightly different than the competitor you described. And Neptune plays in the segments that are on the smaller municipalities. So it's -- we have never had a large amount of project-based work, generally speaking. So it's really not an apples-to-apples sort of question.

The other part of this is we had a pretty decent sort of short-cycle demand in the quarter. I think that's largely because we -- and I'm not commenting about our competitor because we don't know their business the way they do. But we -- Neptune did a good job managing channel inventory in 2025. And so the hope or expectation is we'll be able to ship closer to retail in 2026 on the short cycle side, and I think we saw that play out at least early in the year in Q1.

If I can have a follow-up. If you just if you could unpack the cost pressure dynamics for the Neptune business or even at the overall TAP segment level, either in the magnitude or the time line to offsetting those that will be helpful as we kind of think about the segment's incremental margins moving forward?

Sure. Let me -- I'll take a crack at this, but I definitely want to ask Jason to sort of correct and sort of amplify anything. So in Neptune, it's really the ingot cost. And what we decided to do, I think [ Don and the ] team did a very sort of wise thing here. We did -- if you remember, 3Q, really July of last year, we pushed the sort of, call it, tariff or a raw material sort of surcharge into the market. It really had a negative demand impact in the short run. The signal from the customer was, hey, we certainly appreciate, we've got to onboard sort of global price inflation, but we'd rather do it through regular weight pricing versus surcharging. And so we will sort of -- we expect, by the way, a cost -- the baseline assumption we have is ingot cost is going to stay high. I mean, this is with all the data centers and just the demand for copper, this is a derivative impact to that. So our baseline assumption is this input cost is going to stay high for a while. So it will just be corrected or the margin will be captured through regular way pricing, which takes a couple of quarters to sort of work through backlog and get into the market. So we're taking a longer view on that.

In terms of the balance of the segment, it's really -- it's both Northern Digital and it's Verathon. These are businesses that are per our strategy for the market opportunity are becoming more reoccurring in nature, reoccurring consumables, which is a great thing about the predictability of growth and the absolute levels of growth in the businesses, but the consumables come with a lower GP percentage. So GP dollars are going up, the GP percentages may be a little pressured on those 2 businesses. Now they also do a very good job managing below GP to EBITDA ROP, where we don't think there'll be a lot of OP compression over the long arc of time because they do have natural leverage in the business. Those are the mix at play.

Jason, anything you want to amplify there?

No, I think you have covered it. Thanks.

This concludes our question-and-answer session. We will now return 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.

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

Awesome. So let's get started. Thank you, everyone, for joining us this morning. Kicking off day 3 of the Morgan Stanley TMT Conference for me. Very pleased to be hosting from Roper Technologies, Neil Hunn, President and CEO; and Jason Conley, EVP and CFO. So gentlemen, thank you so much for joining.

So maybe just as sort of to open up the conversation for maybe some people in the room maybe not as familiar with Roper Technologies, a little bit of a kind of one-on-one. This is a little bit of a different story from a lot of the [indiscernible]. What is the Roper story all about?

Yes. Thanks for having us. It's always great to be here, Keith. So yes, those that are newer to our story, Roper is this year, roughly $8.5 billion business, 40% EBITDA margins, 30-plus percent free cash flow margins. And we're a durable, steady, vertical market software compounder. I think that's what's unique about sort of our model versus others. So really a dual thread offense sort of steady organic cash flow generation and then we take all the cash flow generation and deploy it offensively.

Most of the time, historically through M&A, more recently through buyback. When you put it together, sort of we think about how durably and consistently can we compound our free cash flow per share. That's been in the mid-teens area, and we have the strategies and operational rigor in place to try to push that to be in the high teens area. In terms of the portfolio construct itself, it's vertical markets, right? So it's -- all of our businesses are leaders in small markets. We're super vertical-oriented, application-specific, high retention, high gross margins, high cash flow dynamics attached. And we'll get into all that, but that's a flyby of Roper, durable compounding vertical market business.

Got it. And you guys often talk about edge markets as kind of where you're looking for those either market leaders or emerging market leaders. How do you define [indiscernible] market? And within that, what are the key kind of KPIs? What are the key attributes you're looking for in terms of an emerging leader or a leader in that market?

Sure. So just to double-click on the high level. So we love owning businesses that are leaders in small markets. So small market, we mean small, like the largest TAM that we have in the portfolio of 29 businesses is about $4 billion, plus or minus. Like a lot of our TAMs are $1 billion plus or minus. So that is the first thing as it's a very small TAM. So these are TAM like software for early childhood education centers, software for autism therapy clinics, software for large law firms, software for tax accounting for publicly owned utilities. I mean these are niches within niches and very, very sort of specialized. And we like these small markets for 2 reasons. One is they are protective.

So very rarely do we have a new entrant because the size of the prize is quite small, and they're well served by us. But also, I think more importantly, it means we compete on this notion of customer intimacy. Like we are just ingrained in the operations of what our customer does across the totality of the portfolio, our customers can't do what they do without us, right? So we are sort of the backbone of their business, system of record or whatever network that they operate within. So that's what we mean niche and sort of edge market. That's what it is. small markets where we have a clear leadership position.

Got it. I'm going to skip around the question list because I think that brings up a really interesting point. And let's just get straight into what has been sort of the major debate point of the TMT confidence really within the software industry for the last 2 years is the -- how insulated certain markets are or how well positioned certain markets are for AI. So when you're talking about these smaller markets feels more protected, do you guys see that as a more insulated kind of market from an emerging competition from a large language model lab? Yes, that's basically the question.

So our empirical evidence to date is absolutely, right? So again, we have 29 business in the portfolio, 21 are vertical market software businesses. The balance are sort of application-specific product businesses. So relative to the 21 -- it is our -- we're not aware of a model company or an AI native start-up that's attacking the core of what we do. I think there's logic behind that, by the way, which is if you're an investor and you're starting company, do you want to really sort of attack, if you will, a system of record and a $1 billion TAM that's well served, your rate of growth is going to be sort of rate limited by dislodging of a strong incumbent that has all the incumbent advantages. And so we haven't seen any of that across the portfolio in any capacity. So it proves to be quite insular in that regard.

I think more importantly, though, I'm sure in this reading your recap notes for the past couple of days, I don't think what we're about to say is like unique from what other companies are seeing, incumbency has like real tangible advantages as we're trying to develop AI tools at whatever term you want to use, the agentic layer, the task augmentation layer, right? So at the highest level, I've said this for a couple of years, we've said this for a couple of years, it's a combination of 2 things, and everybody focuses on the first one, which is like do you have the data, the knowledge graph, the context to sort of take a sort of a predictive model, make it deterministic because that's what has to happen when you're augmenting and replacing work.

But I think what also is often forgotten about is you have to know where to point that capability to and what problem to solve. And these are like very esoteric "boring tasks" that are repetitive, but it's truly like magic to our customers. Like how do you automate account reconciliations that take 17 minutes into a minute? Or how do you auto verify order entry for pharmaceuticals, which is done by a pharmacist today, a high-dollar pharmacist? Or how do you take 10 phone calls out of matching a freight load in the spot market and do it with no calls? And so these are like it's truly magic, but you have the capability, the knowledge, the data, the context, but the problem to point it to. And in these little niches that we sort of tend to own and that we're the #1 player again in each of them, it's -- that's the magic of what's happening, right? So lots of opportunity.

And back to deterministic, I mean, there's a regulatory compliance overlay in almost all of our vertical market businesses, and that's very hard to replicate. That's your decades and decades of getting compliance. So our customers don't want to sort of violate any sort of regulatory hurdles, and it's harder to get in. It just increases our moat.

Yes. And that was exactly what kind of triggered me to jump down into AI. When you're talking about intimately knowing your customers, software is all about solving your customers' problems and solving the sort of the business problems and making those businesses more efficiently. And you're right, everybody just focuses on the data. And there's a little bit of an inconsistency in that argument because ultimately, it's the customer's data, right? It's not -- you're managing it for them, you have visibility into it.

But what you have is that domain expertise, you understand these domains. And from my perspective, generative AI, the real opportunity is not to displace existing transactional systems is to automate workflows around those systems, and you need to know the problems to be automated. You need to know the business process to be automated. So the question in all of that is, I like it that you think about the world in the same way I do. But how do you push that down into this distributed portfolio of companies?

Yes. So very important context setting. So let me just take a minute to sort of talk about our org structure and why we operate the way we do. And then in this regard, it's -- I'll say it's better to be sort of lucky than good in the context of what we have to do with AI in the org structure. So because of the portfolio we have, like I mentioned, we're the largest player across all 29 of our markets, which means this is over a long arc of time. This has been since I've been at the company 15 years, Jason, 20. We've been in the modern day Roper for going on 25 years. And so all of our competitors, by definition, are smaller, which means probably they're generally a little more nimble.

So our entire organizational structure from the dawn of the modern day Roper been super decentralized, right? To optimize on 2 things: speed coefficient and proximity to customer, right? So 20,000 people in the company, 130 in the corporate center. So every other resource in the organization is closest to the customer, organized around speed. Like that's been the design principle for 25 years. So that's why I say it's better to be lucky than good. If we happen to have been organized for like cost of development or more centralized resources and not on customer centricity and speed based on our heritage, I think we have a real problem in the AI era, but we're not. And so we're -- as soon as the sort of light bulb goes on inside of our organization -- organizations, then the speed coefficient sort of builds on itself.

And so going on now 2 years ago, we said to our organization, all 29 of our leaders, like this AI thing is not a trendy paradigm. It's the next tech wave. We have to lean into it. And we've had each business now 1.5 years ago reunderwrite their entire business model, be AI native to get the thinking going. We've had them sort of change the way they do development. So smaller teams closer to the customer, collapsing product and development, sort of minimizing design, making that part of product, all the things that you do across all 21 of the software businesses. And so we really sort of have this increasing sort of flywheel speed happening at the point of impact. Now what we also identified is this is in the last maybe year, and we just started hiring the team about 6 months ago, where we were hiring sort of an AI accelerator tech team at the center. We'll be small to start, 20 or so people.

We're fortunate enough to have 2 exceptional leaders come from another large application software business to sort of lead the team for us. And what we found is as our businesses were experimenting and learning how to develop an AI, it's a very different development pattern pathway than traditional development, where you can have a -- traditionally, you can have a sort of an architecture and sort of deterministically work your way through. There's a little bit of art in AI development. And so we very much wanted to sort of have a team that has sort of grew up in machine learning, trained in machine learning and trained in AI, had done this at scale in the application layer. And so their mandate in the organization is to accelerate the technical teachings to speed things along even further, but also have a build team like they're going to be a small sort of, if you will, "10x" build team that partners with our companies, and then finally, there's going to be a shared Roper repo.

When you have common functions like whether it is document retrieval or document sort of parsing, that's a common AI sort of run time routine. There will be a central repo of that, so we don't have to multiply that times 21 -- times across the organization. So sort of this sort of perfect storm of our legacy close to customer, have speed built into the organization and accelerating it with the center team.

It almost reminds me a lot of companies that we're talking to have really brought forward the concept of forward deployed engineers, right? You need people who are really skilled in the AI to be able to help the businesses, right, and usually in the customer concept to understand how to utilize these technologies that really don't work very much in the same way the traditional technologies work. You guys do within your portfolio companies. You guys have talked about approximately 25 Gen AI initiatives underway within the broader organization. Any like early wins, any initiatives that are seeing significant or early traction, and on the other side of the equation, where do you guys see the white space? Like what looks most interesting in terms of new areas to go out and automate?

Yes, sure. So when I talked about that and we talked about this 25, that was probably 6 months ago. It was the culmination of the early product development work we've done in the organization. So this is product-oriented, playing offense sort of monetizing in the tech stack. That number is basically not discernible now. It explodes. So we're not going to talk to the 25, then 40 to 50 to 100, but it's much more than that now. Going back to a couple of years ago, we made the early decision that between using AI to drive play offense and put in the product stack and grow and expand versus use AI for productivity, we're tilting demonstrably more towards playing offense. And so everything that we've talked about today has been about that. So that's where the principal amount of our focus is.

Obviously, we're working like every company on coding sort of efficiency and customer service and sales. But that's -- we make -- we have 40% margins. Like we're not about -- we will improve margins over time, take that productivity, put it into the product road map, but the principal of our focus is playing offense. So a couple of examples where we've seen real success there. I'll give you maybe 2 or 3, if it's okay, to make it sort of tangible. I'd start with the best story, which is our autism therapy business is called CentralReach. This is the backbone that autism therapists sort of run their practice on.

To set the context here, there's something like 800 million therapy hours demanded a year in the U.S. and 300 million therapy hours supplied. So a huge supply-demand imbalance, waitlist sort of people -- these families waiting for access to care. And also inside of the care, the people that deliver the care, they turn over 85% a year. So it's a very difficult problem. And so the tools, the AI tools that Central Reach has developed and deployed into the market is a scheduling tool. It's a very complicated schedule. When you're -- you have a demand and your people are turning over all the time, you can't have a blank and schedule. It's -- and by the way, these learners are in between 2 and 8 hours a day for 6 months.

So if you have one person leaving a huge block in the schedule, it's a problem. Also all the note taking and sort of medical records and then all the revenue cycle back in the billing and collections. The punchline of this is the business has increased its growth rate from the low 20s to the high 20s. Its win rate in the second half of last year from the primary competitor went from 75% to 100%. And fortunately, for our customers, the attrition rate for the therapist has gone from 85% down to 40% because it takes a lot of the bad part of the job out. So it's like this win-win-win sort of in terms of customer, the market, the learners, the families and sort of our business.

Another example I would share is earlier days, but we're very excited about it. We have a business that is -- it is the technology that -- and the network that organizes the spot freight market in the U.S. So if you're a broker or a trucker, you subscribe to our network to find out where your load is. And today, traditionally, it takes about 10 phone calls for a load to be brokered. Are you available? Can you pick it up at 3? Will you do it at this rate? Oh, I need you there at 4. Can you deliver it by Tuesday at 3? They take those phone calls. And on average, that's about $100 or $200 of labor to broker a load at the broker level. We now have in place the technology to do that without a human in the loop. We charge a fraction of that cost and of the labor cost, and that's happening in the real world.

It's a magic button that sort of takes that inefficient sort of human connectivity out of loop to sort of accelerate the brokerage, the brokering of loads, which we think, by the way, it's great for a broker, it's great for a trucker, but actually makes the whole spot market a more fluid market. So we actually think there could be more volume that actually comes into the spot market. The spot market won't be the market of last resort. It could be the market of sort of middle resort because it's a more fluid, transactionally sort of dynamic market because -- now this, by the way, is very expensive technology. It's a lot of machine learning. It has to be absolutely deterministic.

You have to have the volume of rate data because part of this is how do you price a lane. We have happened to have in our network because of the scale of it, like 7x relative market share to our largest competitor. We know what the rates are per lane, per day by truck type, and if you don't have that, you can't do the match, right? So it's this combination of technology and data. I can give you other examples, but those are 2 that we're quite excited about.

I think what's exciting is the companies that are farthest along in AI are growing the fastest in our portfolio. So just to give you a sense of like we have this incumbency right to win. And so it gets our other businesses really excited when they see that and it fostered a lot of learning across the portfolio.

Got it. Have you guys had to adjust the pricing model? There's another big debate in software is kind of what happens with pricing models. But have you guys come up with new pricing models, more outcome-based, more consumptive-based to align to the newer technologies?

I mean we're certainly doing a lot of voice of the customer work on this right now in some of our businesses and just looking at where the puck is going and how we should be thinking, especially in the businesses where we have the highest right to sort of win that game and increase the productivity of our customers where you could see some seat degradation over time. And so I think what we're seeing is that there's just pointing it out another direction, like maybe it's a number of customers, maybe it's a number of whatever the driver of that business, maybe a number of policies, that sort of thing.

And our voice of the customer work so far has said that as long as we are capturing value for them, we get our fair share of that value. Our position on this, by the way, is to get the customers really excited about the product and really using the product before we sort of capture our share of value, again, just to continue to protect our moat and then play the long game in terms of AI monetization.

The only thing I'd add on top of that, certainly on the system of work agentic layer, our clients are telling us very clearly like, yes, we'll pay you for the value, but we don't -- we're not that particularly excited about an open-ended pay as you go. So it's probably going to be some sort of subscription with overage or something. So they have some certainty of what they're going to spend.

Tiers.

Some tiers, exactly.

I think it's a part of the equation a lot of investors have over-rotated on the idea that everything needs to move to a consumption model because when you talk to customers, customers don't love...

They don't want to...

Because they look at it as a variable -- a variable cost model, they'd much rather have certainty in terms [indiscernible] and enables them to get leverage on the technology.

And our current cost as a percent of their revenue on average for enterprise software businesses is about 50 to 100 basis points. We're not -- we're not a huge part of their cost part today. So we have latitude if we're demonstrating value to capture that value over in a fixed way if it turns out that way.

And just to double-click or just to round out the answer on the subscription plus. We are fully confident we'll be able to capture like the power users that are just driving token consumption. We're very comfortable with the margin profile of the subscription and then sort of like an old school cell phone plan. You get this many units of work. And if you go over, then you're going to pay, but there's some predictability for the customer.

Got it. Got it. I want to switch gears and talk about sort of recent results and how the company has been operating. We've been having this conversation for a couple of years running now. And I know the center of the Roper story is consistency in results, consistency in sort of the yields that you guys are able to bring to the marketplace. So let's talk about 2025. Revenue growth came in at 12%, $7.9 billion in revenues. Adjusted EBITDA grew 11% to $3.14 billion. Can you talk us through what worked well in 2025? And maybe what are some of the areas for improvement into 2026?

Sure. Yes, I can cover that. So I think as we obviously had some great business building in the year, but our growth wasn't really where we thought it was going to be at the beginning of the year. And there's a few reasons behind that. One is Deltek. It's our biggest business. It's exposed to government contractors. And that, as you know, when Doge hit and then there was nobody to deal with at the agencies with our customers not being able to talk to anybody at the agencies. And then the shutdown, that business was severely impacted in 2025. So you look at a business that has been a steady mid-single-digit plus grower and it was in the low single digits in 2025.

So a big part of our business and a big segment. And then -- so if you look at our Application Software segment, it actually organic revenue improved 70 basis points year-over-year if you sort of exclude that. Of course, you got to own all of Roper, but just to give you some context of the impact of that. Procare was a little off to a lower start. We'll talk about that a little bit later. I think Neil will touch on that. That's a business we acquired a couple of years ago, but we feel confident in the ability to inflect the growth rate there.

And then Neptune, which is in our TEP segment, our products segment, second half just impacted by tariffs and just skyrocketing input costs. And so we had to sort of process that with our customers in the second half of last year. And so again, we own it. We know we're going to do better going forward, but just a lot of things happened last year. As we look forward to 2026, we're sort of -- we're guiding organic growth 5% to 6%, taking a view that at least coming out of the gate, things aren't going to get demonstrably better. But we will have, like in application software, we've got a mid-single-digit plus. We're going to have a better comp just on Neptune alone -- or not on Neptune, on Deltek alone. So we're not expecting a lot of improvement, just a little bit better comp there.

And importantly, our CentralReach business becomes organic in the second half. So that will add 80 basis points or so to that segment. Network Software will be mid-single-digit plus. We feel very good about that. That's just our Foundry business, which was dealing with writers and actors strikes to media and entertainment. That will get better this year. And then we'll have our Subsplash business will also become organic in the fourth quarter. And then our TEP segment, that's sort of a little bit more wider range of outcomes as we sit today. We have guided low to mid-single digits with the first half being a little bit lower. We have Neptune down for the year, but we'll see how that plays out. Neptune, their water meter business, and we're waiting to see when the COVID super cycle sort of normalizes out. So that's sort of the one watch out that could provide some upside. But as we sit today, we're sort of -- that's the approach we're taking.

Got it. That the same conservative. Double-clicking on the Deltek side of the equation. A lot of the executives that I've talked to about sort of the federal disruptions in 2025 see the opposite side of the coin of that. On the other side of the disruptions of DOGE is also the idea that we got to run the government more efficiently and software is going to be a big part of the solution. Do you see an upside scenario in Deltek of that you guys become a bigger part of the solution in terms of how to garner efficiencies in the government?

I mean I think it's -- the value prop for Deltek has been compliance, right? If you're doing highly regulated projects, but also efficiency, how do you run a really tight project and increase margins. So I think we're always on the side of the angels, no matter which way you look at that. For us, though, I think -- and this is the big sort of what's going to happen is the O-Triple-B spending and when that ultimately cascades down to the contractors. We're starting to see some maybe signs of life, not at Deltek, but just in the marketplace in general. And that -- I mean that should accrue very nicely to that business.

And just so there's -- we're all clear, like our Deltek customers are the contractors who serve the federal government, not the government itself. And so O-Triple-B is an unmitigated tailwind for the industry. It's just when is the government going to be functional enough to basically award the budgeted dollars or allocated dollars and then that will trickle into our customers, which will sort of benefit us. But the timing is what the question mark is there.

Got it. Got it. And then on the capital deployment side of the equation, $3.3 billion in M&A in 2025. Could we start to get into the high-level conversation about how you guys are deploying that capital, the shifting mix of acquired assets. You guys have been talking about acquiring assets a little earlier in the life cycle. So why the shift? Why shift towards earlier stage? And should investors be concerned about having to pay a higher multiple for earlier-stage companies for that slightly higher growth?

So hold Jason and I accountable to all parts of that question. We're not avoiding if we forget to round it out. So to focus everybody, so I started by saying our cash flow compounding algorithm is sort of mid-teens, and we aspire to be high teens. That's our mantra, that's our rally cry. That's where we're focused on building a sustainable business. There's 2 levers to make that happen. The first is to improve the organic growth rate of the business by a little 100, 150 basis points, which you go to work every day to do on a sustainable basis. The second is to, if you will, recapture more value or higher returns from the capital we have to deploy, we do those 2 things, we can get to the high teens. So on -- when we look at how to capture more value, have higher returns on the amount of capital we have to deploy, it comes in 2 flavors. One is more tuck-ins. So that is a -- historically, a tuck-in was kind of like a 4-letter word inside of Roper going back to my predecessor.

They're actually the best deals we've been able to do, as you can imagine. We get back in sort of back-office G&A synergies and our adjudicating factor for a bolt-on is we only want to do a bolt-on, it's going to improve the organic growth rate of the company we're tucking into. So they become growthy and they're highly valued because of generally the G&A synergies that happen. But that's going to be -- we think when you do the time and motion study, the size of the portfolio, the digestibility of our companies, we think that could be about 1/3 of our capital deployed over a long arc of time.

The balance of the 2/3 will be platforms. And as we look at the range -- array of platform opportunities, whether it's, call it, a business as usual pre-2022 Roper-style deal, call it, 5% to 7% organic growth business, optimized margins that you pay a certain price for or you buy that same business just one owner earlier. where you have -- you're catching with a higher growth rate and you still have margin opportunity. Yes, on tZERO, it's a higher multiple. But on T5, it's substantially lower, like 30% to 50% lower because you have the value creation of both the growth and the margin improvement that happens. And so that's how we get the compounding flywheel to happen and sort of accelerate the compounding on the capital deployment front.

Got it. Got it. So not necessarily -- maybe a little bit of near-term pain, but long-term gain because you guys get to apply more of your expertise in terms of improving these businesses. And as long as you have patience in that capital deployment, the yield should be higher. So maybe let's apply that framework to some of the recent M&A, start with CentralReach. You talked about that as one of the kind of AI use cases of where you guys could add a lot of value by optimizing what is a really tough supply and demand imbalance. Can you talk to us about sort of those 2 vectors in terms of how do you guys improve kind of the revenue growth profile there? And sort of what are the main levers for margin improvement?

This is a business that is a mid-20% growth business for us. Its margins are -- can -- will be optimized, but this is more about how they scale their margins versus they're being inefficiently run sort of out of the gate. For us, it's about -- when you own a business forever, right, every business we bought has come from private equity and they own a business for 3 to 5 years, and they have to invest in a sine wave, invest for 2 or 3 years harvest, invest 2 or 3 years of harvest. And CentralReach and the others are no different. In our case, we get to have sort of Horizon 1, 2 and 3 sort of investments, and in this particular case, we have great near term, like next 5- to 7-year dynamics in supply and demand of the learners and the caregivers of the market position that we talked about before.

So the next intermediate period of time feels pretty solid. But as the market dynamics in this business shift and supply and demand become more balanced, then all of a sudden, what will happen like it happens in every class of trade in health care is people start discerning on quality of care, not just can you get access to care. So in the first year of ownership, we bought 2 assets, 2 small assets that are leading the industry and how you discern quality of care. And so not only will -- so the vision there is the CentralReach's customers won't just be sort of access to care, but they'll be the highest quality sort of caregivers, and that will sort of drive sort of the extended revenue growth there, for instance, is a way to do that. Again, that's a Horizon 3 investment, but that's where you have a long-term ownership will pay dividends over time.

Got it. Then the next big deal with Subsplash. It sounds like that's more in the vein of the maturing leaders. That's just the traditional Roper strategy?

So no, this is the new strategy. So we consider CentralReach and Subsplash very much the sort of one owner earlier. Subsplash is the software that churches run on. So it's the church management system. It's the engagement, both online and offline. It's the giving platform. It's all that integrated. It's beautifully designed software across all of this. This is a business that has 20,000 or 25,000 churches as customers, there's several million churches in the world, and it's a wildly underpenetrated category from a technology point of view.

So the top line growth is all about the go-to-market motion and just and dialing in the unit economics of that then pouring gas on it. This is also one where we underwrote pretty substantial improvement in margins. So this was run by the prior owner to not optimize margins or even sort of I would say modestly optimize margins. It was like a high 20% margin business. We think in the duration of this business, it can be high 30s to low 40s. And some of the very first value creation levers we pulled were to move margins higher, especially in the payments apparatus. And so -- and we've had some great success in that regard.

Outstanding. All right. And Jason, you previewed this before, Procare. It sounds like that got off to a little bit of a slower start. What are some of the lessons learned there? And what's the plan for turning that one around?

Yes. Well, Procare was our first maturing leader. And I think what we've learned and we've taken that to the next 2 businesses is really just around like if the team sort of got you from A to B, can they get you from B to C. And so we didn't move fast enough, I think. And so we've made those changes when we need to. And that just becomes from our history where we were a little bit more differential to management. And so kind of turning that crank a little bit more.

Our governance and our telemetry and our just cadence around the value creation plan is much tighter now. So we just learned lessons on how to stand that up and how to operationalize that. And so those are the probably the 2 biggest lessons. And then I think the other part is just working with management on the value creation thesis to the value creation plan and having that be really tight. And we did -- I think we did a really good job with that CentralReach and Subsplash such that in the second week of ownership, we know exactly where we need to go, and we know exactly if things are off the track, how do we do countermeasures and how do we partner together to work on those solutions rapidly.

Outstanding. So if you look into 2026, how does the M&A pipeline look? And what's going on with multiples? I mean we definitely see what's going on in the public market with multiples. Is that getting reflected at all into the private markets?

Yes. What has changed since the -- since how long ago we did our earnings call 5 or 6 weeks ago, it was on the call, we're like, hey, this is as busy as we've been in a long time in terms of just the sector of -- there's not a whole lot that happened in the last 4 months of last year, but there's a lot of organizing and a lot of pipeline building and a lot of meetings and a lot of processes that we're launching. And then we did earnings call, that was absolutely the case. And then what's happened in the public markets, just the private sellers have just tapped the brakes on that as you expect. I mean that is -- so right now, there's not a lot of activity and everybody is just trying to understand where valuations are.

If you're a private equity seller and the types of assets that we're owners of, you're under no stress, right? You're not a venture, you're not running out of money. There is some option value to wait to sort of see where the world sort of settles. That said, there is -- this is now we're in the -- solidly into the third year of very serious LP pressure on the asset class. And so that's -- so they will have to -- this will settle itself. It's hard to predict what timing. I don't know if it's second half of this year, second quarter this year or the next year, which is okay. We're patient. We've always been patient.

We've never viewed our capital allocation capacity as a budget because we're owned businesses forever. You have to sort of be patient, find the right asset, the right quality asset at the right price. In the meantime, the markets presented an opportunity for us and a lot of other software companies to be pretty aggressive in the buyback, which we've been. So I think between Q4 and what was then we put in our K, it's been $1.8 billion-ish buyback, is what we've done in the last 5 months or so, and that's what, 5-ish percent of our shares outstanding. So it's sort of a once-in-a-generation opportunity for us.

Got it. I have a couple more questions. I want to take the opportunity to see if anyone in the audience has questions.

Yes. You guys talked [indiscernible] what have you guys learned over time...

Do you want to take that to...

You can start. I have got it up.

Yes. So I think it's -- the process is -- I think if it starts -- a lot of that starts with really talking to the customers, right? So you look at sort of the competitive positioning, you look at the Net Promoter Score, you understand sort of the key purchasing criteria and how each customer -- competitor sort of ranks on that. So generally, we're buying again the largest player that has -- that wins on the key purchasing criteria, whether it's features or integration, whatever it is. And I think that gives you a sense they're making the right investments into the tech stack or into whatever it is or if customer support and Net Promoter Score is horrible, then they may not have enough in customer support will be sort of one.

Number two, when you run a portfolio of very like-oriented businesses, we have internal benchmarks about kind of what good generally looks like from a cost structure in a business. If you're running a $300 million vertical market business, is 3x market share of the next closest competitor. and you have 40% sales and marketing as a percent of revenue, something that's not right about that business. Conversely, if you're like 5% of revenue is R&D, something is not right about that business. And so we've got the internal benchmarks that we throw things against. Those are 2 things that come to mind.

Yes. I mean the other thing is it's really about the focus of the organization. And so the -- it's about reallocating resources where the best returns are. What we found -- pattern is that typically private equity, they do a lot of bolt-ons. Sometimes they don't have -- like we wouldn't do that bolt-on because we get to own the business forever.

They don't have a high right to win.

So it's like a new TAM. So it distracts, I think, the organization around some of these edge businesses. So our pattern is to focus and then get the resources focused on the core. And typically, you don't have to do a lot of -- you don't have to sort of surge invest for that because it's just getting focused on the things that are going to drive the most growth.

Any additional questions?

[indiscernible].

Yes, fair question. So just for those who might not have heard it, like are we over monetizing and sacrificing growth, essentially, is that a fair representation of the question? So the examples we gave on CentralReach and Subsplash, first of all, let me back up. At the enterprise layer, when you look at R&D as a percent of revenue over the last 5 years, it's gone up like 200 or 250 basis points across the entire organization, almost like 11% of revenue today, and that includes the product businesses that are like sub 5, for Apple. So from an R&D perspective, that's been going up over time steadily. The 2 assets that were -- the 2 businesses that we just described, in the case of Subsplash, this is like just wildly under monetized on how they deal with the payments infrastructure.

This is just literally like how they have the relationship with the processors and how you monetize with the processor. It's not taken away from R&D. It's just an under -- under sub-optimized sort of part of that business model that we had a pattern recognition on with 2 or 3 of our other businesses that we monetize through payments. So we're not sort of taking dollars, if you will, out of the company. We're sort of monetizing the environmental sort of factor a little bit better. And on CentralReach, like I said, that is -- that's kind of margin, is going to scale over time. There's not like a cost action that's happening inside of that business.

And we did some tuck-ins for CentralReach. So I mean if you wanted to penalize the P&L for that, but that just got this market probably 3 or 4 years ahead of time with a solution that's all about outcomes-based care. So sometimes we will do the tuck-ins to sort of get us where we need to get to with that platform. And so you could argue that's part of the investment of the business. But these businesses just typically run -- if you think about the go-to-market, a lot of what we're doing is cross-sell or we got expansions, and there's just not a lot of go-to-market costs around that because you already have the relationship with the customer.

Outstanding. Unfortunately, that takes us to the end of our time. But Jason, thank you so much for joining.

Thank you. Appreciate it.

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 Zack Moxcey, Vice President of Investor Relations. Please go ahead.

Good morning, and thank you all for joining us as we discuss the fourth quarter and full year 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 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 adjusted non-GAAP and continuing operations basis. For the fourth quarter, the difference between our GAAP results and adjusted results consists of the following items: amortization of acquisition-related intangible assets, and financial impacts associated with our minority investment in Indicor. Reconciliations can be found in our press release and in the appendix of this presentation on our website.

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

Thank you, Zack, and thanks to everyone for joining our call. As we turn to Page 4, you'll see the topics we plan to cover today. We'll start by highlighting our Q4 and full year performance, then Jason will walk through our enterprise financials, our Q4 segment performance, our balance sheet and capital deployment capacity. Next, we'll discuss our segment highlights and introduce our 2026 guidance, and then we'll close with a few summary thoughts before opening the call for questions.

So let's go ahead and get started. Next slide, please. As we turn to Page 5, I want to highlight 3 takeaways for today's call. First, we delivered solid execution in 2025. Revenue was up 12%, EBITDA was up 11% and free cash flow was up 8%. Importantly, enterprise software bookings grew in the low double-digit range for the year, providing strength as we head into 2026.

Second, we continue to invest for our long-term and sustainable growth. That said, organic growth this past year was below our expectations in 2025, and we own that. Our organizational focus and resolve are even stronger coming into this year. We've upscaled talent, sharpened strategy and improved execution across the portfolio, and that work is showing up for the enterprise. To this end, our application software businesses save for Deltek improved organic growth in the 70 basis point area, demonstrating broad-based growth improvements occurring within the segment. Importantly, we're not starting the year assuming organic growth will inflect in 2026 despite the traction we believe we're starting to achieve. We're going to execute and will reflect any improvement in organic growth in our guidance as it materializes throughout the year. We'll have much more to say on this later in the call.

On AI, specifically, we continue to be excited about the AI product opportunity because our businesses sit directly inside mission-critical, high frequency workflows where we already have deep domain knowledge, proprietary data and trusted distribution [indiscernible] can move from productivity to unstack embedded automation that improves outcomes for our customers and is highly monetizable. Importantly, our decentralized model that each business deploy AI with the appropriate domain specificity across our various end markets.

To further accelerate our pace of AI product development, we hired Shane Luke and Eddie Rafael to lead the Roper AI accelerator team. They will coach and partner directly with our businesses and with a small AI development strike team and leverage reasonable elements and best practices across the portfolio. So we can deploy AI with increasing speed and market-specific precision while scaling what works, exciting stuff for sure.

And our third key takeaway centers on capital allocation. During 2025, we materially advanced our portfolio and foundation through capital deployment, deploying $3.3 billion towards high-quality vertical software acquisitions during the year highlighted by CentralReach, Subsplash and several tuck-in acquisitions. Also and importantly, we leaned into opportunistic repurchases, buying back 1.1 million shares for $500 million in Q4.

As we look to 2026, we have north of $6 billion of capacity for potential M&A and share repurchases. We are very encouraged by the size and quality of our acquisition pipeline, and we expect to remain active while staying highly disciplined on price and business quality. And in parallel, we'll continue to use buybacks opportunistically when they represent the most attractive risk-adjusted path to durable cash flow per share compounding.

So with that, Jason, let me turn the call over to you, so you can walk through our quarterly and full year results. Jason?

Thanks, Neil, and good morning, everyone. We'll start off here with the fourth quarter results. To summarize, we finished ahead of expectations on DEPS driven by very strong margin performance. Revenue of $2.06 billion was up 10% over prior year, with acquisitions contributing 5% and organic growth of 4%, which was below our expectations. I'll expand on this shortly.

EBITDA of $818 million was also up 10% over prior year. Notably, our core EBITDA margin expanded 60 basis points in the quarter, representing 54% incremental margin. DEPS of $5.21 was above our guidance range of $5.11 to $5.16 and up $0.40 over the prior year. Shares were reduced by 1.1 million in the quarter for repurchases, which you see partially showing up here in our diluted share count on a year-over-year basis. However, the repurchase did not impact DEPS in the quarter versus our guidance, given the partial quarter share count benefit and higher interest expense.

Now if you turn it with me to Slide 7, I'll walk through the Q4 segment performance. Application Software revenue grew 10% with organic growth of 4% and margins were solid, expanding 70 basis points to 42.2%. It's important to outline some details on organic revenue. Recurring revenue grew 6% in the quarter. However, nonrecurring revenue was down 8% in the quarter and was the primary driver to the lower end of our mid-single-digit outlook.

In our last call, we talked about Deltek being the big swing factor in the quarter. With the prolonged government shutdown, large GovCon commercial activity and perpetual license revenue was meaningfully impacted, leading to Deltek being up at the lower end of mid-single digits for the year as compared to the solid mid-single digit plus grower it's been over the decade that we've owned the business. That said, we are cautiously optimistic about a 2026 improvement for Deltek given both the 2025 disruptions caused by DOGE and the shutdown and the forward benefit of the OBBB appropriations coming into the market. As improvements occur, we will reflect this in our outlook.

For network software, revenue grew 14% with organic growth of 5%. Margins were lower at 52.8% due to the recent bolt-ons for DAT that are currently scaling into profitability. On organic revenue, recurring growth here was also 6%. The recurring performance was consistent with patterns over the last 2 quarters with mid-single-digit growth at DAT despite a muted market backdrop and steady improvement at foundry. However, nonrecurring revenue was down 3% on lower services revenue and some customers electing to move from perpetual to SaaS, which negatively impacts the quarter but benefits long-term growth and customer lifetime value.

For our tech segment, revenue grew 6% or 5% organically, while margins held flat to prior year at 34.8%. NDI outperformed in the quarter given strong demand for solutions in the cardiac ablation space, while Neptune was down slightly as expected, as we comp against a stronger prior fourth quarter and worked through the final surcharge negotiations.

Now let's turn to Slide 8, where I'll summarize our 2025 full year results. 2025 was a solid year in terms of cash flow and DEPS performance despite lower-than-expected organic revenue. Revenue posted at $7.9 billion or up 12% over prior year. Acquisitions contributed nearly 7% growth. Of note, we acquired 2 great platform businesses in CentralReach and Subsplash that will be accretive to 2026 second half organic growth.

We also made 3 strategic bolt-ons for DAT that significantly automate workflow in the spot freight market and will gain adoption in the years to come, which will ultimately inflect the growth rate for DAT. Organic growth was nearly 5.5%, which Neil will discuss in the segment detail.

EBITDA reached $3.1 billion or 39.8% margin and was up 11% over prior year. Of note, core margin improved 30 basis points and represented 47% incremental margin, which is in line with our long-term growth algorithm. DEPS of $20 was up 9% over prior year and reflects the top end of our 2025 guidance range provided in January despite lower organic revenue and in-year dilution from recent acquisitions.

Free cash flow of nearly $2.5 billion was up 8% and represented 31% of revenue, which is in line with our initial free cash flow margin framing for the year. This represents an 18% CAGR since 2022 or excluding the impact from Section 174 in both periods, it was at 14%.

As we look forward to 2026, we expect higher growth than in 2025 through benefits from working capital and cash tax improvements. This will put us safely over 30% of revenue next year. However, Q1 will be a bit lower given timing of coupon payments for new bonds issued in the third quarter of 2025. This, of course, does not contemplate future capital deployment towards either M&A or share repurchases, which brings us to our balance sheet discussion on Slide 9.

We're entering 2026 in a strong financial position with net leverage ratio of 2.9x and ample near-term liquidity with about $300 million of cash, nearly $2.7 billion available on our revolver. With this position and strong forward cash generation, we have over $6 billion in capacity for capital deployment this year. Regarding M&A opportunities, we've been proactive and successful in executing high-quality acquisitions for the last couple of years despite a weak M&A market.

Most anticipate the market to pick up in 2026, which we view as a net positive given Roper is a home of choice for any acquisition target CEOs. Additionally, we have the attractive optionality of a share repurchase program, which was authorized and commenced in the fourth quarter. As Neil mentioned, we deployed $500 million to acquire 1.1 million shares in the quarter at an average price of just under $446. This leaves us $2.5 billion remaining on our current $3 billion authorization. We will remain agile in deploying capital to the best return for shareholders. Given the current valuation dislocation, we are now very pleased to have the buyback option available.

With that, I'll turn it back over to Neil to discuss the segment performance and outlook.

Thanks, Jason. As we turn to Page 11, let's review our Application Software segment. Revenue for the year grew by 16% in total and organic revenue grew by 5%. EBITDA margins were 42.5% and core margins improved 80 basis points in the year. For the segment, we saw recurring and reoccurring revenue growth on an organic basis 7% for the year and total organic revenue improved about 70 basis points save for the Deltek related market weakness, both of which provides evidence of underlying strength for this business -- for the businesses in this group.

Aderant continues to execute from a position of strength. FY '25 revenue grew in the mid-teens area with strong bookings throughout the year. Importantly, they're leaning into the right long-term work, accelerating SaaS and AI-led innovation while modernizing their tech platform and data lake. Deltek was the primary weaker part of the story for this segment and has been straightforward all year with GovCon remaining a challenging market throughout most of 2025.

That said, we view the passage of the OBBB as a positive development for the market. It should drive upside over time, but we've not included any benefit in our 2026 guidance and will monitor customer activity as the year progresses.

[ Vertafore ] had another solid year, with growth driven by strong recurring revenue performance and continued execution on product and customer outcomes. Looking ahead, the team is leaning into a focused set of prior scaling automation particularly AI-enabled workflow improvements, while continuing to deliver steady innovation to the agency and carrier ecosystem.

PowerPlan delivered another strong year with healthy recurring growth and steady progress on product modernization and cloud migration. They continue to invest in product innovation, customer experience and internal operating capabilities, improving their long-term organic growth profile. Shot out to [ Rafi ] for carrying the leadership mantle forward at PowerPlan and great job managing the transition from Joe.

Illumia, formerly known as CBORD and Transact, continues to execute well and is progressing in its integration and platform road map while maintaining solid commercial momentum. And we're excited to welcome Greg Brown, our new CEO at Illumia, who brings a long and successful history of leading scaled software businesses. Congrats and thanks to Laura, Rachel, [ Toran ] and Rob for executing the VCP, driving the business combination and achieving the year one target.

If we look at the broader portfolio of businesses we've acquired over the last couple of years, Syntellis, Transact, Subsplash, CentralReach and Procare, we feel very good about the quality and long-term growth potential of this group. However, Procare did not perform to our expectations in 2025, although we do feel good about the business building that occurred last year.

Specifically, we improved payments execution, upgraded the entire leadership team and continue to win competitively in the market where Procare remains a category leader. The biggest constraint was implementation timing across both software and payments which delayed customer time to value and weighed on payments volumes. Improving implementation speed and delighting the customer base are the top priorities and Procare's leader, Joe Gomes, has executed this playbook before a PowerPlan.

[indiscernible] is off to an outstanding start and ahead of our deal model. The business is scaling well with strong recurring software momentum and expanding profitability and they're building a broader growth engine to cross-sell and a steady cadence of new product releases, including AI-enabled offerings.

Now turning to our outlook for 2026. We expect organic growth to be in the higher end of the mid-singles range. We also expect a modest back half weighting as CentralReach turns organic and nonrecurring comparables ease in the second half. As mentioned previously, we're maintaining a conservative posture in GovCon Deltek until we see sustained improvement in commercial activity. So overall, Application Software remains a durable growth engine supported by recurring revenue momentum and continued product execution across this portfolio.

Please turn with the Page 12. Total revenue growth in our Network segment was 8% and organic revenue grew 4% for 2025. EBITDA margins came in at 54.1%. DAT continues to execute well on what they can control, broker integrations, value capture and trusted network all leading to ARPU expansion. Although the freight recession persisted throughout 2025, DAT is continuing its evolution from a traditional load board into a more automated marketplace where brokers and carriers can match loads with greater trust efficiency and increasingly transacted on the platform. And as this happens, DAT's TAM and monetization opportunities grow. To this end, DAT is advancing its AI-first operating model with concrete use cases across carrier onboarding, fraud detection and freight matching automation. This is a pattern we like, AI that improves customer outcomes, lowers transaction friction and expands our TAM where we have a very high rate to win.

ConstructConnect had another strong year of recurring revenue growth, and the team made material technical advances with their AI-based take-off solution boost. Foundry is making steady progress with year-over-year growth in ARR as the market continues to recover. We continue to be excited about the AI product development at Foundry because it fits naturally in the creative workflows where small improvements can materially improve artists throughput. Importantly, these are high-frequency, high-value tasks that Foundry already sits inside so AI is being delivered as embedded features that customers should adopt quickly given the clear and integrated efficiency gains offered.

[ MHA SoftWriters SHP ] continued to execute well supported by stable end market demand and strong reoccurring revenue models. Each team is advancing its road map with targeted investments in functionality, workflow efficiency and service levels to deepen customer value and retention.

Subsplash is off to a great start in the portfolio with strong execution and solid momentum across the business. We're encouraged by the durability of the revenue model and the opportunity to continue expanding value delivered to customers over time. As we turn to the outlook for the year, we expect Network Software organic growth would be in the higher end of the mid-singles range, representing a modest improvement versus 2025. We expect a stronger Q4 driven by Subsplash turning organic in the quarter. Of note, we remain conservative on DAT by assuming no meaningful improvement in the freight market.

Now please turn to Page 13, and let's review our TEP segment's full year results. Revenue here grew 7% on a total and 6% on an organic basis. EBITDA margins remained strong at 35.7%. We'll start with NDI whose growth is being driven primarily by sustained momentum in its electromagnetic tracking solutions supported by strong OEM demand and program ramps. Importantly, OEM order activity has remained strong, and the business is converting that demand into higher revenue scale and operating leverage. Great job by Dave and the entire team at NDI.

Verathon continues to perform very well with solid growth across its GlideScope and BFlex franchises. Importantly, Verathon is the U.S. market share leader in single-use microscopes, which reflects several years of consistent execution and reinforces the durability of a model as the business continues to take share and an attractive procedure workflow area. Looking to 2026, we're optimistic about several new product launches planned throughout the year.

For the full year, Neptune grew modestly, notwithstanding the year-long backlog normalization supported by demand for its static ultrasonic meters and its cloud-based software solutions. Although the second half commercial challenges tied to our tariff surcharging program eased late in the year, we remain cautious and are not underwriting a recovery in our 2026 guidance.

Finally, the balance of the businesses in this segment, CIVCO, FMI, and Inovonics, IPA and rf IDEAS were really strong throughout 2025 and are meaningful contributors to the segment's results. For the full year, we expect segment organic growth in the mid-single-digit range, with first half being more in the low singles area as Neptune's backlog continues to normalize. Given the more limited visibility in Neptune, we're taking a cautious approach as we monitor underlying demand over the next couple of quarters.

With that, please turn to Page 15. So now let's turn to our Q1 and full year 2026 guidance. Based on what we previously discussed in our segment overviews, we're initiating our 2026 financial guidance to grow full year revenue in the 8% area, organic revenue growth between 5% and 6% and adjusted DEPS of $21.30 to $21.55. Our guide assumes a full year effective tax rate in the 21% area and more in the 22% area for Q1.

To reiterate from earlier, our full year guidance does not bake in improvement at Deltek's GovCon business or in DAT's freight market and assumes modest top line weakness at Neptune versus 2025. As discussed, we expect stronger second half organic growth driven largely by CentralReach and Subsplash turning organic and easing nonrecurring comparables. Our guidance does not assume a meaningful revenue uplift from our AI development work either. We view AI as incremental upside as we scale commercialization across the portfolio.

Finally, we remain positioned to be active and opportunistic on capital deployment. We continue to have a robust M&A funnel, a meaningful remaining share repurchase authorization and substantial financial flexibility, and we'll remain disciplined and unbiased between acquisitions and buybacks based on what drives the highest and most durable cash flow per share compounding. For the first quarter, we expect adjusted DEPS to be in the range of $4.95 to $5, reflecting the dynamics previously discussed.

Now please turn to Page 16, and I'll open it up for your questions.

We'll conclude with the same 3 takeaways with which we started. First, in 2025, we delivered both double-digit revenue and EBITDA growth and solid free cash flow. Enterprise Software bookings grew in the low double-digit range, which positions us well entering 2026.

Second, we're investing for long-term sustainable growth improvements while staying disciplined in our expectations. Throughout 2025, we upskilled talent, sharpen strategy and improved execution across the portfolio, and we are accelerating AI product development. We're not baking in an organic inflection in 2026, and our guidance will reflect improvement as it materializes.

Third, we materially advanced our portfolio through capital deployment. We deployed $3.3 billion into high-quality vertical software acquisitions, executed opportunistic repurchases and maintain more than $6 billion of forward capacity. As we look ahead, Roper remains an advantaged and preferred buyer for both management teams and private equity sellers, and we believe the M&A backdrop remains constructive as private equity firms face increasing pressure to generate liquidity for limited partners.

Our pipeline is robust, and our team is deeply engaged, and we will remain disciplined and unbiased on valuation and business quality. In parallel, we'll continue to balance acquisitions with opportunistic buybacks, allocating capital to which ever path drives the best risk-adjusted and long-term cash flow per share compounding.

As we turn to your questions, please flip to the final slide, our strategic compounding flywheel. What we do at Roper is simple, we compound cash flow over the long arc of time through a disciplined strategy anchored on 3 things: first, we earn market-leading vertical focused businesses, application specific, deeply embedded and mission-critical. These are durable franchises with highly recurring revenue and organic cash flow growth that can improve over time.

Second, we run a decentralized operating model, so our teams stay exceptionally close to customers and their workflows so we can consistently compete and win. That customer intimacy is a core competitive advantage, and it's also how we win in AI. In our markets, AI isn't a generic overlay. It has to be grounded in a real workflow context, tuned to domain-specific [indiscernible] cases and deploy through trusted embedded relationships, so our AI delivers measurable value and better customer results.

Third, we paired that with disciplined [indiscernible] capital deployment, focused on high-quality M&A and opportunistic share repurchases, allocating capital objectively to maximize durable cash flow per share compounding. [indiscernible] businesses decentralized operations close to customers and disciplined capital deployment, that's our long-term compounding flywheel. We're excited to compete the win and continue delivering long-term and improving cash flow compounding per share.

So with that, thank you for your continued interest and support. Let's open it up to your questions.

[Operator Instructions] Your first question comes from Brent Thill with Jefferies.

Neil, regarding Deltek, I'm curious if you could just give everyone a sense of what you're baking into the '26 guide? And how you're protecting against another potential government shutdown?

Yes, go ahead, Jason.

Yes. So I think we are not assuming an improvement this year. The fourth quarter was depressed by the perpetual license revenue, as I talked about, most of GovCon Enterprise still buys perpetual licenses. So that's what drove our lower organic in AS in the fourth quarter. So we don't think that's going to repeat next year. So we do have a comp benefit. But otherwise, we're not really assuming improvement in that market until we see it.

Okay. And on Procare, Neil, what do you think needs to happen to get that back meeting expectations?

I think it's -- just to go through a little bit of what we talked about in the prepared remarks and then add a little bit more to it. So hey, the business is the leader in the marketplace. It is the clear leader. We've done a lot of good things there. We sort of cleaned up and fixed the payments, cost infrastructure and processing capability. We fixed and improve the go-to-market. So we're competing and winning in the marketplace. We're winning a majority of the jump balls versus the primary competitor.

And so the problem now is just pushed to the right. So now we're winning these opportunities, and we're slow to implement the software, which means we're slow to implement the payments. And that's the next sort of objective in front of the team there. So once we get that done, we feel much better about that. It's a completely fixable problem. It's one of the problems that you don't like to have problems generally, but when you do have [indiscernible], the larger problem would be if we had a competitive situation, something like that, which we do not have.

Your next question comes from Clarke Jeffries with Piper Sandler.

I wondered if specifically on the GovCon business, you could maybe give a rank order of the kind of procreation builds, what would have the most impact or within Deltek's exposure, what segments of the government getting those appropriation bills passed would be most significant?

Yes. So I'll just draw back to the OBBB. And this is, as you know, we're not -- Deltek doesn't have direct exposure to the government. It's our customers that are the federal [indiscernible] that have the direct exposure to the government -- just reminding everybody. The OBBB is heavy on defense -- Department of War, Department of Defense and DHS funding and spending that tend -- those categories tend to have larger percentage of contractor spend. It could be north of 50% of the whole category can be contractor spend, so that's definitely a tailwind. The civilian programs tend to have lower percentage. So it's not necessarily a bad thing for Deltek customers, but it's certainly better on the current appropriation of the OBBB.

Perfect. And then the last 2 years hovered around $3 billion deployed towards acquisitions. Wondering if you could talk about expectations for how much you might deploy in '26? What scenario might push you towards a number closer to $4 billion or a number closer to the $2 billion? Sort of what are you factoring into the deployment outlook for '26?

As I mentioned, there's about $6 billion sort of is what the forward capacity is over the next 12 months. We have the 2 levers available to us on the capital: the M&A and the buyback. On the M&A side, the thing for us, I mean, I've been here 15 years, Jason has been here 20 -- when you're building a business that has an M&A lever, we never view the amount of capital in the next 12 months of the budget or we got to spend it because we're building a business that's going to own businesses in perpetuity. So you have to buy very high-quality businesses at an appropriate price. And so that discipline guides us. So it's hard to set an expectation that says we'd be we're going to get X dollars deployed against the $6 billion, excuse me, in M&A or buyback, but we like having both levers available to us, and we're just going to do what's best objectively to compound cash flow per share at the best rate we can.

I will say that we think this -- coming into this year, I think the market is ripe for more assets to become available. I mean we've been very proactive in the last couple of years with -- in a very muted market. So as I mentioned, I think it's a net positive for us, but we'll just stay disciplined and focused.

Yes. Don't mistake anything I'm saying. Like let's -- just as Jason said, the opportunity, the number of deals, the number -- the amount of [indiscernible] pressure on the GPs and private equity just continues to mount. There's going to be -- there's an aging portfolio of very high-quality assets, a number of those assets that were have relationship with and are meeting with management teams and becoming the preferred owner. All that is very, very ripe for opportunity, but we're going to remain, as we always do, discipline.

Finally, on that, over the last really 3 years, 2.5 or 3 years, we've really leaned in and built capacity for tuck-ins and bolt-ons. That's a more predictable pace. I think we did 7 or maybe 8 small tuck-in acquisitions last year, that will be more sort of predictable because it's a lower dollar per transaction but more of them.

Your next question comes from Joseph Vruwink with Baird.

Great. On AI, when would you expect to get to the point of quantifying what AI means for Roper at maybe a more precise level? I think it's evident in certain areas already. The Aderant call out, they're mid-teens growth, they're 10 points above the segment. I would imagine customers want the cloud as part of their AI initiatives. And so there's an inherent uplift and positive correlation between Roper and AI for the legal space. Can you do that more holistically and attribute some of the organic improvement ex Deltek you're already seeing and say that's directly or indirectly related to AI investments?

Yes. So I appreciate the question. We spent a fair amount of time talking about that internally. Just a couple of guiding principles that we have internally is one, we're not going to AI wash or allocate revenue like other companies have done, are doing. We're not going to say X dollars R&D, so therefore, Y dollars of revenue is AI related. So we're not going to AI wash our revenue stream.

That said, we do aspire to be able to report a number -- AI revenue, SKU related is X or Y. Unfortunately, if we do that, I mean, we're going to monetize AI in more ways than just AI SKUs. It's going to be cloud uplift. It's going to be in packaging. It's -- there's going to be lots of ways that we monetize this. So this is actually -- it says simple, it does pretty hard from how we're going to be able to sort of report this or it's credible.

At the end of the day, Joe, you highlight the most important thing, which is we believe this is a TAM -- meaningful TAM expander for us, which means it should be a growth driver for us, and you'll see it show up initially in bookings and eventually into the recurring or reoccurring base. So we see that Aderant, we see CentralReach, we'd expect to see it across several of our businesses starting this year.

More broadly, as we sort of write the chapters on Roper, 2025 [indiscernible] will be how we learned to develop the initial set of products across our software business. Essentially, every one of our software business is either hazards right on the precipice of having AI-related product to deliver to our customers. '26, I think that chapter is going to be how we commercialize, how do you sell, deploy, drive implementation and ultimately sort of monetize all of the product. And so that's going to be the journey of learning for us across the portfolio organization. We look forward to providing updates on that as we get through the year.

Great. That's helpful. On your approach to guidance this year, I think it's very clear that you're going to let the upside come to you and future changes are going to happen as you see it. Can you maybe put some guardrails in magnitude of what that could ultimately mean? And I'm thinking in the past, you've talked about how your current portfolio could be capable of 7%, in a best case scenario, 8% to 9%. That's more of a long-term framework within FY '26. If things go right and you get some redirection and where the pressures within the portfolio have been, what sort of upside possibility could there be?

Yes. So I would say the long term -- to first point, the destination for the longer term, certainly not a '26 comment. The longer-term entitled growth in the portfolio, we still have conviction is north of 8%. We go company by company, about what they're entitled realistically achievable growth can be. And so that number, sort of the target this nation has not changed. We are definitely, as you've heard from our commentary, taking a much more appropriate and balanced view for the initial guide here. No improvement at Deltek on the government contracting side, no DAT market recovery, actually underwriting a slight decline at Neptune. And so if you sort of thumb each one of those, I don't want to get into order of magnitude of what it could look like, but I would say it definitely tilts more conservative than this past year, for instance.

Your next question comes from Dylan Becker with William Blair.

Appreciate it. Maybe kind of following up on one of Joe's questions too. I think the Deltek perpetual piece makes sense but you also called out some softness on nonrecurring due to some of those cloud migrations and maybe that's just kind of rev rec upfront for ratable. I guess, as you think about kind of AI opportunity to accelerate this modernization and cloud journey, given kind of the heavy maintenance space you still have there, how do you think about kind of that trade-off in those long-term economics? It seems favorable. I think it's kind of evident in the subscription bookings in that low double-digit framework. But maybe kind of walk through some of the nuance between those as well, too, if you can?

Yes, I certainly appreciate the question. I think we've seen some of this just in our AS segment over the last years, nonrecurring revenue has been sort of flattish, up a little bit here and there because some of our businesses have moved more to the cloud, be it Aderant or in recent years PowerPlan. We see that Deltek is going to be a significant opportunity. So that's a part of our thinking in '26. Deltek really put a lot of AI functionality into their cloud product. And so some of these large government contract customers are contemplating going to the cloud and they have a big push for that.

So you're right, that will obviously increase customer lifetime value, but it will have a more muted impact in year. So we thought through a little bit of those dynamics this year. And I think that's probably the biggest area where we will see that because a lot of our -- the rest of our businesses are sort of on their cloud journey, but they will continue, to your point, to include only AI features in the cloud. And so that will just increase adoption as we go forward.

Yes. And just to add to what Jason said, we don't expect a pronounced J-curve because we have a very large installed base that's on-premise. That's going to lift -- that is lifting and shifting at 2 to 3x recurring. So it's the J-curve is less pronounced and because you're converting an existing recurring base at a higher level and as you sort of, if you will, [indiscernible] convert net new perpetual to a recurring. So they offset one another, and we think we have that harnessed in our guidance.

Okay. Great. And then maybe, Neil, for you, too, on the topic between platform and bolt-on M&A, I guess could you kind of give us a sense if you see any opportunity, maybe as a part of AI, maybe not, but given kind of the current backdrop to accelerate some of the initiatives in one effort? I know we've built out kind of the bolt-on team. There's a little bit more visibility into those platform valuations maybe have come down to a particular level as well. But just kind of think about kind of the mix between capital deployments between bolt-on and platform, if you can?

Always hard to predict mix. I can tell you that if there is -- generally speaking, if there's a rank order, bolt-ons or tuck-ins are going to be first quarter because they are advancing sort of the organic growth and strategic direction of one of our platform businesses. At the same time, you always have a little bit of back office G&A synergy, which is able to sort of buy down the initial purchase price pretty quickly, and then you get to the growth orientation. So that continues and will always be a focus of ours.

What we see, by the way, on that front is it takes a little bit of time as we added the resources, they get to know the company, they build a relationship with their companies, they build a relationship with sponsors and targets and founders, I think something like of 60% of our pipeline for bolt-ons, either proprietary or founder driven. That's a completely new motion for us that would not have been the case 3 years ago. I think that bodes well, but these things do take time to maticulate through the system and mature to where they can become actionable.

On the platform side, it's the number of opportunities and the quality of assets is very interesting. The question on the table is going to be what happens relative to valuation? We've never been a short-term next 12-month multiple arbitrager, so we're not going to do that. But we definitely have to sort of -- we have to look at buybacks versus bolt-ons versus platforms on what is the best long-term compounding in terms of value creation opportunities for us.

Your next question comes from Brad Reback with Stifel.

I know you guys gave the software bookings for the entire year. Can you give us what it was in 4Q?

Yes, it was up high single digits, and that is with Deltek being down in the low double-digit area. Actually, Deltek's SaaS was strong, but like I mentioned, perpetual was down meaningfully. Yes, the rest of the portfolio performed pretty well. Vertafore had a strong quarter off of a really tough comp last year. So they're continuing to just have success in 2025, and that should be good for them for '26. And then as I mentioned, last quarter, health care has been really strong for us, and that was the same in the fourth quarter.

Great. Neil, this is the second quarter in a row you've missed expectations, and you're guiding to a back half acceleration in '26. So maybe take a moment and help us understand where the incremental conservatism is in the '26 guide versus the last couple of quarters?

Sure. So we did say -- and we're certainly disappointed over the last couple of quarters, but we did say this time last quarter, we had a wider range of outcome, [indiscernible] of outcome, especially because of the uncertainty of Deltek. And so while disappointing, we try to be sort of very straightforward in that regard.

I think for this year, I said it before, I'll say it again, when you look at where we're exiting this year, look at '25 compared to '26 and you just go -- and let me begin back up. When you look at '25, the initial guide versus where we ended up, it really reconciles to 3 things we talked about. It's Deltek because of GovCon, it's Neptune because of the dynamics we talked about and it's Procare. That almost fully reconciles the difference between the initial guide where we ended up.

You then have that in mind, you take it to -- carry it forward, we're assuming in 2026, there's no improvement in Deltek, there is no acceleration at DAT, there's actually underwriting a modest decline at Neptune versus '25 and the only thing that sort of then you get the accretion to organic growth from Subsplash and CentralReach turn organic this year. And then we have this easing second half sort of nonrecurring. So optically, it looks like an acceleration through the year. But when you look at the pieces, it's actually pretty steady, safe for the things that we just said.

And just to remind you, all the CentralReach and Subsplash becomes organic second half. So it's got to create some of that ramp. And I would just call out, too, just again, just a small comp, a couple of comp issues. Foundry gets a little bit better this year, and I know it's small dollars, but in network it matters. And then we had the first quarter of '25 a pretty depressed network number because we were comping against a bigger number in '24. So that comp goes away. So there's some math to just going from '25 to '26.

Your next question comes from Terry Tillman with Truist Securities.

The first one is going to be on Deltek, the second one -- the follow-up is going to be on the DAT. But on Deltek, and I know these months or these part of the quarters are probably less seasonally strong. But did you actually see any improvement in order volume for perpetual in December or January? And also with Deltek, are the effects of DOGE kind of lessening or is that still impactful? And then I had a follow-up. .

Yes. So Terry, this is Jason. I think the December is always stronger than the other months, and that's just the natural kind of inertia of how orders flow in Deltek. I will say we had 2 large contractor -- government contractor deals that slipped. So it was like right at the end. And so we think they both land in the first half of next year, but we've also sort of hedge that just in case. But -- so usually, we get some big deals, and they were right at the finish line, and they didn't close, but they're still in the queue, and we still think we're going to...

Close the rest this year.

Yes, exactly.

And just to pick up on that, Terry as well, just to add, the -- while the signatures on paper are slower because of the shutdown, the commercial activity, the pipeline build has actually been encouraging. It's been encouraging throughout. It's because all the -- this is an environment, unfortunately, that our customers live in and they sort of -- they're subject to the vagarities of what's happening in the government, but they have a business to run, and they have contracts that are likely going to get awarded, and they have to sort of manage sort of are software in that regard. And so there's no competitive issue here at all. Let's take -- I mean it hasn't been asked, but 0 competitive issue here. It's just deals that are building that are pushed to right a little bit given the uncertainty. .

DOGE, I would say is, to your question, is lingering impact, but it's not the topic that anybody is talking about the way it was in the first third, the first half of the year of last year.

Got it. I appreciate that. And just a follow-up is on DAT. Do you see ARPU lift continuing to play out through the year? And are you on track for that autonomous kind of load matching technology innovation to play out in '27?

Yes. So we do expect ARPU to continue improving and growing in 2026. There's a couple of reasons for that. One is you just have like-for-like pricing opportunity that will sort of get cascaded in during the year as it normally does. But the second reason is we have more value to sort of sell to both sides of the network. And so you're going to get -- in the past, it was just load board, so it's [indiscernible] pricing. Now it's loadboard and automation. It's load board and data, it's [indiscernible] a number of things on both the carrier and the broker side.

In terms of the automated matching, we're -- it's early days, but we're encouraged by the progress. unambiguously the technology does the job. Let's just be clear. It is the ability for a broker to tender to the DAT1 platform and automatically match a load and have a carrier pick it up and complete the commerce with payment sort of overlay across all that. It works and it's working every day in the marketplace. The #1 focus of that business is to build both sides of the network. That starts on the broker side by getting native integrations with their TMS systems. And you have seen, will continue to see during 2026, a cascade of announcements about the various TMSs that we're integrating with. That allows the brokering or tendering to our platform to be native in the work for the brokers. And then we continue to build the carrier side of the network. It's got to be a high trust, no fraud environment. That's part of the core technology that we have and we're integrating.

So early days, but we like the tendering percentage, we like the completion percentages, we like the factoring percentages, and we'll want to see that business scale as Jason and Shannon and Satish and the team at DAT look at this on a monthly basis.

Your next question comes from Ken Wong with Oppenheimer.

You guys are guiding to 5% to 6% organic for '26. As we think about 1Q first half, with a lot of faster growth businesses coming in second half 4Q and no Deltek tailwinds, like is there a possibility that you could be below that 5% low end? Any context there so we could properly level set our numbers?

Yes. No, I don't think so. We're kind of thinking for AS, we'll be sort of in the mid-single-digit range with nonrecurring being flash and the recurring reoccurring being like mid-single-digit plus, which is consistent with Q4 levels. I mean you're not -- we're not going to have the same nonrecurring decline like we did in the fourth quarter. And then as you mentioned, the second half gets better on the CentralReach turning organic, and we've got this -- the nonrecurring -- as I just mentioned, we get a better comp in the fourth quarter. So not a lot of -- I would just say, not a lot of go get in that second half number.

And then on NS, I think sort of the recurring revenue will be just sort of continue to be mid-single-digit plus out of the gate. And as we go throughout the year, Subsplash comes in, in the fourth quarter, so that will be helpful. And so I think that's sort of how it sets up, nothing outside of that to call out.

Got it. Really appreciate the color there. And then perhaps just any additional context you can provide in terms of what the new business activity pipeline conversion look like versus maybe the renewal business term expansion contraction? And any details would be helpful.

Ken, is that a broad portfolio question or specific to a business? Broad, broad question?

Yes. Yes, just like -- yes, correct. It's more of a broad kind of software selling kind of trends that you guys are noticing across the group.

Yes, fair enough. I understand the question. Yes, I would say we're broadly encouraged by what we saw in the finishing the year as the bookings and retention statistics were quite good. As you know, our enterprise, our gross retention is in the mid-90s for our enterprise businesses that's steady to ticked up a little bit during 2025. And then in terms of the bookings activity, hey, while there's a little -- we expect there to be volatility quarter-to-quarter, low double-digit bookings growth in the year. and being pretty broad-based with sort of weakness at Deltek, I think, is all you need to see. We -- and so it's been pretty good.

Your next question comes from George Kurosawa with Citi.

You guys brought in some new AI leadership, Shane and Edward. I would love to hear a little bit about the team they're building out, what you have them focused on and if there's any kind of low-hanging fruit that learnings they can apply across the portfolio?

Yes. So we're excited to have Shane and Eddie joined and the team that are starting to build out to you the 3 things they're generally focused on. First is, it's all in pursuit of accelerating -- the top line goal is accelerating sort of our pace of AI product development and ultimately shipping, selling monetization. That's where the focus is. So 3 subcomponents to that, it's coaching and teaching, right? Our businesses did a meaningfully above average, above expectation job in 2025, late '24 or '25, learning, making mistakes, learning, making mistakes, learning around AI development, what works, what doesn't and getting products into the hands of customers. That was great to see.

But some of these -- a lot of these AI tasks are quite complicated, complex from a technical point of view and also unlike regular way software development. There are some art in this AI development. And so Shane and Eddie and the team are bringing -- really bring history. These are people that study machine learning and AI in university quite a while ago and spent their entire career. So they've seen a lot of pattern recognition. They're going to coach and teach our leadership teams, our technical leaders, our product teams on all things, AI, ML related. That's one.

Number two, they are going to build an AI sort of development strike team or accelerator team to where when there are a company might have more than it can do from its internal resources, and we'll supplement those teams to accelerate in some pockets.

And then third, there is in their first quarter with the business and they met with most of our software businesses. There is a clear opportunity for some reuse inside the portfolio, certain AI-based sort of capabilities we can sort of produce and sort of have a, if you will, a Roper open source model where we can reuse some components and componentry. And so we're going to focus there. And early days, it's been just really great. They understand our culture. Our teams have really engaged them, and they're just looking forward to scaling the team and getting to the work.

Okay. Great. I did also want to touch on the margin side. Core gross margins were up over 1 point in the quarter. Maybe just talk through the tailwinds there. How should we think about any sustainability to improvements?

Yes. I mean I think we've always said in our long-term incremental margins at the EBITDA line is around 45%, did a little bit better this year. I think as we go into next year, I think AS might be up a little bit. Network is going to be down just because we've got the full year of Convoy and our ALCO rolling through. And so that will accrete up over time, but a little bit of a drag in '26. And then I think our -- in our [indiscernible] segment will be for the full year sort of flattish. We've got more consumables rolling through next year than normal, which has a little bit lower margin. And that's really more pronounced in the first half, so maybe down a little bit in [indiscernible] in the first half and then it will improve throughout the year.

Your next question comes from Josh Tilton with Wolfe Research.

Maybe just first kind of a simple high-level one on the guide for next year. I appreciate all the color that you gave on Deltek and DAT and Neptune. But if you were to take those 3 businesses aside and treat the rest of the organic businesses, one, like what would be the one line color on the rest of the organic business? Does the guidance assume that everything x DAT, Neptune and Deltek gets better, stays the same, gets worse? Like how would you characterize what the rest of the business has to do that's baked into the guidance? Does that make sense?

It does. Yes. So I mean, I would say, broadly, it gets a little bit better, but not a lot, not meaningful enough to draw inflection. So that's baked in. I mean, when you think about -- we finished around 5.4%, the deals are a tailwind. This nonrecurring in AS is going to be somewhat a tailwind. Foundry does get a little bit better. And so maybe 10 basis points or so to the enterprise. And then really, the swing factors, I talked about the [indiscernible] in Q1 of '25, it didn't repeat. Then if you just talk about like the swing factors, it's all within Neptune, and that's what our low single digit to mid-single-digit guidance has for TAP and that's what kind of bridge you to the -- from the low to the high end.

And then maybe just a quick follow-up. I understand that some businesses go organic in the second half. Is there any, I don't know conservatism is the right word, but is there any conservatism? Is there any learnings that you saw following like kind of the little hiccups that you saw in Procare that you're kind of applying or embedding or assuming will happen as some of these inorganic businesses convert to organic in the second half of next year?

Yes, Josh, it's Neil, I'll take that one. So short answer is yes, there's a lot of learning from our Procare governance, what work, what didn't worked and how we're governing both Subsplash and CentralReach. And we can spend more time talking about off-line. But in essence, when we see a small variance in a monthly reporting package relative to one of the key levers in value creation plan, in Procare, we observed that variance for a longer time before we decided to take action to correct it. Now we immediately jump to a corrective action and countermeasure. And we don't let small variances turn into large variances. And as a result, you have CentralReach that's ahead of the underwrite model and Subsplash is on the underwrite model for the outlook for those businesses. Just -- we can get in much more detail when we have more time offline, but that's the essence of it. .

And I would just say that for CentralReach and Subsplash, feel good about the contribution in the second half. The path that we're on, bookings momentum, they're recurring, the gross retention, just the path to get to that accretion in the second half. We feel very good about that.

Your next question comes from Deane Dray with RMC Capital Markets.

This has come up several times today about the M&A bias and looking for a durable cash flow compounding. I'd be interested in hearing your thoughts about how do you rank looking at absolute dislocations in some asset prices today versus what you perceive as where there might be a wider moat against AI in these assets. So how are you weighing those?

I'm going to reframe Deane, the question to make sure that we answer the right question. If not, you can correct us. And so the question is looking at both private and public companies that have a valuation dislocation. Are we looking at that? And then how does the AI moat influence are thinking. Can you just reframe that? I want to make sure we answer the right question.

Yes. So I wasn't specifically talking about public valuations, but that would be great to hear that as well because you've done those in the past versus thinking more strategically about where there might be wider moats.

Yes. So I would say -- so -- again, feel free, we won't, Deane, you on one of your questions, if again, I answer it and [indiscernible] the wrong question. We're always -- for the long history of Roper, we're always investing in these vertical market application specific businesses with deep moats, right? And so that does not change. We believe in the AI world, these -- the moats where you're intimate with the customer, you have a unique and proprietary data, you're embedded in high-frequency workflows, where on stack AI is easier to implement, easier to monetize and ultimately translates to the automation of tasks, which is this TAM expansion we really like and are leaning in it. We're seeing it playing across our 21 software business today, so we'll continue to lean in that thesis from a capital deployment point of view.

That's really helpful. That's what I was looking for there. And just a quick one on Neptune. We've talked about the order delays -- is there -- how much of an impact is the spike in copper play? Is there a sticker shock? Is that -- does that need to be kind of ripple through the market to reprice? Just what's the impact there?

I would say that -- what we talked about last quarter, largely in the bucket of tariffs, but it's tariffs, it's copper pricing, generally, the shock to the cost structure of a water meter when we started in really July of last year, pushing a surcharge to accommodate for that increase in cost of goods. It was definitely a shock in the system in Q3, and it really abated during Q4. So I think our base case assumption is that is really in the rearview mirror and step aside and moving forward, it's just about the normalization of volumes in the market sort of on the very tail end of the COVID spike in volumes and now we're on the backside of that spike into a more normalizing range of volumes in the market.

Your next question comes from Joe Giordano with TD Cowen.

I'm just curious how you're now weighing like in terms of capital deployment, like different like timing horizons here, right? Like you have -- stock today is, I don't know, 15% below the average price of the buyback in the fourth quarter. You're trading at like almost a high single-digit free cash flow yield now. And it's a portfolio that you're intimately like close to relative to something that you might buy that drives top line that is something that inherently has more risk as you don't know it as well. Like how are you weighing something that like the certainty of what you know versus like the risk reward or something you don't know at the price that you're paying?

So I'll take a first pass of that. I'm sure Jason will have some color you may want to add. So again, just to -- we've said it, it's going to repeat, we'll say it again, the objective of M&A versus buybacks sort of the levers available to us is what's the best risk-adjusted path to long-term cash flow per share compounding, period, full stop. We're totally objective and passionate about the allocation of the 2. There's $6 billion available, so a big sort of a large amount of capacity.

On the buyback, we just -- the valuation dislocation is just silly. And so we leaned into it in Q4 and we find it obviously more attractive today. And it's a great opportunity to drive long-term cash flow compound that way. On top of that, we're very excited and confident about our future, right? And we get the growth, the eye, the leadership, the strategy, execution prowess. I mean, all of it feels very, very good to us and what we see internally. At the same time, M&A is a real lever. I mean there's not -- to somewhat to my surprise, we introduced the buyback last quarter, there is commentary about, oh my gosh, is the M&A thesis not on [indiscernible] one of those absurd things I've heard in my 15 years at Roper, we are a preferred buyer of vertical market software leaders. We're absolutely preferred from a management point of view or preferred from a seller point of view. The pipeline is enormous. The LP pressure is legit. The number of assets in private equity portfolio have to get liquidity or at levels we've not seen. So that thesis just needs to be eliminated from the top track because it's not real.

And so for us, it's balancing those 2. Buybacks are great in the short run. M&A generally is going to be in the long run, and we like having to balance between the 2 options in front of us.

Yes. I would just add that around the confidence and we've had just these unusual things happen with 3 of our businesses. But like the underlying quality is getting better. So there's that. And I would just say the AI -- we have 21 different businesses working through AI right now. We had our annual operating plan reviews and came out with a decreased level of conviction that we're going to win relative to AI. We're just -- we're so -- our customer intimacy has really proven to be a competitive advantage, and we've got the tools and resources to get after the AI just as fast as anyone else. So we feel really good about that. And so buying ourselves in that scenario where there's this dislocation makes all the sense in the world. But it's also going to be an incredibly active year on M&A. So we're just really -- we've got an abundance of opportunity in front of us this year.

I know you brought in this AI talent on the accelerator team, were there any instances where like negative instances where these guys coming in as experts kind of identified that maybe parts of your business where you thought you had more of an opportunity is going to be harder to drive? Or -- and I'm sure they're identifying places that you have opportunities, but was there any unlike the negative side where something was like, well, maybe this isn't as attractive as I thought in a particular part of the company?

Yes. So I would say on balance, the reviews and early takes are quite positive about the opportunity market-wise, technical-wise, the prowess of the teams that we have in place. But we also -- and we had them sort of do a short read out to our board last week. And then there was a few bullet points of things that were on the constructive ledger. None of it was market opportunity, lack of market opportunity or lack of opportunity to win. Again, these are more technical resources. They might not have like the best acumen in like these vertical market spaces to judge that anyway.

But it was like, as you'd expect, maybe there's -- we definitely need to improve the quantity of AI talent in the businesses. I mean that's a little bit of while we're adding the central team to sort of spark some acceleration. And it's just going to take some time because we've got to build these people. It's not something that we're going to be able to hire in mass. We got to build these people. And we did a good job last year. We'll continue to scale that and compounded learning on that this year.

Yes. I think the ideas have been well received by Shane and Eddie. I mean they understand the specificity of what we're trying to sale at the individual sort of vertical level. And that's -- they view that as very unique, right, coming from a horizontal player. So I think they see the opportunity just like our businesses do.

This concludes our question-and-answer session. We will now return 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.

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

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 Zack Moxcey, Vice President of Investor Relations. Please go ahead.

Good morning, and thank you all for joining us as we discuss the third quarter 2025 financial results for Roper Technologies. Joining me on the call this morning are Neil Hunn, President and Chief Executive Officer; Jason Conley, Executive Vice President and Chief Financial Officer; Brandon Cross, Vice President and Principal Accounting Officer; and Shannon O'Callaghan, Senior Vice President of Finance.

Earlier this morning, we issued a press release announcing our financial results. The press release also includes replay information for today's call. We have prepared slides to accompany today's call, which are available through the webcast and are also available on our website.

Now if you please turn to Page 2. We begin with our safe harbor statement. During the course of today's call, we will make forward-looking statements, which are subject to risks and uncertainties as described on this page, in our press release and in our SEC filings. You should listen to today's call in the context of that information.

And now if you please turn to Page 3. Today, we will discuss our results primarily on adjusted non-GAAP and continuing operations basis. For the third quarter, the difference between our GAAP results and adjusted results consist of the following items: amortization of acquisition-related intangible assets; transaction-related expenses associated with completed acquisitions; and lastly, financial impact associated with our minority investment in [indiscernible]. Reconciliations can be found in our press release and in the appendix of this presentation on our website.

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

Thank you, Zack, and thanks to everyone for joining us, and excited to be with you this morning. As we turn to Page 4, you'll see the topics we plan to cover today. We'll start with our third quarter highlights and financial results. Next, we'll review our segment performance, our AI progress and momentum and our most recent set of bolt-on acquisitions, then I'll get into our guidance details and of course, wrap up with your questions. So with that, let's go ahead and get started. Next slide, please.

Turning to Page 5. Let me run through the 4 key takeaways for today's call. First, we had a strong third quarter. Total revenue grew 14%; organic revenue grew 6%; softer bookings grew in the high singles area; and we continue to deliver impressive free cash flow, with free cash flow growing 17%. And of note, free cash flow margins posted at 32% for the TTM period, really impressive financial results.

Second, we're super encouraged by the progress and momentum we're seeing across all of our businesses as it relates to our AI enablement and our product stacks and our internal operations, and more on this in a moment. Third, we're announcing today our first share repurchase authorization, $3 billion in total.

And lastly, we continue to execute on our M&A strategy of acquiring faster growth platforms and bolt-on or tuck-in acquisitions at a high fidelity rate. In the quarter, we deployed $1.3 billion, $800 million for Subsplash, which we detailed this time last quarter, and $500 million on a series of tuck-in acquisitions. Also, more on this later, but worth highlighting here, we are very encouraged by this recent capital deployment execution and the future growth potential that's being layered into our enterprise.

Importantly, we remain very well positioned for the continued execution of our M&A strategy, and continue to have north of $5 billion of capital deployment capacity available over the next 12 months or so.

As I turn the call over to Jason, reflecting on the quarter, I'm quite bullish on most of what we're seeing: a very strong 3Q; real demonstrable AI progress, which is a long-term growth driver for us; excellent execution of our higher growth, higher returning capital deployment strategy; and the announcement of our first ever buyback authorization. This all bodes very well for the future. That said, we'd like to see some of our markets start to cooperate a bit better, namely the government contracting and freight markets, and we have some delays in Neptune, much more on this as we walk through today's call.

So with that, let me turn the call over to Jason to talk through our P&L and our balance sheet.

Thanks, Neil. Good morning, everyone, and thanks for joining us today. I'm pleased to take you through our third quarter results and strong financial position.

Turning to Page 6. Q3 and TTM results reflect the long-term financial profile of Roper, which is to compound cash flow in the mid-teens area. We'll start with revenue, which was 14% over prior year and surpassed the $2 billion mark. Acquisitions contributed 8% led by the final quarter of Transact before it turns organic, and CentralReach, which we acquired in April of this year. Of note, these businesses are tracking very well against our acquisition expectations.

We printed 6% organic growth, both for the consolidated enterprise and across each of our 3 segments. Our Application and Network Software segments were in line with expectations, while TEP was a bit below given near-term timing at Neptune, which Neil will discuss further.

EBITDA of $810 million was 13% over prior year, with EBITDA margin of 40.2%. Core margins expanded 10 basis points, and segment core [ margins ] expanded 30 basis points, led by our software segments. DEPS of $5.14 was 11% over prior year and $0.02 above the high end of our guidance range, despite absorbing $0.05 of dilution from Q3 acquisitions that were not reflected in previous guidance.

Free cash flow was outstanding at $842 million, up 17% over prior year, and representing 32% of revenue on a TTM basis. Our software businesses captured strong renewals, and we drove great working capital performance across the board.

Broadening out a bit. TTM cash flow of over $2.4 billion is a 17% CAGR over a 3-year period. And for those looking at per share metrics, you'll note that our share count has compounded at about 0.5% over that same time period. At Roper, we have been and will continue to be relentlessly focused on cash flow and shareholder value creation.

Now let's turn to Slide 7 and discuss our very strong financial position. Our net debt to EBITDA stands at 3x, which is up only modestly from Q2 at 2.9x despite deploying $1.3 billion towards acquisitions. This places us in a great position with over $5 billion in the next 12-month capacity for capital deployment.

Regarding M&A, you can see that we've been quite active this year in acquiring high-quality growth businesses and several strategic bolt-ons. This is against the backdrop of a muted PE deal environment. The pipeline of high-quality acquisitions continues to build as access mature in PE portfolios and a return of capital to LPs becomes paramount.

Additionally, as Neil mentioned, we're pleased to announce another capital deployment lever that was previously unavailable. Our Board has authorized a $3 billion share repurchase program with an open-ended time period to execute. While M&A will continue to be the majority of our capital deployment allocation, our share repurchase program will allow us to opportunistically complement our M&A program.

Over the last year or 2, we have talked about the great business building taking place across the Roper portfolio, from strategy, to talent, to execution, all now greatly turbocharged by AI. Our repurchase program reflects both confidence in our strategy and our commitment to delivering long-term shareholder value.

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

Thanks, Jason. Turning to Page 8, and before I get into our segment details, we want to discuss why AI is a powerful and durable growth driver for Roper.

To start, AI represents a meaningful expansion of our TAM across the portfolio. We can now deliver transformational software solutions that automate labor-intensive work adjacent to our existing platforms. This creates substantial new value streams for our customers and correspondingly facilitates long-term growth for Roper and our businesses.

Importantly, our businesses are uniquely positioned to win in AI. In fact, having a very high right to win in the AI world. Our software solutions are deeply embedded system of record applications with workflow-oriented domain-specific architectures. The decade of cumulative workflow knowledge built into our platforms combined with the proprietary vertical market data provides the precise context needed to develop agentic AI solutions. Because of this, our businesses have been exceptionally high right to win as we deploy these capabilities across our VMS end markets.

Internally, we're becoming AI native across all functions to drive productivity gains. We're excited to reinvest these gains to further accelerate our product development and go-to-market initiatives. It's important to note, we've always had more great ideas than resources needed to execute, and AI has the potential to attack this challenge.

Finally, we have tangible proof points, though it's still early. [indiscernible] has claimed the technology leadership position in Legal Tech, accelerating their bookings growth. CentralReach now has roughly 75% of their bookings attributed to AI-enabled products, which have automated 100 million reimbursement rule evaluations, over 3.5 million learner appointments and over 1 million clinical summaries being generated. Great real-world examples of the power of AI. Deltek has released over 40 AI features into their cloud offerings, driving increased cloud conversion activity. And DAT has industry-leading AI/ML-enabled freight matching capabilities, which I'll detail shortly. These are but a few examples from across the portfolio. Very exciting times for sure.

With that, let's now turn to our segment review, starting with Page 10 and our Application Software segment. Revenue for the quarter grew by 18% in total and organic revenue grew by 6%. EBITDA margins were 43.4%, and core margins improved 40 basis points in the quarter.

Starting with Deltek. Deltek delivered solid performance in the quarter, with particularly strong results in their private sector end markets: construction, architecture and engineering remain robust throughout. The GovCon business experienced softness in September as agencies pause activity ahead of the pending government shutdown. This timing is unfortunate. Pipeline activity and commercial momentum has been building nicely, following the passage of the One Big Beautiful Bill in July, and we are seeing increased engagement across our customer base heading into the new fiscal year. The fundamentals remain strong. The [ OB3 ] authorized significant increases in defense and infrastructure spending that will flow through to our customers once appropriations are finalized. This is simply a timing issue, not a demand issue. Finally, retention levels across the entire Deltek franchise remained very high.

Aderant continues to be incredibly strong and continues to post impressive bookings and recurring revenue growth. The booking strength is broad-based, fueled by their AI-enabled solutions, especially as it relates to AI-enabled compliant time capture and billing, and is a combination of market share gains, cloud migration and SaaS growth.

Vertafore continues once again to be steady and solid for us. We continue to see consistent ARR growth and strong customer retention and strength across our agency, MGA and carrier solutions. This growth is enabled by their strong go-to-market capabilities and their long-term commitment to product strength.

PowerPlan's performance has been terrific. Their success is a result of several years of business building and the product stack, the go-to-market capabilities, their service delivery really across all functions. In addition, to remind everyone, they serve power generation customers, which are adding capacity as quickly as possible to handle the AI workloads. The setup here should be quite good for a long time.

Also in the quarter, we completed the acquisition of Orchard, a tuck-in acquisition for our CliniSys business. Orchard brings additional clinical laboratory capability to CliniSys with particular strength in reference, physician offerings and public health labs.

Finally, the balance of our application software portfolio continues to execute very well. CentralReach was awesome again in the quarter, driving accelerating adoption of their AI tools and capturing [ ABA ] therapy capacity additions.

Procare made a great installment of progress with new bookings continuing to be strong, posting low double-digit growth in payments with improved gross margins, though still work to do, in particular, with faster implementation time frames and share wallet expansion, but meaningful progress for sure.

Finally, Strata and Transact were steady and solid in the quarter.

As we look to the final quarter of the year, we expect to deliver mid-single-digit organic revenue growth. This outlook reflects high single-digit growth in our recurring revenue base, offset by declines in nonrecurring revenue, primarily due to anticipated softness in our Deltek business stemming from the ongoing government shutdown. Given the uncertainty surrounding the duration impact of the shutdown, we see potential outcomes across the full range of our MSD outlook, from the lower to the higher end. That said, our businesses in this segment continue to compete and execute exceptionally well. The primary variable remains a higher level of market uncertainty than we typically experience for our Deltek business.

Please turn to Page 11. Total revenue in our Network segment grew 13%; and organic revenue, 6% in the quarter. EBITDA margins remained strong at 53.7%, with core margin improving 60 basis points.

As we dig into the individual businesses, we'll start with DAT. DAT was solid in the quarter and had strong ARPU improvements. DAT continues to execute exceptionally well on their core strategy of driving enhanced network value for both brokers and carriers. This dual-sided approach positions DAT to better monetize their entire network ecosystem, and more on this when we turn to the next page.

ConstructConnect was solid again for us in the quarter. The growth was fueled by strong customer bookings activity and improved customer net retention. Of note, this business continues to make good progress with our emerging AI-enabled takeoff and estimating solution.

Foundry is turning the corner on growth, posting continued sequential improvements in ARR, and we expect our Q4 exit ARR to grow year-over-year in the HSD area. Really happy for the team there as they've had to work through some tough market conditions.

Next, our network health care businesses, MHA, SHP and SoftWriters were very good in the quarter. Of particular note, SoftWriters is executing at an exceptional level, winning a few very large pharmacy customers and making substantial progress on a high-impact AI solution, which is being beta tested in the market currently. Congrats to Scott and his entire team for their success.

Finally, Subsplash. Our most recent acquisition that closed on July 25 is off to a great start, delivering financial results in line with our deal model expectations. Of note, they saw very good market traction with their AI-driven [ sermon ] content offering, Pulpit AI, as they deepened its integration with their core engagement platform, driving strong product-led growth. Exciting stuff.

As we turn to the outlook for the final quarter of the year, we expect to see organic revenue growth at the higher end of the mid-singles area.

As we turn to Page 12, we'd like to spend a few minutes describing the strategic evolution of our DAT business and while we're so excited about its future growth prospects. To start, our legacy DAT platform is the largest freight-matching network across the U.S. and Canada. The scale is remarkable. Over 1.2 million loads posted and 15 million rate views every single day. DAT is the clear market leader, delivering tremendous value to both rate brokers and carriers, both of whom pay to participate in this powerful network.

As strong as the legacy business is, we're even more bullish about where DAT is headed. To bring this vision to life, DAT is building capabilities across the entire freight automation workflow, from carrier vetting, to broker carrier matching, to AI-driven rate negotiation, load management tracking and finally, payment and settlement. Through deep customer partnering with the brokerage community, DAT is working to fully automate the freight matching process. As this happens, DAT will generate $100 to $200 per load in savings for brokers, while giving carriers greater predictability and faster payments on their invoices.

What sets DAT apart is this end-to-end product capability and its role as a neutral trusted partner, a switcher and light player that equally serves the entire freight brokerage market. This is a truly unique position in the market. This evolution also highlights the Roper DAT partnership at its best. We work closely with the DAT team to craft this strategy, then we execute a focused M&A program to strengthen it through 3 strategic tuck-ins: Trucker Tools, Alco and Convoy. With the deals complete, DAT is now fully focused on delivering against this strategic opportunity. Important to note, Convoy is an unusual transaction for us as it currently is not profitable. We expect the financial returns over the next several years to be extremely attractive.

The key to success is scaling efficiently, leveraging DAT's advantaged customer unit economics for both brokers and carriers to drive sustained growth and profitability. We are confident in this strategy, market position and DAT's ability to execute. I know this was a bit of a deep dive, but I wanted to share with you why we're so excited about the growth opportunity that sits in front of DAT through AI-based freight automation.

Now let's turn to Page 13 and review our TEP segment's quarterly results. Total revenue here grew 7% and organic revenue grew 6%. EBITDA margins came in at 35.2%.

Let's start with Neptune. As we said before, Neptune continues to execute really well, particularly around its ultrasonic meter strategy, and we're seeing strong traction in its data and software billing solutions. The new copper tariff that took effect on August 1 caused some short-term disruption. Neptune responded by implementing surcharges to offset the tariff impact, which temporarily slowed order timing. These actions reflect the benefit of being part of Roper, doing the right long-term thing for customers and the business even when it creates near-term headwinds.

Verathon continues to perform well. In particular, during the quarter, Verathon saw continued strength in single-use recurring product lines, both BFlex and GlideScope, which remain key growth drivers.

NDI also delivered an excellent quarter. As we discussed previously, NDI provides proprietary world-class precision measurement technologies to a range of health care OEMs. These technologies, in turn, enable guidance enabled solutions across multiple clinical markets, including orthopedic surgery, interventional radiology and cardiac completion.

Finally, we saw strong execution and growth across CIVCO, SMI, Inovonics, IPA and rf IDEAS, rounding out a solid overall performance for this group of companies. Looking ahead to the fourth quarter, we expect organic growth in the low single-digit area, given the very difficult prior year comp and the timing we discussed at Neptune.

Now let's turn to Page 15 and review our Q4 and updated full year 2025 guidance. Starting with the full year outlook, we continue to expect total revenue to remain in the 13% area. Also given the delays at Neptune and the temporary impact of the government shutdown, which is slowing year-end commercial activity at Deltek, we now expect organic revenue to land in the 6% area versus our previous 6% to 7% range.

Relative to our full year DEPS outlook, we're tightening guidance to the high end of our prior range after adjusting for $0.10 of dilution for the $500 million of tuck-in acquisitions completed during the quarter. Specifically, we now expect adjusted DEPS to be in the range of $19.90 and $19.95. We expect to see our tax rate at the lower end of our 21% to 22% area for the full year. For the fourth quarter, we're establishing adjusted DEPS guidance between $5.11 and $5.16, which includes $0.05 of dilution for last quarter's tuck-in deals.

Now please turn with us to Page 16, and we'll open it up to your questions. We'll conclude with the same key takeaways with which we started. First, we made a very good third quarter with exceptional free cash flow. Second, we're super excited about the pace of AI innovation and the growth potential in front of enterprise. Third, we're announcing a $3 billion authorization for a share repurchase. And finally, we remain super well positioned for further M&A activity. Relative to our financial results, we grew total revenue 14% and organic revenue 6%, grew EBITDA 13% and delivered 17% free cash flow growth in the quarter.

AI is a significant growth driver for Roper, expanding our TAMs by automating tasks and work across our vertical market offerings. With deep workflow integration, proprietary data and vertical market-specific architectures, our businesses are well positioned to succeed in AI, in fact, have a very high right to win and are already seeing measurable yet early product and commercial results.

DAT exemplifies this strategy in action, evolving from a traditional freight matching network, to a fully automated freight marketplace powered by AI. Through this transformation, DAT is unlocking significant efficiency and economic value for brokers and carriers alike, positioning itself for improved high-quality growth.

As Jason mentioned earlier, we're excited to announce a $3 billion share purchase authorization, which we'll deploy opportunistically, enabling us to take advantage of dislocations in the market. We're super confident with our talent advantage, our strategy and our execution capabilities, and this first ever buyback is evidence of such.

Importantly, we remain exceptionally well positioned to execute our M&A strategy. We have north of $5 billion of available firepower over the next 12 months and a very active, large and attractive pipeline of opportunities. Importantly, Roper continues to strengthen its position as an acquirer of choice for both target CEOs and their private equity owners. As always, we'll pursue these opportunities whether consistent, unbiased, patient and disciplined approach.

Prior to turning to your questions, and if you can flip to the final slide, our strategic compounding flywheel, we'd like to remind everyone that what we do at Roper is simple. We compound cash flow over a long arc of time by executing a low-risk strategy and running our dual threat offense. First, we have a proven powerful business model that begins with operating a portfolio of market-leading, application-specific and vertically oriented businesses. Once the company is part of Roper, we operate a decentralized environment, so our businesses can compete and win based on customer intimacy. We coach our businesses on how to structurally improve their long-term and sustainable organic growth rates and underlying business quality.

Second, we run a centralized process-driven capital employment strategy that focuses in a deliberate and disciplined manner on cultivating, curating and acquiring the next great vertical market-leading business or a tuck-in acquisition to add to our cash flow compounding flywheel. Taken together, we compound our cash flow over a long arc of time in the mid-teens area, meaning we double our cash flow every 5 years or so.

So with that, we'd like to thank you for your continued interest and support, and open the call to your questions.

[Operator Instructions] Your first question comes from the line of George Kurosawa with Citi.

Great to be on the call here. I wanted to first touch on kind of the high-level organic growth picture. I think you can -- took a step back this quarter, but I think you can certainly argue there's some onetime or short-term dynamics at play here. Maybe just if you could frame your confidence in a reacceleration from here, particularly as we start to sharpen our pencils for '26.

Yes. I appreciate it. Thanks for being on the call this morning. So the -- yes, I think you're right. I mean the reason that was a little rough this quarter was the 2 reasons we talked about, the commercial activity at Deltek with the government shutdown and then this tariff-related impact at Neptune.

As we think about '26, I mean, it's a little early for us to get super detailed about '26. But if you sort of roll sort of segment by segment, it's been pretty -- an application has been pretty consistent trends there throughout '25. Deltek and government contracting should improve next year, given the passage of OB3. I think the timing of when that improves is still up in the air a little bit. We'll see that as we get through our planning and roll the next year. But there's definitely sort of improvement happening in that market given the spending attached to OB3.

In the Network segment, it's been pretty consistent over the last 3 quarters. There is a sort of a comp thing in the first quarter. So pretty consistent over the last 3 quarters. Despite the sort of the headwinds in the freight market, we'll have to see how the freight market evolves next year, but really like the business building we're doing at DAT, as I talked about. As I also mentioned, Foundry is going to be better next year.

And then on TEP, the Neptune order patterns likely continue normalizing the pre-COVID sort of lead time levels. Orders there have been pretty good. It's just the lead time -- the lead times are going to continue to shorten. NDI is poised for a couple of strong years, but we really need to get through our planning process to have more clarity on how TEP's going to play out next year. But all in all, the -- feel pretty good about the trends in GovCon, Foundry, CentralReach and Subsplash turning organic in the second half of next year in the general business building. But as usual, we go through a pretty exhaustive Q4 planning process, which we kick off in a couple of weeks.

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

Yes, we feel very, very good. I won't rehash all the prepared comments about why we feel that way. But -- we're going from having a large number of products and key features. We talked about the [ 40 ] AI features in the Deltek core that's driving sort of the cloud migrations and SaaS. But increasing, we're seeing sort of AI SKUs. So we feel real good about that.

Now we've got to get through the commercial activities. We release these SKUs across essentially every one of our software businesses now and in the first half of next year, that we got to go sell them and commercialize them and give them the momentum will sort of pick up from there. But feel very good, very high right to win, a lot of compounding of knowledge about how to do all this stuff internally. This is -- you can hire some talent, you're going to build it. So we feel real good about that. A lot of internal sharing that's going on, which is great to see a lot of momentum. So we can certainly talk more about that, but feel great about where we are on the AI front.

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

Just on the buyback, I guess maybe walk through the strategy, why not leaning harder into M&A versus -- I believe this is your first buyback ever. What drove that decision?

Yes. Appreciate it. The -- so just to be clear on what it is. So it's $3 billion. It's open-ended timing. It's opportunistic and no way shape or form and change in our strategy. Set this in the context of the amount of capital we have to [indiscernible] over the next 3 years is somewhere in the $15 billion to $20 billion range. So it's not a change in any way, shape or form.

The rationale for this is pretty straightforward. We just have a ton of conviction in what we're doing. And in terms of the talent we have on the team and the leader companies, the strategies, the AI execution, the general continuous improvement in execution, the business building we're doing, and we think this buyback is just clear evidence and support for our conviction there.

But we're going to maintain a strong bias towards M&A. The compounding nature of the numerator is better than the denominator. It's just straight math. We're super active on the M&A front. We cultivate every day. In fact, our Janet Glazer leads our capital deployment efforts had a fantastic meeting 3 or 4 weeks ago, I think with [ 18 ] CEOs of companies that are in the pipeline, so marketing event, and it was -- this was met with great reviews, and we're really becoming sort of a buyer of choice, both for the CEOs of companies and also the private equity sellers. So we feel real good about the execution of our M&A strategy, and this buyback is just a small complement to the overall strategy of Roper.

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

Yes. So you're right. I mean we built this portfolio to essentially take as much cyclicality and cycle risk as you can take out of an enterprise. If you look back over our long history, before we sold and divested all the industrial businesses, we cycle up or down 5 to 10 points. Now we're cycling like 1 point here or there. So we've essentially beaten out extensively all those cycle risk you can in an enterprise. In this case, it's just it's frustratingly bespoke situations. Government contracting, normally, you're in GovTech because of the stability of the end market here has been anything but that the last couple of years. Transportation, who would have predicted like a 3-year freight recession. And so it is frustrating these things are stacking on top of each other, but they're bespoke and we like the construct of the portfolio for sure.

I think the cash flow generation continues to be strong and consistent with what we thought. Obviously, we've had some new deals come in that have been dilutive, but we've been able to sort of push through that. Our guidance is -- [indiscernible] dilution is pretty close to where we were before. So despite some of the softness we've seen, we've been able to sort of maintain the bottom.

The next question comes from Brad Reback with Stifel.

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

Yes. It was mainly Deltek, a little bit of Frontline. We've talked about some of the funding from the DOE. We don't get a ton of funding down to the states, but at the margin, it does slow down a little bit in [ K-12 ], but yes, it's Deltek, Frontline. Outside of that, it's very strong. So if you look at our TTM, it's also a very lumpy dynamic, right? Software bookings are -- can be lumpy quarter-to-quarter. TTM is up low single digits -- sorry, low double digits. So feel good about that trend.

And I would also just call out that health care has been particularly strong this quarter. Our Strata business, we combined Strata and Syntellis a couple of years ago, and that's really starting to take hold in the market. So bookings really strong there. And actually, our CliniSys business is doing quite well to in Europe and even in the U.S. with some of the bolt-ons we've done for them to get outside of the hospital, that's starting to gain traction as well. So some color behind the bookings this quarter.

Great. And then, Neil, I think 2 questions ago, you talked about the rollout of the AI SKUs happening now through the first half of '26 and then needing to sell it. That all seems like we should be thinking about this more of a '27 and beyond organic driver as opposed to '26?

I think that's a fair -- we're certainly viewing it that way. I think it's a fair assumption. We'll certainly see progress in bookings throughout next year because again, this is across 20-plus software companies and multiple products across 20 software companies. And so we'll see building momentum. But before it has a meaningful impact, I think, it's '27 because of the commercial activity has to go along with the innovation.

The next question comes from Ken Wong with Oppenheimer.

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

We want to make sure we're framing or branching the right questions. Essentially, what's the cross-sell versus sort of net new mix? Is that your question?

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

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

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

Yes, it was Neptune predominantly. I mean, you had -- it was an acute impact on Q3. We always had a little bit of a tougher setup in Q4. But even aside from that, it was definitely [indiscernible] in both quarters. Neptune, sorry, Neptune.

The next question comes from Joshua Tilton with Wolfe Research.

Guys, can you hear me?

Yes.

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

Yes. I mean I think we've given the outline by segment. And so I think Neil had framed, at AS, we've got it at mid-single-digit growth. There could be a range there, and it really depends on Deltek's perpetual license activity and a little bit, to a lesser extent, there's a couple of projects in our Transact business that might hit this quarter or next quarter. So that's sort of the range there. And so I think we've given you that.

Network is going to be sort of mid-single digit plus. I think we've -- a lot of that's recurring revenue. And the only thing that can move around is truckers, right? They can come in and out of the DAT on a monthly basis. So we think we've sort of -- we've got that sort of boxed.

And then on low single digits for TEP, I think we've identified where the challenges are for Neptune's tariff activity. NDI works on mostly backlog for the quarter. The others are a little bit less backlog. But just based on the trends and the call downs we had with the business, we feel like that's an appropriate number for the quarter.

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

Yes, I appreciate that. So I don't know if I would go as far as say like there's some think tank sitting in [ Sarasota ] that's like crafting all this. What it is, is we have clarity of purpose, right? So when your vertical market, system of record and you're going to evolve like system of work, it's everybody -- the portfolio construct is so similar that we're running basically the same play across the 20-plus software companies. So there's common purpose and common understanding about that.

Then there is a lot of information sharing. Every 3 weeks, there's an AI sort of showcase inside of Roper. We have a few hundred people sort of talking about 1 company or 2 companies to highlight what they're doing internally or externally architecture, commercial, whatever it may be. We send a weekly e-mail about sort of where the state of the technology is, the state of the evolution of AI to galvanize the leaders. There's telemetry putting into our planning process that we're looking for, for both the product road maps and internal productivity.

The group executives who, as you know, coach 6 or 7 businesses each, those businesses are together all the time on all things related to business, AI being a big topic of it. And I could see us in the not-too-distant future, sort of adding some resources at the corporate office at the center that are an overlay to all of that, that are really sort of scanning the horizon for the -- enabling technologies are going and how to apply that technology. Because at the end of the day, this stuff is hard. I mean, it's what we're trying to do to identify tasks and work where you have to be deterministic and not probabilistic. It's hard to do.

Now it's good that it's hard because when you do something that's hard you create this magical moment for your customer, and that's where you can sort of have this win-win relationship on value. And so we're super excited about all that, again, have this high rate to win because of all the context and data and decades of sort of accumulated knowledge about how these verticals work.

And the final thing I would say is the real unlock for really anything inside of Roper is our org structure, right? Where this highly decentralized, high-trust autonomous structure, taking $8 billion P&L, it's put into 29 units. You have super talented leadership teams that are highly motivated, intrinsically and through our financial reward system to compete and win in the marketplace, and this is the new frontier on how to do that.

Sounds like a good setup for AI success.

The next question comes from Terry Tillman with Truist Securities.

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

So yes, so thanks for the question, Terry. So I think for the fourth quarter, we'll see how it plays out. We had a very strong Q4 last year. So the comps are a little tougher. But I think it's the end of the year, and obviously, the pipelines look very strong across our businesses.

You're right about Deltek. We're not assuming that's going to hit this year. But we've also seen customers make very quick decisions in the last few days, especially if it's sort of -- they've got an internal budget dynamic that they can utilize. So we're not assuming that at this point. But I will say, just for '26, we do feel really good about what [indiscernible] is going to mean for Deltek. Additionally, I mean, just Deltek had -- the markets haven't been cooperative with just in general, for the last couple of years. So the demand is definitely there. Deltek's done a lot to their cloud product. They're incorporating a lot of the new AI features that are going to be cloud only. So that should help drive some higher conversion. That's one of our -- I think it's our biggest maintenance base at Roper so excited about the future, just need to get past this quarter of sort of uncertainty.

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

Yes. I appreciate it. So yes, you're right. So the strategy of DAT, and I've called this out for a few quarters, if not longer, is we have this remarkable business that's a network between brokers and carriers, and we monetize both sides of the network on a subscription basis. And we have -- what we have is the market captured, and we have very favorable go-to-market unit economics especially on the carrier side because of the carrier, you get your authority first, then you probably subscribe the DAT second, so you can understand we're going to grab your load from. So they -- it's a very efficient go-to-market motion and capture there, very unique go-to-market motion relative to the unit economics. So then the strategy is how do you just scaffold more value on both sides of that network.

And then the ultimate value creation is -- and what you're talking about, which is how you sort of take the labor -- the task labor out of the matching of a broker transaction. As we mentioned today, we broker about -- there's about 1.2 million loads a day on DAT. There's about $100 to $200 in task labor savings for each one of those is automated. So you can apply whatever percentage you think is fair. I'm going to leave that open at the moment. We have a good indication internally, but some small percentage of the total loads and then some small percentage, a fair percentage of the labor task savings and you'll get a very large sort of opportunity. Now that's the opportunity.

Now we have to go equip it. You've got to make -- we've got to integrate this capability into the TMS of every broker, so it's native. They've got to onboard a large portion of the carrier base into this, which we're actively doing. So we're super excited. The early results were like sold out on the broker front, so the early results for integration is great, but there's a business we've got to build here. And the reason that we're unique in this is that we're truly [ Switzerland ]. Like we don't -- we're not competing with the broker or enabling the brokers, and it's a huge value savings for both the brokers and carriers.

Next question comes from Deane Dray with RBC Capital Markets.

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

No, no, just be super clear. This is pushed to the right. So what we've done, and I alluded to this in my prepared remarks, is that we have this tariff coming through. We -- Neptune decided we concurred fully that they're going to assess a surcharge, which then you've got to go essentially recontract or renegotiate with all the open orders about how to do that, and it just puts some gum into the system.

The -- it's a little bit easier when you're going through distribution to do that because you have a distribution partner, you can sort of share some of this surcharge with. But when you're doing the direct business, that's a little bit more difficult to do and a little bit slower. So this is 100% pushed to the right. In fact, Neptune reports, I mean, there's a little market share gain in the quarter for Neptune, but these sort of market share quarter-to-quarter are sort of 1 point here, 1 point there, 0.5 point here, 0.5 point there, but the latest report is the share has actually improved a little bit with Neptune in the quarter.

That's really helpful. And then follow-up and I'll echo the -- how much you appreciate that spotlight on DAT. And just the idea, can you talk about the implications of making the investment in Convoy? You added that, if not profitable, but just the willingness to subsidize, make that investment so you have this end-to-end automation. But just the implications of a bolt-on that's not profitable.

Yes. So I'll just -- I'll start, and I'll ask Jason to add a little bit of color. In our case, it was very -- it was a unique situation for us. It was very much a buy versus build. This is very complicated. It sounds very easy. It is very complicated, complex algorithms to do this. They have to be absolutely deterministic. It's more ML than AI. There's a very large group of talented engineers that came with the acquisition. They are now part of the DAT sort of franchise. And so it's unique in that it's money losing at the moment, but it's like the final piece to sort of manifest the strategy of DAT. And because of what we've talked about earlier, we have such high conviction of what was going to happen here.

Yes. I would just add that, I mean, most of our strategies call for tuck-ins that are adjacent and they sort of fold them in, like we just did Orchard for CliniSys, that's sort of the bread and butter that we would do for bolt-ons. This is really a technology acquisition that was -- it's really to create a new market. And so I would say that's very rare for us, but we think it's a great opportunity. And so we're willing to make that technology investment.

The next question comes from Dylan Becker with William beer.

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

Yes. So we want to -- so the DAT core business is a low double-digit growth business when you get the benefit of some unit growth versus just packaging and price. So that's a long-term sort of organic growth rate of the core business. We talked about this sort of this entire sort of track automated business. We're talking about adding a capability that doesn't exist in the industry that is multiples of the existing TAM. And so we want to see actual momentum in there before we quote sort of what the acceleration magnitude could be to DAT, but it's exciting for sure. So I know that's a little bit of a -- not an answer you're not looking for at the moment, but we want to actually see the growth in the field before we call the -- how much accelerated growth rate is going to be there.

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

Yes. Happy to do that. So just to remind everybody, Deltek is 60% GovCon, 40% non-GovCon. We're talking about the 60% of Deltek that's in GovCon. What we've seen is when you have the government shutdown, it's the pending -- the potential of the shutdown and the actual shutdown that just -- it just pauses commercial activity. The activity is still there. The pipelines continue to build. There are still discussions because everybody knows the shutdown will end. The government will be operational again, and we have this OB3 spending where we have to -- all that will be awarded and has to be delivered. It just -- in the height of the uncertainty, there's just not a lot of signing on of the purchase orders or the contracts.

If this were -- hypothetically, if this were happening in March, we would probably not be calling down the year because there'll be time left in the balance of the year to sort of for the commercial activity to sort of resolve itself. It's just we're sitting here in the last 2 or 3 months of the year, we're going to run the clock out of the year roll in the next year.

The next question comes from Joe Giordano with TD Cowen.

Just looking at App Software, I mean if we strip out the Deltek GovCon stuff for a second and just think about like the acceleration of organic here, what's the catalyst for this? I mean you look back, I mean, it's been small variance, but we're kind of like 3 years around 6%, give or take. So like what in your sense is like really the catalyst to bring this into like a high single to -- more like a high single framework?

Yes. So it certainly will help when your largest business -- the largest segment, our largest business can sort of grow at its normalized growth rate. I mean we're a couple of years into sort of a slowdown with the uncertainties across all the government sort of spending. So that helps quite a bit when you look at that.

We've had -- just going through the businesses, Vertafore is steady for us, a lot of AI opportunity in front of that business. Probably takes -- I mean we'll see some early green shoots of that next year, but as we said earlier, probably more 27. Aderant has been just killing it to PowerPlan doing a great job. [indiscernible] will turn organic, which will help. Frontline has been a little sluggish for the last couple of quarters, a couple of years -- couple of quarters, largely because of some uncertainty around the funding coming from what's happening in Department of Education. You've got the hangover from all the COVID spending. And it's just now that's getting more normalized. So Frontline reaccelerating, which is in the offing in the next couple of years will be super helpful to that regard.

And then finally, our CliniSys business for the U.S. part of our laboratory business, the legacy [ Sunquest ] has just lagged for all the reasons that everybody knows for 8 years, and now that's turning here, that's mid-single-digit organic growth enterprise for us now. So that starts to help. So we like what's happening here in terms of the growth optionality, growth capability.

When you think about the buyback now and you think about the multiple of your stock, like what's the thought process when you're weighing like, okay, here's a $1 billion opportunity here or $1 billion of deploying capital? Like you kind of be pretty straightforward with where the multiple of your stock was versus the multiple of what you're acquiring and now it's kind of -- it slipped a little bit. So maybe talk us through how much that's informing your decisions on where to allocate at a given moment in time?

Yes. For us, it's never been about the multiple of our stock. It's been what's in the compounding math for a cash flow acceleration, what's the best deployment of capital to optimize the long-term cash flow compounding of the enterprise. And now we just have another lever and a buyback to put into that consideration set.

The next question comes from Julian Mitchell with Barclays.

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

Well, I think we got -- so let's just be clear about the backlog dynamic. This is about the buildup from the COVID period. I mean pre-COVID, this was -- you might have a couple of quarters of visibility to an order backlog. It wasn't quite a book-and-ship business but much more book and ship than it was when you ran up through COVID, and then all the customers gave us blanket orders that were a year plus out. Now we're normal. When I spoke earlier, we're normalizing the order lead times slowly over time. So we -- the backlog grew, and it's bleeding down based on this order timing dynamic, set that apart from the demand environment, the market share environment. So that's point one.

Point two, on the more normalizing piece at Neptune on the demand environment is -- we're just in a cycle now this year, probably next year where we're just in normalized growth for that business, where the prior 2 or 3 years were accelerated growth because of the hangover from the COVID period.

That's very helpful. And then just my second one might be around sort of with all this effort around sort of AI, just wondered what the implication for that might be on your, let's say, core R&D? Is that -- could that be a bigger headwind to core margin expansion in future? Whether there's been any view to sort of looking to acquire more AI intensive businesses within your overall capital deployment framework?

Yes. So actually, this is Jason. I think the it's interesting. We're getting quite a bit of activity using some of the frontier models out there, [ quad code codex ] cursor. And so we're not really seeing -- obviously, we're going through our planning this year, but it's creating a lot of opportunity to just do more with less. And so that's the -- that's our posture that our R&D envelope will probably stay the same, and we'll just get more out of it.

And when it comes to acquisitions, yes, we'll look for small tuck-ins that we can do. We just had a really small one for Aderant. And that's not necessarily buying any talent, but it's providing an AI solution that gets us faster to market. So we'll do those occasionally, I think. It's not going to be our primary way to get after AI faster, but certainly will be an option.

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

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

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

All right. Well, good morning, everybody. My name is Joe Ritchie. I co-run our industrials and materials research. I know odd to have me at the tech conference, but I do happen to cover a company that is mostly a software company called Roper. So we're excited to have Roper here today.

With me today on stage, we have President and CEO, Neil Hunn. We also have the CFO, Jason Conley. Guys, thanks so much for being here today.

Thanks for having us.

So why don't we kick it off, Neil. There's still probably some folks in the room that are still getting to know who Roper is. So why don't we start with the story? What are the basic tenets of the Roper business model? And how do you compound cash over time?

Sure. And thanks for having us. It's great to be here for all these years. So Roper, $8 billion business, principally vertical market software. We consider ourselves a software compounder. So we run a sort of dual threat offense. The dual threat offense is a sustainable and increasingly -- or always increasingly improving organic growth rate. I'll come back to that in a second. And then we run a very structured M&A motion.

So dual threat about cash flow generation on the organic side and capital deployment on the M&A side. On the cash flow generation side, it's, as I mentioned, $8 billion business. It's 29 P&Ls. So 29 businesses. That's a very decentralized org structure because we need each one of our businesses who are the leaders in their vertical market to compete and win in that market. It's a high-trust autonomous structure. We have 29 of everything, 29 leadership teams, 29 strategies, 29 ERP systems. They're organized around speed and the speed coefficient and accountability. And that generates the cash flow a little bit north of 30% free cash flow margins in the enterprise.

And then we have a very centralized capital deployment structure to go find the next best business to put into the portfolio or the next best tuck-in or bolt-on acquisition to integrate into one of our existing businesses. When you put it all together, we're a mid-teens cash flow compounder. We have aspirations to become a high-teens cash flow compounder or take our rate of double from every 5 years to every 4 years, plus or minus. So I know you're going to ask a lot of detailed double-click questions from there but...

Yes, let's double click. So look, that's great compounded growth over time. Just talk about why this has been the right strategy for your company, how the strategy has evolved. And then we'll get into -- like there's been a lot of -- there's been plenty of success stories, but maybe just give some examples so there's some tangibility to why this has worked.

So our history, I mean, we grew up as an industrial compounder, as you know...

That's why I'm here.

And we closed that chapter of the transformation in November of 2022 when we essentially divested 40% of our business in a series of transactions to become a -- principally a vertical market software business. But what's been consistent across Roper over the arc of the portfolio transformation is a decentralized structure, having businesses that are leaders in small markets, having durable sort of organic growth, having -- continuing to invest in the talent and the people and the skills and the capability to drive enhanced organic growth in the top line that leverages to the bottom line.

Also what has been consistent throughout is a very centralized capital deployment structure. So what's changed is the nature of the portfolio over time, not a lot of the underlying sort of capabilities but as we became definitively more growthy 4 or 5 -- 5 or 6 years ago is we built capabilities at the center to promulgate best practices around talent and team, how do you do strategy really well, how do you run a structured operating environment, increasingly, how you think about using principles of continuous improvement.

Now obviously, a lot around artificial intelligence. It's sort of the, if you will, the pattern recognition that we have at the center and then we promulgate those throughout. I'll ask Jason to add a couple -- some success stories. It's really about each business getting a little bit better. So we have a business in the legal vertical, the business of law. That Aderant has gone from sort of a mid-singles to a low double-digit organic growth business. Gross -- net retention has gone from the 103, 104 to the low 110s over time.

We have a business in the energy utility space, PowerPlan, very sort of esoteric accounting tax sort of software for a very complicated customer base. We underwrote that business when we bought it 7 or 8 years ago, -6 or 7 years ago -- 5 or 6 years ago, I should say, in the mid-single digits, it's very much a high single-digit organic growth business. Our freight matching business, DAT has been in the portfolio for almost 20 years. It was sort of a market -- a transportation market growth business. Now it's very much a high single, if not low double digits organic growth business. So it's about just slow, methodical, systematic improvements to market position, product capabilities, go-to-market capabilities that drive that result.

Yes. I think the other thing that's evolved, just to your earlier question, is on the M&A motion. And so we've invested in significant capabilities at the center to do a lot more sort of deeper dive market research. So we brought on some folks from the buy side. And that's just enhanced our capability to get more proactive, both on the platform side, but importantly, on the bolt-on part of our acquisition strategy.

So historically, where 10% of our M&A was towards bolt-ons. We just see a tremendous opportunity now that we have -- Neil talked about talent as one of the things that we've spent a lot of time investing in our field leadership. Now that we have the right talent, we have an inorganic strategy for all of our businesses. So most of them are now turned on for bolt-ons. So we would love for that to be 1/4 to 1/3 of our M&A going forward. It's only constrained by the ability of management, but we think there's a ton of opportunity to increase the organic growth of the platform.

That's super important. So we're not just doing a buy and build, our multiple arbitrage strategy is to sustainably have a higher growth set of platforms. And you're obviously going to get some synergies, back-office synergies from those deals, too. So they are our best-returning deals. So that's the other part that, I think, has been a significant shift over the last 5 years.

We're going to get to the bolt-on piece of the story in a minute. I do want to ask you like maybe in light of the Procare of the past year. When things potentially go sideways, what do you guys do? What's the governance process to course correct? What are some of the actions that you guys typically take?

Maybe I'll sort of set the table and let Jason sort of add some -- a lot of details and color. So as we deploy capital, we very much are slope investors, right? We spend a lot of our diligence sort of understanding market structure, competitive intensity and the slope of the growth rate. If there is a mistake that we make from time to time is we might get the intercept wrong, right?

So in the first year, we might undershoot our model for revenue by a little bit. The good news is we also probably overshoot sort of spending, so margins come in a little bit higher, so cash flow is closer to being on plan. So we spent a lot of time trying to get the root cause about why that's there. But rarely do we have a slope problem where if we underwrote 12% growth business, it's 7%.

And so in Procare's case, this is a short-term sort of intercept, if you will, operational challenge that we talked about in the last quarter. The slope, we underwrote to mid-teens growth, and we very much believe it's a mid-teens growth business. But why don't you get into some of the intercept problem?

Yes. I think -- so obviously, Procare was the first deal, and it's a tremendous business. They've -- one of the things we talked about when we first bought is we had to make some changes on the go-to-market leadership because part of the some of this was going down market and competing there, and we are now having success there.

We had our best bookings in their company's history in the second quarter, but it took a while to ramp that team. So that was sort of one factor. The other is just we have -- now we have a value creation team as myself, Janet Glazer who heads up M&A; Shannon O'Callaghan. So we are super focused on whether management is going to be able to hit the expectations. So we're having just much more tighter governance around that. And that really starts with diligence. So just our signals are there, and we do countermeasures, probably much more rapidly than we did before. And so since then, Transact, our CentralReach business, Subsplash, we're just -- our process is super refined now. And so we feel really good about where we're headed with that.

Yes. And so maybe just digging a little bit deeper into the governance process. I know that you have business-specific EBITDA growth metrics. Talk a little bit about how you ensure that you're hitting those metrics. And again, we talked a little bit about course correcting at times, but you've had a good repeatable process and good track record over the last 2 decades. So just -- maybe just for the benefit of...

I think governance is a -- a lot of people like, what is government. There's like this ethereal, what is it? So I'll try to put the subcomponents to it. First is, I think very important to our governance structure are the leadership -- the innate leadership attributes of the people we have running our businesses. And so we select people that are hypercompetitive, that are insatiable, curious learners that think super long term and can bring that into the urgent today and then are just totally geeked out to build things, right?

So we -- those are -- they're either in your DNA or they're not. And so when you have a competitive builder, learner, long-term-oriented leader that's the beginning of the governance system. The second thing is, we couple that with an incentive system that is totally aligned with growth, organic growth improvement, shareholder value creation. In our case, it's very simple. It's based on organic EBITDA growth. Now that might sound like a very simple idea, and it is, but we have -- there's no compensation in Roper tied to budgets or plans, which is unique to most enterprises.

In our case, if we -- and I think this goes to more of a cultural thing than anything else in that if we did provide compensation based on budgets, then every year, we -- all 29 leaders would have an incentive to lie to us, and we'd have a filter not to believe anything they say. And so in that case, everything is construed around sort of compensation. In this case, every company is on a curve, the curve has not changed, a growth curve. And if you're able to get sort of into the money and you're earning 150% or 175% of your target every year, year in, year out because you're above the high end of your growth curve that's awesome and are not going to move the curve.

So the incentives are totally aligned. And then as it comes to these new sorts of either early -- maturing leaders or higher growth platform businesses or bolt-ons, now we have very prescriptive value creation drivers that are identified at the point of acquisition. So in the first 12 to 24 months, there's very discrete value creation levers that are being pulled, and we have much tighter accountability and governance around that. So it's layers upon layers upon layers and the execution has followed as a result.

Got it. Maybe we'll just touch on the maturing leaders and why that's the correct strategy. It seems like a pretty good unlock, both top line and bottom line, but maybe walk through your thinking.

Yes. It goes back to the opening statement where we aspire to go from the mid-teens cash flow compounding ZIP code to the high teens. And so we're hunting for 300 or 400 basis points of cash flow compounding, which we think then will accrue into TSR and shareholder compounding. And we looked at all the options available to us, the full menu of strategic options, we settled on 2. One is improving the organic growth rate of the portfolio by 100, 150, 200 basis points.

And then I'll simplify it by saying capture more value from our capital deployment sort of strategy. And so on the maturing leader side, so on that branch of the tree, we found that there is -- versus our historical legacy, we'll call it business as usual, buying near perfected businesses at [ garp-ish ] sort of prices, there's between -- there's 30% to 40% more cash flow that we get in year 5, deploying a bolt-on strategy or buying a business that's growing a bit faster, has margin improvement opportunity than there is BAU. So we get a couple of hundred basis points of cash flow compounding in the algorithm by running that strategy.

And it's as Jason said, 1/4 to 1/3 will be tuck-ins or bolt-ons in the model and the balance will be these faster-growing businesses. Subsplash would be a good example, our most recent acquisition of church management software space. It's a high teens organic growth business and its margin profile will go from the high 20s to the low 40s over a 3- to 5-year period of time as there's some very discrete cost actions that we can sort of levers we can pull as well as it's going to scale into its revenue base, and it will drive sort of the double whammy or double benefit of not just top line but bottom line growth, so you have mid- to high 20% cash flow EBITDA growth in that business. So there's a lot more value creation there than there is from the business as usual strategy.

I think what's important to highlight though, these businesses are still in niches, and we have a clear understanding of where -- the kind of how the market is going to perform, right? That's usually still like 2 or 3 players in the space, and there's no -- it's too small for sort of larger player disintermediation or interest in the market.

So I think all the patterns of the things we bought for the last 15 years are the same. It's just earlier. And we have -- again, we've seen the story book long enough to know that there's not any sort of risk on the horizon. So we're not underwriting sort of market risk. We just think there's an opportunity. And most of the time, it's the fact that whatever that industry has not digitized yet. So we have white space to digitize otherwise pen and paper type solutions that the customers are sort of behind the technology curve.

Got it. No, that makes a lot of sense. You talked a little bit about 150 to 200 basis points of potential organic growth expansion versus your historical, call it, 6% to 7%. Can you do that with the current portfolio? So you talked a little bit about getting there with additions. Are there maybe some subtractions as well to help try to drive that growth rate?