filings.toolsItem 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Roper Technologies, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Roper Technologies, Inc. and its subsidiaries (the “Company”) as of December 31, 2023 and 2022, and the related consolidated statements of earnings, of comprehensive income, of stockholders’ equity, and of cash flows for each of the three years in the period ended December 31, 2023, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
As described in Management’s Report on Internal Control over Financial Reporting, management has excluded four entities from its assessment of internal control over financial reporting as of December 31, 2023 because they were acquired by the Company in purchase business combinations during 2023. We have also excluded these four entities from our audit of internal control over financial reporting. These entities, each of which is wholly-owned, comprised, in the aggregate, total assets and total revenues excluded from management’s assessment and our audit of internal control over financial reporting of less than 1% and approximately 2% of consolidated total assets and consolidated total revenues, respectively, as of and for the year ended December 31, 2023.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Acquisition of Syntellis Parent, LLC – Valuation of Amortizable Customer Relationships
As described in Notes 1 and 2 to the consolidated financial statements, the Company acquired the outstanding membership interests of Syntellis Parent, LLC, the parent company of Syntellis Performance Solutions, LLC, on August 7, 2023, for a purchase price of $1,381 million. The acquired amortizable intangible assets include customer relationships of $529 million. The fair value for customer relationships is determined as of the acquisition date using the excess earnings method. Under this methodology, the fair value is determined based on the estimated future after-tax cash flows arising from the acquired customer relationships over their estimated lives after considering customer attrition and contributory asset charges. The assumptions that have the most significant effect on the fair value calculations are the customer attrition rates, projected customer revenue growth rates, margins, contributory asset charges, and discount rates.
The principal considerations for our determination that performing procedures relating to the valuation of amortizable customer relationships in connection with the acquisition of Syntellis Parent, LLC is a critical audit matter are (i) the significant judgment by management when developing the fair value estimate of the amortizable customer relationships; (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to the customer attrition rate, projected customer revenue growth rates, margins, contributory asset charges, and discount rate; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the acquisition accounting, including controls over management’s valuation of the acquired amortizable customer relationships and the development of the significant assumptions used by management related to the customer attrition rate, projected customer revenue growth rates, margins, contributory asset charges, and discount rate. These procedures also included, among others (i) reading the purchase agreement; (ii) testing management’s process for developing the fair value estimate of the amortizable customer relationships; (iii) evaluating the appropriateness of the excess earnings method; (iv) testing the completeness and accuracy of the underlying data used in the excess earnings method; and (v) evaluating the reasonableness of the significant assumptions used by management related to the customer attrition rate, projected customer revenue growth rates, margins, contributory asset charges, and discount rate. Evaluating management’s significant assumptions related to projected customer revenue growth rates and margins involved evaluating whether the assumptions used by management were reasonable considering (i) the current and historical performance of the acquired business; (ii) the consistency with external industry and market data; and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in evaluating (i) the appropriateness of the Company’s excess earnings method and (ii) the reasonableness of significant assumptions related to the customer attrition rate, contributory asset charges, and discount rate.
/s/ PricewaterhouseCoopers LLP
Tampa, Florida
February 22, 2024
We have served as the Company’s auditor since 2002.
ROPER TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(in millions, except per share data)
| As of December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Assets | |||||||||||
| Cash and cash equivalents | $ | 214.3 | $ | 792.8 | |||||||
| Accounts receivable, net | 829.9 | 724.5 | |||||||||
| Inventories, net | 118.6 | 111.3 | |||||||||
| Income taxes receivable | 47.7 | 61.0 | |||||||||
| Unbilled receivables | 106.4 | 91.5 | |||||||||
| Other current assets | 164.5 | 151.3 | |||||||||
| Total current assets | 1,481.4 | 1,932.4 | |||||||||
| Property, plant and equipment, net | 119.6 | 85.3 | |||||||||
| Goodwill | 17,118.8 | 15,946.1 | |||||||||
| Other intangible assets, net | 8,212.1 | 8,030.7 | |||||||||
| Deferred taxes | 32.2 | 55.9 | |||||||||
| Equity investments | 795.7 | 535.0 | |||||||||
| Other assets | 407.7 | 395.4 | |||||||||
| Total assets | $ | 28,167.5 | $ | 26,980.8 | |||||||
| Liabilities and Stockholders’ Equity | |||||||||||
| Accounts payable | $ | 143.0 | $ | 122.6 | |||||||
| Accrued compensation | 250.0 | 228.8 | |||||||||
| Deferred revenue | 1,583.8 | 1,370.7 | |||||||||
| Other accrued liabilities | 446.5 | 454.6 | |||||||||
| Income taxes payable | 40.4 | 16.6 | |||||||||
| Current portion of long-term debt, net | 499.5 | 699.2 | |||||||||
| Total current liabilities | 2,963.2 | 2,892.5 | |||||||||
| Long-term debt, net of current portion | 5,830.6 | 5,962.5 | |||||||||
| Deferred taxes | 1,513.1 | 1,676.8 | |||||||||
| Other liabilities | 415.8 | 411.2 | |||||||||
| Total liabilities | 10,722.7 | 10,943.0 | |||||||||
| Commitments and contingencies (Note 13) | |||||||||||
| Stockholders’ equity: | |||||||||||
| Preferred stock, $0.01 par value per share; 1.0 shares authorized; none outstanding | — | — | |||||||||
| Common stock, $0.01 par value per share; 350.0 shares authorized; 108.6 shares issued and 106.9 outstanding at December 31, 2023 and 107.9 shares issued and 106.1 outstanding at December 31, 2022 | 1.1 | 1.1 | |||||||||
| Additional paid-in capital | 2,767.0 | 2,510.2 | |||||||||
| Retained earnings | 14,816.3 | 13,730.7 | |||||||||
| Accumulated other comprehensive loss | (122.8) | (187.0) | |||||||||
| Treasury stock, 1.7 shares at December 31, 2023 and 1.8 shares at December 31, 2022 | (16.8) | (17.2) | |||||||||
| Total stockholders’ equity | 17,444.8 | 16,037.8 | |||||||||
| Total liabilities and stockholders’ equity | $ | 28,167.5 | $ | 26,980.8 |
See accompanying notes to Consolidated Financial Statements.
ROPER TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(Dollar and share amounts in millions, except per share data)
| Year ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Net revenues | $ | 6,177.8 | $ | 5,371.8 | $ | 4,833.8 | |||||||||||
| Cost of sales | 1,870.6 | 1,619.0 | 1,426.2 | ||||||||||||||
| Gross profit | 4,307.2 | 3,752.8 | 3,407.6 | ||||||||||||||
| Selling, general and administrative expenses | 2,562.0 | 2,228.3 | 2,072.0 | ||||||||||||||
| Impairment of intangible assets | — | — | 94.4 | ||||||||||||||
| Income from operations | 1,745.2 | 1,524.5 | 1,241.2 | ||||||||||||||
| Interest expense, net | 164.7 | 192.4 | 233.9 | ||||||||||||||
| Equity investments activity, net | 165.4 | — | — | ||||||||||||||
| Other income (expense), net | (2.8) | (50.1) | 24.6 | ||||||||||||||
| Earnings before income taxes | 1,743.1 | 1,282.0 | 1,031.9 | ||||||||||||||
| Income taxes | 374.7 | 296.4 | 226.6 | ||||||||||||||
| Net earnings from continuing operations | 1,368.4 | 985.6 | 805.3 | ||||||||||||||
| Earnings (loss) from discontinued operations, net of tax | (4.1) | 202.8 | 291.4 | ||||||||||||||
| Gain on disposition of discontinued operations, net of tax | 19.9 | 3,356.3 | 55.9 | ||||||||||||||
| Net earnings from discontinued operations | 15.8 | 3,559.1 | 347.3 | ||||||||||||||
| Net earnings | $ | 1,384.2 | $ | 4,544.7 | $ | 1,152.6 | |||||||||||
| Net earnings per share from continuing operations: | |||||||||||||||||
| Basic | $ | 12.83 | $ | 9.31 | $ | 7.65 | |||||||||||
| Diluted | $ | 12.74 | $ | 9.23 | $ | 7.56 | |||||||||||
| Net earnings per share from discontinued operations: | |||||||||||||||||
| Basic | $ | 0.15 | $ | 33.61 | $ | 3.30 | |||||||||||
| Diluted | $ | 0.15 | $ | 33.32 | $ | 3.26 | |||||||||||
| Net earnings per share: | |||||||||||||||||
| Basic | $ | 12.98 | $ | 42.92 | $ | 10.95 | |||||||||||
| Diluted | $ | 12.89 | $ | 42.55 | $ | 10.82 | |||||||||||
| Weighted average common shares outstanding: | |||||||||||||||||
| Basic | 106.6 | 105.9 | 105.3 | ||||||||||||||
| Diluted | 107.4 | 106.8 | 106.5 |
See accompanying notes to Consolidated Financial Statements.
ROPER TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)
| Year ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Net earnings | $ | 1,384.2 | $ | 4,544.7 | $ | 1,152.6 | |||||||||||
| Other comprehensive income (loss), net of tax: | |||||||||||||||||
| Foreign currency translation adjustments (1) | 64.2 | (3.9) | (36.1) | ||||||||||||||
| Total other comprehensive income (loss), net of tax | 64.2 | (3.9) | (36.1) | ||||||||||||||
| Comprehensive income | $ | 1,448.4 | $ | 4,540.8 | $ | 1,116.5 |
(1) In connection with the Indicor Transaction, we reclassified $142.6 of foreign currency translation adjustments to “Gain on disposition of discontinued operations, net of tax” during the year ended December 31, 2022.
See accompanying notes to Consolidated Financial Statements.
ROPER TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in millions, except per share data)
| Common stock | |||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Additional paid-in capital | Retained earnings | Accumulated other comprehensive loss | Treasury stock | Total stockholders’ equity | |||||||||||||||||||||||||||||||||||
| Balances at December 31, 2020 | 104.9 | $ | 1.1 | $ | 2,097.5 | $ | 8,546.2 | $ | (147.0) | $ | (18.0) | $ | 10,479.8 | ||||||||||||||||||||||||||||
| Net earnings | — | — | — | 1,152.6 | — | — | 1,152.6 | ||||||||||||||||||||||||||||||||||
| Stock option exercises | 0.5 | — | 104.7 | — | — | — | 104.7 | ||||||||||||||||||||||||||||||||||
| Cash settlement of share-based awards in connection with disposition of discontinued operations | — | — | (6.7) | — | — | — | (6.7) | ||||||||||||||||||||||||||||||||||
| Treasury stock sold | — | — | 14.7 | — | — | 0.4 | 15.1 | ||||||||||||||||||||||||||||||||||
| Currency translation adjustments, including tax benefit of $6.2 | — | — | — | — | (36.1) | — | (36.1) | ||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | 138.0 | — | — | — | 138.0 | ||||||||||||||||||||||||||||||||||
| Restricted stock activity | 0.1 | — | (40.4) | — | — | — | (40.4) | ||||||||||||||||||||||||||||||||||
| Dividends declared ($2.31 per share) | — | — | — | (243.2) | — | — | (243.2) | ||||||||||||||||||||||||||||||||||
| Balances at December 31, 2021 | 105.5 | $ | 1.1 | $ | 2,307.8 | $ | 9,455.6 | $ | (183.1) | $ | (17.6) | $ | 11,563.8 | ||||||||||||||||||||||||||||
| Net earnings | — | — | — | 4,544.7 | — | — | 4,544.7 | ||||||||||||||||||||||||||||||||||
| Stock option exercises | 0.5 | — | 110.0 | — | — | — | 110.0 | ||||||||||||||||||||||||||||||||||
| Cash settlement of share-based awards in connection with disposition of discontinued operations | — | — | (11.1) | — | — | — | (11.1) | ||||||||||||||||||||||||||||||||||
| Treasury stock sold | — | — | 13.9 | — | — | 0.4 | 14.3 | ||||||||||||||||||||||||||||||||||
| Currency translation adjustments, including tax benefit of $41.9 | — | — | — | — | (3.9) | — | (3.9) | ||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | 131.4 | — | — | — | 131.4 | ||||||||||||||||||||||||||||||||||
| Restricted stock activity | 0.1 | — | (41.8) | — | — | — | (41.8) | ||||||||||||||||||||||||||||||||||
| Dividends declared ($2.54 per share) | — | — | — | (269.6) | — | — | (269.6) | ||||||||||||||||||||||||||||||||||
| Balances at December 31, 2022 | 106.1 | $ | 1.1 | $ | 2,510.2 | $ | 13,730.7 | $ | (187.0) | $ | (17.2) | $ | 16,037.8 | ||||||||||||||||||||||||||||
| Net earnings | — | — | — | 1,384.2 | — | — | 1,384.2 | ||||||||||||||||||||||||||||||||||
| Stock option exercises | 0.6 | — | 146.5 | — | — | — | 146.5 | ||||||||||||||||||||||||||||||||||
| Treasury stock sold | — | — | 15.1 | — | — | 0.4 | 15.5 | ||||||||||||||||||||||||||||||||||
| Currency translation adjustments, including tax provision of $10.3 | — | — | — | — | 64.2 | — | 64.2 | ||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | 126.5 | — | — | — | 126.5 | ||||||||||||||||||||||||||||||||||
| Restricted stock activity | 0.2 | — | (31.3) | — | — | — | (31.3) | ||||||||||||||||||||||||||||||||||
| Dividends declared ($2.80 per share) | — | — | — | (298.6) | — | — | (298.6) | ||||||||||||||||||||||||||||||||||
| Balances at December 31, 2023 | 106.9 | $ | 1.1 | $ | 2,767.0 | $ | 14,816.3 | $ | (122.8) | $ | (16.8) | $ | 17,444.8 |
See accompanying notes to Consolidated Financial Statements.
ROPER TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
| Year ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Cash flows from operating activities: | |||||||||||||||||
| Net earnings from continuing operations | $ | 1,368.4 | $ | 985.6 | $ | 805.3 | |||||||||||
| Adjustments to reconcile net earnings from continuing operations to cash flows from operating activities: | |||||||||||||||||
| Depreciation and amortization of property, plant and equipment | 35.4 | 37.3 | 44.0 | ||||||||||||||
| Amortization of intangible assets | 719.8 | 612.8 | 571.9 | ||||||||||||||
| Amortization of deferred financing costs | 9.9 | 11.8 | 13.5 | ||||||||||||||
| Non-cash stock compensation | 123.5 | 118.5 | 123.0 | ||||||||||||||
| Equity investments activity, net | (165.4) | — | — | ||||||||||||||
| Impairment of intangible assets | — | — | 94.4 | ||||||||||||||
| Gain on disposal of assets, net of associated income tax | — | — | (21.6) | ||||||||||||||
| Income tax provision, excluding tax associated with gain on disposal of assets | 374.7 | 296.4 | 221.1 | ||||||||||||||
| Changes in operating assets and liabilities, net of acquired businesses: | |||||||||||||||||
| Accounts receivable | (50.2) | 2.5 | (73.7) | ||||||||||||||
| Unbilled receivables | (7.5) | (11.1) | (16.4) | ||||||||||||||
| Inventories | (6.6) | (43.1) | (0.3) | ||||||||||||||
| Accounts payable | 18.2 | 21.3 | 16.0 | ||||||||||||||
| Other accrued liabilities | (1.0) | (7.6) | 27.0 | ||||||||||||||
| Deferred revenue | 93.9 | 52.9 | 162.2 | ||||||||||||||
| Cash taxes paid for gain on disposal of businesses | (32.5) | (953.8) | — | ||||||||||||||
| Cash income taxes paid, excluding tax associated with gain on disposal of businesses and assets | (423.4) | (498.9) | (273.9) | ||||||||||||||
| Other, net | (19.8) | (18.0) | (36.7) | ||||||||||||||
| Cash provided by operating activities from continuing operations | 2,037.4 | 606.6 | 1,655.8 | ||||||||||||||
| Cash provided by (used in) operating activities from discontinued operations | (2.3) | 128.0 | 356.1 | ||||||||||||||
| Cash provided by operating activities | 2,035.1 | 734.6 | 2,011.9 | ||||||||||||||
| Cash flows from (used in) investing activities: | |||||||||||||||||
| Acquisitions of businesses, net of cash acquired | (2,052.7) | (4,280.1) | (217.0) | ||||||||||||||
| Capital expenditures | (68.0) | (40.1) | (28.5) | ||||||||||||||
| Capitalized software expenditures | (40.0) | (30.2) | (29.7) | ||||||||||||||
| Distributions from equity investment | 32.5 | — | — | ||||||||||||||
| Proceeds from sale of assets | — | — | 27.1 | ||||||||||||||
| Other, net | (0.1) | (1.4) | (1.1) | ||||||||||||||
| Cash used in investing activities from continuing operations | (2,128.3) | (4,351.8) | (249.2) | ||||||||||||||
| Proceeds from disposition of discontinued operations | 2.0 | 5,561.8 | 115.6 | ||||||||||||||
| Cash used in investing activities from discontinued operations | — | (0.5) | (9.3) | ||||||||||||||
| Cash provided by (used in) investing activities | (2,126.3) | 1,209.5 | (142.9) | ||||||||||||||
| Cash flows from (used in) financing activities: | |||||||||||||||||
| Payments of senior notes | (700.0) | (800.0) | (500.0) | ||||||||||||||
| Borrowings (payments) under revolving line of credit, net | 360.0 | (470.0) | (1,150.0) | ||||||||||||||
| Debt issuance costs | — | (3.9) | — | ||||||||||||||
| Cash dividends to stockholders | (290.2) | (262.3) | (236.4) | ||||||||||||||
| Treasury stock sales | 15.5 | 14.3 | 15.1 | ||||||||||||||
| Proceeds from stock-based compensation, net | 115.2 | 68.2 | 64.3 | ||||||||||||||
| Other, net | — | (0.2) | (0.1) | ||||||||||||||
| Cash used in financing activities from continuing operations | (499.5) | (1,453.9) | (1,807.1) | ||||||||||||||
| Cash used in financing activities from discontinued operations | — | (11.4) | (6.4) | ||||||||||||||
| Cash used in financing activities | (499.5) | (1,465.3) | (1,813.5) | ||||||||||||||
| (Continued) | |||||||||||||||||
ROPER TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(in millions)
| Year ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Effect of exchange rate changes on cash | 12.2 | (37.5) | (12.3) | ||||||||||||||
| Net increase (decrease) in cash and cash equivalents | (578.5) | 441.3 | 43.2 | ||||||||||||||
| Cash and cash equivalents, beginning of year | 792.8 | 351.5 | 308.3 | ||||||||||||||
| Cash and cash equivalents, end of year | $ | 214.3 | $ | 792.8 | $ | 351.5 | |||||||||||
| Supplemental disclosures: | |||||||||||||||||
| Cash paid for: | |||||||||||||||||
| Interest | $ | 201.9 | $ | 206.5 | $ | 222.2 | |||||||||||
| Non-cash investing activities: | |||||||||||||||||
| Net assets of businesses acquired: | |||||||||||||||||
| Fair value of assets, including goodwill | $ | 2,235.1 | $ | 4,891.8 | $ | 249.8 | |||||||||||
| Liabilities assumed | (182.4) | (611.7) | (32.8) | ||||||||||||||
| Cash paid, net of cash acquired | $ | 2,052.7 | $ | 4,280.1 | $ | 217.0 |
See accompanying notes to Consolidated Financial Statements.
ROPER TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2023, 2022, and 2021
(Dollar and share amounts in millions unless specified, except per share data)
(1) Summary of Accounting Policies
Basis of Presentation – These financial statements present consolidated information for Roper Technologies, Inc. and its subsidiaries (“Roper,” the “Company,” “we,” “our,” or “us”). All significant intercompany accounts and transactions have been eliminated. Certain prior period amounts have been reclassified to conform to current period presentation.
Nature of the Business – Roper is a diversified technology company. The Company operates market leading businesses that design and develop vertical software and technology enabled products for a variety of defensible niche markets.
Discontinued Operations – On November 22, 2022, the Company completed the divestiture of a majority 51% equity stake in its industrial businesses, including its entire historical Process Technologies reportable segment and the industrial businesses within its historical Measurement & Analytical Solutions reportable segment, to Clayton, Dubilier & Rice, LLC (“CD&R”). The businesses included in this transaction were Alpha, AMOT, CCC, Cornell, Dynisco, FTI, Hansen, Hardy, Logitech, Metrix, PAC, Roper Pump, Struers, Technolog, Uson, and Viatran (collectively “Indicor”). Following the sale of the majority stake, the Company retained a minority equity interest in Indicor. This transaction is referred to herein as the “Indicor Transaction.” See Note 10 for additional information on this minority equity interest.
During 2021, the Company signed definitive agreements to divest its TransCore, Zetec, and CIVCO Radiotherapy businesses, (“2021 Divestitures”). Roper completed the 2021 Divestitures by the end of the first quarter of 2022.
The financial results for Indicor and the 2021 Divestitures are presented as discontinued operations for all periods presented. Unless otherwise noted, discussion within these Notes to Consolidated Financial Statements relates to continuing operations. Refer to Note 3 for additional information on discontinued operations.
Recent Accounting Pronouncements – The Financial Accounting Standards Board (“FASB”) establishes changes to accounting principles under GAAP in the form of accounting standards updates (“ASUs”) to the FASB’s Accounting Standards Codification (“ASC”). The Company considers the applicability and impact of all ASUs. Any recent ASUs not listed below were assessed and either determined to be not applicable or are expected to have an immaterial impact on the Company’s results of operations, financial position, or cash flows.
Recently Adopted Accounting Pronouncements
In October 2021, the FASB issued an update to improve the accounting for acquired revenue contracts with customers in a business combination by promoting consistency in the recognition of an acquired contract liability and the subsequent revenue recognized by the acquirer. The update is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, with early adoption permitted. The Company early-adopted this update in the fourth quarter of 2021. This update did not have a material impact on the acquisitions completed in the year of adoption.
Recently Released Accounting Pronouncements
In November 2023, the FASB issued Accounting Standards Update No. 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures” (ASU 2023-07), which expands reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. This guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the potential impact of adopting this new guidance on its Consolidated Financial Statements and related disclosures.
In December 2023, the FASB issued Accounting Standards Update No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” (ASU 2023-09), which expands income tax disclosure requirements, including disaggregation of rate reconciliation table categories, disaggregation of earnings before income taxes and income tax expense information, and disaggregation of income taxes paid information, among other changes. This guidance is effective for annual periods beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the potential impact of adopting this new guidance on its Consolidated Financial Statements and related disclosures.
Significant Accounting Policies
Cash and Cash Equivalents – Roper considers highly liquid financial instruments with remaining maturities at acquisition of three months or less to be cash equivalents. Roper had $0.4 and $432.9 of cash equivalents at December 31, 2023 and 2022, respectively.
Contingencies – Management continually assesses the probability of any adverse judgments or outcomes to its potential contingencies. Disclosure of the contingency is made if there is at least a reasonable possibility that a loss or an additional loss may have been incurred. In the assessment of contingencies as of December 31, 2023, management concluded that there were no matters for which there was a reasonable possibility of a material loss. See Note 13 for additional information.
Earnings per Share – Basic earnings per share was calculated using net earnings and the weighted average number of shares of common stock outstanding during the respective year. Diluted earnings per share was calculated using net earnings and the weighted average number of shares of common stock and potential common stock associated with stock options outstanding during the respective year.
The effects of potential common stock were determined using the treasury stock method:
| Year ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Basic weighted average shares outstanding | 106.6 | 105.9 | 105.3 | ||||||||||||||
| Effect of potential common stock: | |||||||||||||||||
| Common stock awards | 0.8 | 0.9 | 1.2 | ||||||||||||||
| Diluted weighted average shares outstanding | 107.4 | 106.8 | 106.5 |
For the years ended December 31, 2023, 2022, and 2021, there were 0.726, 0.834, and 0.521 outstanding stock options, respectively, that were not included in the determination of diluted earnings per share because doing so would have been antidilutive.
Equity Investments – As of December 31, 2023 and 2022, the Company held a 47.3% and 49.0% minority equity interest in Indicor, respectively. This equity interest provides us with the ability to exercise significant influence, but not control, over the investee. We elected to apply the fair value option as we believe this is the most reasonable method to value this equity investment. The fair value of our equity investment in Indicor is updated on a quarterly basis and its impact is reported as a component of “Equity investments activity, net” in our Consolidated Statement of Earnings. See Note 10 for additional information on this investment.
In 2023, the Company acquired an 18.2% limited partnership minority interest in CI Ultimate Holdings, L.P., the parent entity of Certinia Inc., which provides us with the ability to exercise significant influence, but not control, over the investee. This equity investment is accounted for under the equity method of accounting whereby our proportionate share of earnings or loss associated with the investment is reported as a component of “Equity investments activity, net” in our Consolidated Statement of Earnings with a corresponding change in the balance of our equity investment. Our proportionate share of loss associated with our investment in Certinia was $5.2 for the year ended December 31, 2023. The balance of our equity investment in Certinia, reported as a component of “Equity investments” in our Consolidated Balance Sheet, was $119.8 as of December 31, 2023.
Estimates – The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities. Actual results could differ from those estimates.
Foreign Currency Translation and Transactions – Assets and liabilities of subsidiaries whose functional currency is not the U.S. dollar were translated at the exchange rate in effect at the balance sheet date, and revenues and expenses were translated at average exchange rates for the period in which those entities were included in Roper’s financial results. Translation adjustments are reflected within other comprehensive income. Foreign currency transaction gains and losses are recorded in our Consolidated Statements of Earnings within “Other income (expense), net.” Foreign currency transaction gains/(losses) were not material for any periods presented.
Goodwill and Other Intangibles – Roper accounts for goodwill in a purchase business combination as the excess of the cost over the estimated fair value of net assets acquired. Business combinations can also result in other intangible assets being recognized. Amortization of intangible assets, if applicable, occurs over their estimated useful lives. Goodwill, which is not amortized, is tested for impairment on an annual basis (or an interim basis if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value). When testing goodwill for impairment, the Company has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the estimated fair value of a reporting unit is less than its carrying amount. If the Company elects to perform a qualitative assessment and determines that an impairment is more likely than not, then performance of the quantitative impairment test is required. The quantitative process utilizes both an income approach (discounted cash flow) and a market approach (consisting of a comparable public company earnings multiples methodology) to estimate the fair value of a reporting unit. To determine the reasonableness of the estimated fair values, the Company reviews the assumptions to ensure that neither the income approach nor the market approach provides significantly different valuations. If the estimated fair value exceeds the carrying value, no further work is required and no impairment loss is recognized. If the carrying value exceeds the estimated fair value, a non-cash impairment loss is recognized in the amount of that excess.
When performing the quantitative assessment, key assumptions used in the income and market methodologies are updated when the analysis is performed for each reporting unit. The assumptions that have the most significant effect on the fair value calculations are the projected revenue growth rates, future operating margins, discount rates, terminal values, and earnings multiples. While the Company uses reasonable and timely information to prepare its discounted cash flow analysis, actual future cash flows or market conditions could differ significantly resulting in future impairment charges related to recorded goodwill balances.
As of the annual impairment test, Roper has 22 reporting units with individual goodwill amounts ranging from $17.5 to $3,363.6. In 2023, the Company performed its annual impairment test in the fourth quarter for all reporting units. The Company conducted its analysis qualitatively and assessed whether it was more likely than not that the respective fair value of these reporting units was less than the carrying amount. The Company determined that impairment of goodwill was not likely in any of its reporting units and thus was not required to perform a quantitative analysis for these reporting units.
Recently acquired reporting units generally represent a higher inherent risk of impairment, which typically decreases as the businesses are integrated into the enterprise. Negative industry or economic trends, disruptions to its business, actual results significantly below expected results, unexpected significant changes or planned changes in the use of the assets, divestitures, and market capitalization declines may have a negative effect on the fair value of Roper’s reporting units.
The following events or circumstances, although not comprehensive, would be considered to determine whether interim testing of goodwill would be required:
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a significant adverse change in legal factors or in the business climate;
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an adverse action or assessment by a regulator;
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unanticipated competition;
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a loss of key personnel;
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a more-likely-than-not expectation that a reporting unit or a significant portion of a reporting unit will be sold or otherwise disposed of;
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the testing for recoverability of a significant asset group within a reporting unit; and
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recognition of a goodwill impairment loss in the financial statements of a subsidiary that is a component of a reporting unit.
Business combinations can also result in other intangible assets being recognized. Amortization of intangible assets, if applicable, occurs over their estimated useful lives. Trade names that are determined to have indefinite useful economic lives are not amortized, but are separately tested for impairment during the fourth quarter of the fiscal year or on an interim basis if an event occurs that indicates the fair value is more likely than not below the carrying value. Roper first qualitatively assesses whether the existence of events or circumstances leads to a determination that it is more likely than not that the estimated fair value of an indefinite-lived trade name is less than its carrying amount. If necessary, Roper conducts a quantitative review using the relief-from-royalty method. This methodology assumes that, in lieu of ownership, a third party would be willing to pay a royalty in order to exploit the related benefits of these assets. To the extent the Company determines a fair value, the inputs used represent a Level 3 fair value measurement in the FASB fair value hierarchy given that the inputs are unobservable. The assumptions that have the most significant effect on the fair value calculations are the royalty rates, projected revenue growth rates, discount rates, and terminal values. Each royalty rate is determined based on the profitability of the trade name to which it relates and observed market royalty rates. Revenue growth rates are determined after considering current and future economic
conditions, recent sales trends, discussions with customers, planned timing of new product launches, or other variables. Trade names resulting from recent acquisitions generally represent the highest risk of impairment, which typically decreases as the businesses are integrated into Roper.
During the fourth quarter of 2021, the Company determined that the use of the Sunquest trade name would be discontinued given the strategic action to merge the Sunquest business into our Clinisys business, both of which are reported in our Application Software reportable segment. Considering the planned merger and updated market comparisons, the royalty rate utilized in the quantitative impairment assessment of the trade name was 0.5% as compared to a royalty rate of 3.5% used in the prior year. The royalty rate reduction was the significant assumption that resulted in a non-cash impairment charge of $94.4 recognized as “Impairment of intangible assets” within our Consolidated Statement of Earnings.
The assessment of fair value for impairment purposes requires significant judgments to be made by management. Although forecasts are based on assumptions that are considered reasonable by management and consistent with the plans and estimates management uses to operate the underlying businesses, there is significant judgment in estimating future operating results. Changes in estimates or the application of alternative assumptions could produce significantly different results.
The most significant identifiable intangible assets with definite useful economic lives recognized from our acquisitions are customer relationships. The fair value for customer relationships is determined as of the acquisition date using the excess earnings method. Under this methodology the fair value is determined based on the estimated future after-tax cash flows arising from the acquired customer relationships over their estimated lives after considering customer attrition and contributory asset charges. The assumptions that have the most significant effect on the fair value calculations are the customer attrition rates, projected customer revenue growth rates, margins, contributory asset charges, and discount rates. When testing customer relationship intangible assets for potential impairment, management considers historical customer attrition rates and projected revenues and profitability related to customers that existed at acquisition. In evaluating the amortizable life for customer relationship intangible assets, management considers historical customer attrition patterns.
Roper evaluates whether there has been an impairment of identifiable intangible assets with definite useful economic lives, or of the remaining life of such assets, when certain indicators of impairment are present. In the event that facts and circumstances indicate that the cost or remaining period of amortization of any asset may be impaired, an evaluation of recoverability would be performed. If an evaluation is required, the estimated future gross, undiscounted cash flows associated with the asset would be compared to the asset’s carrying amount to determine if a write-down to fair value or a revision in the remaining amortization period is required.
Impairment of Long-Lived Assets – The Company determines whether there has been an impairment of long-lived assets, excluding goodwill and other intangible assets, when certain indicators of impairment are present. In the event that facts and circumstances indicate that the cost or life of any long-lived assets may be impaired, an evaluation of recoverability would be performed. If an evaluation is required, the estimated future gross, undiscounted cash flows associated with the asset would be compared to the asset’s carrying amount to determine if a write-down to fair value or a revision to the remaining life is required. Future adverse changes in market conditions or poor operating results of underlying long-lived assets could result in losses or an inability to recover the carrying value of the long-lived assets that may not be reflected in the assets’ current carrying value, thereby possibly requiring an impairment charge or acceleration of depreciation or amortization expense in the future.
Income Taxes – The Company recognizes in the Consolidated Financial Statements only those tax positions determined to be “more likely than not” of being sustained upon examination based on the technical merits of the positions. Interest and penalties related to unrecognized tax benefits are classified as a component of income tax expense.
The Company records a valuation allowance to reduce its deferred tax assets if, based on the weight of available evidence, both positive and negative, for each respective tax jurisdiction, it is more likely than not that some portion or all of such deferred tax assets will not be realized. Available evidence which is considered in determining the amount of valuation allowance required includes, but is not limited to, the Company’s estimate of future taxable income and any applicable tax planning strategies.
Certain assets and liabilities have different bases for financial reporting and income tax purposes. Deferred income taxes have been provided for these differences at the enacted tax rates expected to be paid. See Note 8 for additional information regarding income taxes.
Inventories – Inventories are valued at the lower of cost and net realizable value. Cost is determined using the first-in, first-out method. The Company writes down its inventory for estimated obsolescence or excess inventory equal to the difference between the cost of inventory and the estimated net realizable value based upon assumptions about future demand and market conditions.
Product Warranties – The Company sells certain of its products to customers with a product warranty that allows customers to return a defective product during a specified warranty period following the purchase in exchange for a replacement product, repair at no cost to the customer, or the issuance of a credit to the customer. The Company accrues its estimated exposure to warranty claims based upon current and historical product sales data, warranty costs incurred, and any other related information known to the Company.
Property, Plant and Equipment and Depreciation and Amortization – Property, plant and equipment is stated at cost less accumulated depreciation and amortization. Depreciation and amortization are provided for using principally the straight-line method over the estimated useful lives of the assets as follows:
| Buildings | 20 - 30 years | ||||
| Machinery and other equipment | 8 - 12 years | ||||
| Computer equipment and software | 3 - 5 years |
Leasehold improvements are depreciated over the shorter of the remaining lease term or the useful life of the asset.
Research, Development and Engineering – Research, development and engineering (“R,D&E”) costs include salaries and benefits, rents, supplies, and other costs related to products under development or improvements to existing products. R,D&E costs are expensed as incurred and are included within selling, general and administrative expenses. R,D&E expenses totaled $646.1, $529.8, and $484.8 for the years ended December 31, 2023, 2022, and 2021, respectively.
Revenue Recognition – The reported results reflect the application of ASC 606 guidance. The amount of revenue recognized reflects the consideration which the Company expects to be entitled to receive in exchange for these products and/or services. To achieve this principle, the Company applies the following five steps:
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identify the contract with the customer;
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identify the performance obligations in the contract;
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determine the transaction price;
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allocate the transaction price to performance obligations in the contract; and
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recognize revenue when or as the Company satisfies a performance obligation.
Disaggregated Revenue – We disaggregate our revenues by reportable segment into four categories: (i) recurring revenue comprised of Software-as-a-Service (“SaaS”), annual term licenses, and software maintenance; (ii) reoccurring revenue comprised of transactional and volume-based fees related to software licenses; (iii) non-recurring revenue comprised of multi-year term and perpetual software licenses, professional services associated with software products and hardware sold with our software licenses; and (iv) product revenue. See details in the tables below:
| Year ended December 31, 2023 | ||||||||||||||||||||||||||
| Revenue stream | Application Software | Network Software | Technology Enabled Products | Total | ||||||||||||||||||||||
| Software related | ||||||||||||||||||||||||||
| Recurring | $ | 2,454.3 | $ | 1,039.5 | $ | 17.3 | $ | 3,511.1 | ||||||||||||||||||
| Reoccurring | 137.8 | 263.4 | — | 401.2 | ||||||||||||||||||||||
| Non-recurring | 594.8 | 136.5 | 1.5 | 732.8 | ||||||||||||||||||||||
| Total Software Revenue | 3,186.9 | 1,439.4 | 18.8 | 4,645.1 | ||||||||||||||||||||||
| Product Revenue | — | — | 1,532.7 | 1,532.7 | ||||||||||||||||||||||
| Total Revenue | $ | 3,186.9 | $ | 1,439.4 | $ | 1,551.5 | $ | 6,177.8 |
| Year ended December 31, 2022 | ||||||||||||||||||||||||||
| Revenue stream | Application Software | Network Software | Technology Enabled Products | Total | ||||||||||||||||||||||
| Software related | ||||||||||||||||||||||||||
| Recurring | $ | 1,946.0 | $ | 981.4 | $ | 12.0 | $ | 2,939.4 | ||||||||||||||||||
| Reoccurring | 124.2 | 246.2 | — | 370.4 | ||||||||||||||||||||||
| Non-recurring | 569.3 | 150.9 | 1.2 | 721.4 | ||||||||||||||||||||||
| Total Software Revenue | 2,639.5 | 1,378.5 | 13.2 | 4,031.2 | ||||||||||||||||||||||
| Product Revenue | — | — | 1,340.6 | 1,340.6 | ||||||||||||||||||||||
| Total Revenue | $ | 2,639.5 | $ | 1,378.5 | $ | 1,353.8 | $ | 5,371.8 |
| Year ended December 31, 2021 | ||||||||||||||||||||||||||
| Revenue stream | Application Software | Network Software | Technology Enabled Products | Total | ||||||||||||||||||||||
| Software related | ||||||||||||||||||||||||||
| Recurring | $ | 1,708.0 | $ | 837.5 | $ | 7.8 | $ | 2,553.3 | ||||||||||||||||||
| Reoccurring | 111.4 | 249.5 | — | 360.9 | ||||||||||||||||||||||
| Non-recurring | 547.3 | 136.8 | 0.8 | 684.9 | ||||||||||||||||||||||
| Total Software Revenue | 2,366.7 | 1,223.8 | 8.6 | 3,599.1 | ||||||||||||||||||||||
| Product Revenue | — | — | 1,234.7 | 1,234.7 | ||||||||||||||||||||||
| Total Revenue | $ | 2,366.7 | $ | 1,223.8 | $ | 1,243.3 | $ | 4,833.8 |
We recognize revenue over time or at a point in time depending on our evaluation of when the customer obtains control over the promised products or services. For software arrangements that include multiple performance obligations, we allocate revenue to each performance obligation based on estimates of the price that we would charge the customer for each promised product or service if it were sold on a standalone basis. Software licenses may be combined with implementation/installation services as a single performance obligation if the implementation/installation significantly modifies or customizes the functionality of the software license.
Software and related services
*•*Recurring – consists primarily of SaaS subscriptions and post-contract support (“PCS”) which are recognized ratably over the contractual term and annual term software licenses which are generally recognized at a point in time.
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Reoccurring – consists primarily of transactional and volume-based fees which are highly reoccurring and recognized at a point in time under a usage-based model.
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Non-recurring – consists primarily of perpetual, multi-year term software licenses, or installation/implementation services and associated hardware. Revenues from perpetual and multi-year term licenses are generally recognized at a point in time. Revenues from software implementation projects are generally recognized over time using the input method, utilizing the ratio of costs or labor hours incurred to total estimated costs or labor, as the measure of performance.
Payment for software licenses is generally required within 30 to 60 days of the transfer of control. Payment for PCS is generally required within 30 to 60 days of the commencement of the service period, which is primarily offered to customers over a one-year timeframe. Payment terms do not contain a significant financing component. Payment for implementation/installation services that are recognized over time is typically commensurate with milestones defined in the contract, or billable hours incurred.
Products
Revenue from product sales is recognized when control transfers to the customer, which is generally when the product is shipped. Non-project-based installation and repair services are performed by certain of our businesses for which revenue is recognized upon completion.
Payment terms are generally 30 to 60 days from the transfer of control. Payment terms do not contain a significant financing component.
Accounts receivable, net – Accounts receivable, net includes amounts billed and currently due from customers. The amounts due are stated at their net estimated realizable value. Accounts receivable are stated net of an allowance for doubtful accounts and sales allowances of $22.2 and $16.6 at December 31, 2023 and 2022, respectively. We make estimates of expected allowance for doubtful accounts based upon our assessment of various factors, including historical experience, the age of the accounts receivable balances, changes to customer creditworthiness, and other factors that may affect our ability to collect from customers.
Unbilled receivables – Our unbilled receivables include unbilled amounts typically resulting from sales under software milestone billings associated with multi-year term license renewals and software implementations when the input method of revenue recognition is utilized and revenue recognized exceeds the amount billed to the customer, and right to payment is not solely due to the passage of time. Amounts may not exceed their net realizable value.
Deferred revenue – We record deferred revenue when cash payments are received or due in advance of our performance. Our deferred revenue relates primarily to software and related services. In most cases, we recognize deferred revenue ratably over time as the SaaS or PCS performance obligation is satisfied. The non-current portion of deferred revenue is included in “Other liabilities” in our Consolidated Balance Sheets.
Our unbilled receivables and deferred revenue are reported in a net position on a contract-by-contract basis at the end of each reporting period. The net balances are classified as current or non-current based on expected timing of revenue recognition and billable milestones.
Deferred commissions – Our incremental direct costs of obtaining a contract, which consist of sales commissions primarily for our software sales, are deferred and amortized on a straight-line basis over the period of contract performance or a longer period, depending on facts and circumstances. We classify deferred commissions as current or non-current based on the expected timing of expense recognition. Where the amortization period would have been one year or less, we expense the associated incremental direct cost as incurred. The current and non-current portions of deferred commissions are included in “Other current assets” and “Other assets,” respectively, in our Consolidated Balance Sheets. At December 31, 2023 and 2022, the current portion of deferred commissions was $35.0 and $33.1, respectively, and the non-current portion of deferred commissions was $36.7 and $31.7, respectively. The Company recognized $29.3, $30.7, and $27.2 of expense related to deferred commissions for the years ended December 31, 2023, 2022, and 2021, respectively.
Remaining performance obligations – Remaining performance obligations represent the transaction price of firm orders for which work has not been performed, excluding unexercised contract options. As of December 31, 2023, total remaining performance obligations were $4,612.6. We expect to recognize revenue on approximately 68% of our remaining performance obligations over the next 12 months, with the remainder to be recognized thereafter.
Capitalized Software – The Company accounts for capitalized software under applicable accounting guidance which, among other provisions, requires capitalization of certain internal-use software costs once certain criteria are met. Overhead, general and administrative, and training costs are not capitalized. Capitalized software balances, net of accumulated amortization, were $102.6 and $83.9 at December 31, 2023 and 2022, respectively, which are included in “Other assets” in our Consolidated Balance Sheets.
Stock-Based Compensation – The Company recognizes expense for the grant date fair value of its employee stock awards on a straight-line basis (or, in the case of performance-based awards, on a graded basis) over the employee’s requisite service period (generally the vesting period of the award). The fair value of option awards is estimated using the Black-Scholes option valuation model.
(2) Business Acquisitions and Dispositions
Acquisitions
2023 Acquisitions – Roper completed four business acquisitions in the year ended December 31, 2023. The results of operations of the acquired businesses are included in Roper’s Consolidated Financial Statements from the date of each acquisition. Pro forma results of operations and the revenues and net earnings subsequent to the acquisition date for the acquisitions completed during 2023 have not been presented because the effects of the acquisitions, individually and in the aggregate, were not material to our financial results.
The largest of the 2023 acquisitions was Syntellis Parent, LLC (“Syntellis”), the parent company of Syntellis Performance Solutions, LLC, a leading provider of cloud-based performance management and data solutions for healthcare, financial institutions, and higher education markets. Roper acquired the outstanding membership interests of Syntellis on August 7, 2023, for a purchase price of $1,381, adjusted for cash acquired and certain liabilities assumed. Additionally, the purchase price contemplated a net present value tax benefit of approximately $135 which is expected to be utilized over the next 15 years. This acquisition has been integrated into our Strata business and its results are reported in the Application Software reportable segment.
The Company recorded $859.0 in goodwill, $17.0 assigned to trade names that are not subject to amortization, and $594.0 of other identifiable intangibles in connection with the Syntellis acquisition. The amortizable intangible assets include customer relationships of $529.0 (20 year useful life) and technology of $65.0 (7 year useful life).
During the year ended December 31, 2023, Roper completed three additional bolt-on acquisitions.
On May 2, 2023, Roper acquired the outstanding membership interests of Promium, L.L.C., a leading provider of laboratory information management systems in the environmental and water markets, for a purchase price of $16.5. This acquisition has been integrated into our Clinisys business and its results are reported in the Application Software reportable segment.
On August 21, 2023, Roper acquired the assets of Replicon Inc., a provider of time tracking software solutions for project and services centric organizations, for a purchase price of $447.5, adjusted for cash acquired and certain liabilities assumed. Additionally, the purchase price contemplated a net present value tax benefit of approximately $80 which is expected to be utilized over the next 15 years. This acquisition has been integrated into our Deltek business and its results are reported in the Application Software reportable segment.
On December 26, 2023, Roper acquired the issued and outstanding shares of Executive Business Services, Inc. (“ProPricer”), a leading provider of proposal pricing software solutions for government contractors and government agencies, for a purchase price of $79.5, adjusted for cash acquired and certain liabilities assumed. This acquisition is integrating into our Deltek business and its results are reported in the Application Software reportable segment.
The Company recorded $330.6 in goodwill, $15.4 assigned to trade names that are not subject to amortization, and $229.1 of other identifiable intangibles in connection with these three acquisitions. The amortizable intangible assets include customer relationships of $209.4 (16.9 year weighted average useful life) and technology of $19.7 (5.0 year weighted average useful life).
On August 4, 2023, Roper acquired an 18.2% limited partnership minority interest in CI Ultimate Holdings, L.P., the parent entity of Certinia Inc., a leading provider of professional services automation software, for $125.0. The Company’s investment is accounted for under the equity method of accounting whereby our proportionate share of earnings or loss associated with the investment is reported as a component of “Equity investments activity, net” in our Consolidated Statement of Earnings with a corresponding change in the balance of our equity investment which is reported as a component of “Equity investments” in our Consolidated Balance Sheet.
On January 22, 2024, Roper entered into an agreement to acquire Genesis Ultimate Holding Co., the parent company of Procare Software, LLC (“Procare”) for a purchase price of approximately $1,860, which contemplates a net present value tax benefit of approximately $110. Procare is a leading provider of cloud-based software for the management of early childhood education centers. This acquisition is expected to close in the first quarter of 2024.
2022 Acquisitions – Roper completed seven business acquisitions in the year ended December 31, 2022. The results of operations of the acquired businesses are included in Roper’s Consolidated Financial Statements from the date of each acquisition. Pro forma results of operations and the revenues and net earnings subsequent to the acquisition date for the acquisitions completed during 2022 have not been presented because the effects of the acquisitions, individually and in the aggregate, were not material to our financial results.
The largest of the 2022 acquisitions was Frontline Technologies Parent, LLC (“Frontline”), a leading provider of K-12 school administration software, connecting solutions for human capital management, student and special programs, and business operations with powerful analytics that empower educators. Roper acquired Frontline on October 4, 2022, for a purchase price of $3,738.0. The purchase price comprised an enterprise value of $3,725.0, adjusted for cash acquired and the settlement of certain liabilities. Additionally, the purchase price initially contemplated a net present value tax benefit of approximately $350. During the measurement period, the net present value tax benefit was revised upwards to approximately $500 associated with an increase in our tax basis. The revised net present value tax benefit is expected to be utilized over the next 15 years. The results of Frontline are reported in the Application Software reportable segment.
The Company recorded $2,197.6 in goodwill and $1,918.6 of other identifiable intangibles in connection with the Frontline acquisition. Of the $1,918.6 of acquired intangible assets, $83.0 was assigned to trade names that are not subject to amortization. The remaining $1,835.6 of acquired intangible assets include customer relationships of $1,757.0 (20 year useful life) and unpatented technology of $78.6 (5 year useful life).
Including measurement period adjustments, net assets acquired also include approximately $258 of deferred revenue and approximately $122 of net deferred tax liabilities, primarily attributable to acquired intangible assets, partially offset by federal tax attributes. Approximately $1,200 of goodwill is expected to be deductible for tax purposes.
During the year ended December 31, 2022, Roper completed six additional bolt-on acquisitions with an aggregate purchase price of $578.8, net of cash acquired and debt assumed.
On January 3, 2022, Roper acquired the outstanding membership interests of Horizon Lab Systems, LLC, a provider of laboratory information management systems in the toxicology, environmental, public health, and agricultural markets. This acquisition has been integrated into our Clinisys business and its results are reported in the Application Software reportable segment.
On April 6, 2022, Roper acquired the issued and outstanding shares of Common Cents Systems, Inc. (ApolloLIMS), a provider of laboratory information management systems in the toxicology and public health markets. This acquisition has been integrated into our Clinisys business and its results are reported in the Application Software reportable segment.
On June 27, 2022, Roper acquired the issued and outstanding shares of MGA Systems Holdings, Inc., a leading provider of purpose-built insurance software for managing general agents. This acquisition has been integrated into our Vertafore business and its results are reported in the Application Software reportable segment.
On August 19, 2022, Roper acquired substantially all of the assets of viDesktop Inc. (“viGlobal”), a leading provider of end-to-end human resources management software used for recruiting and integration, productivity management, resource allocation, performance management, learning and development, and diversity and inclusion at professional services firms. This acquisition has been integrated into our Aderant business and its results are reported in the Application Software reportable segment.
During the third quarter of 2022, Roper acquired TIP Technologies, Inc. and Common Sense Solutions, Inc., which have been integrated into our Deltek business and their results are reported in the Application Software reportable segment.
The Company recorded $361.5 in goodwill, $9.5 assigned to trade names that are not subject to amortization, and $239.3 of other identifiable intangibles in connection with these six acquisitions. The amortizable intangible assets include customer relationships of $223.4 (18.2 year weighted average useful life) and technology of $15.9 (4.9 year weighted average useful life).
2021 Acquisitions – Roper completed seven business acquisitions in the year ended December 31, 2021 with an aggregate purchase price of $225.9, net of cash acquired and debt assumed. The results of operations of the acquired businesses are included in Roper’s Consolidated Financial Statements from the date of each acquisition. Pro forma results of operations and the revenues and net earnings subsequent to the acquisition date for the acquisitions completed during 2021 have not been presented because the effects of the acquisitions, individually and in the aggregate, were not material to our financial results.
During the first three quarters of 2021, Roper completed four acquisitions which were integrated into our Deltek business and their results are reported in the Application Software reportable segment.
On November 18, 2021, Roper acquired substantially all of the assets of Agency Zoom, LLC (“Agency Zoom”), a provider of sales, marketing, and service automation software solutions for insurance agencies. Agency Zoom was integrated into our Vertafore business and its results are reported in the Application Software reportable segment.
On December 21, 2021, Roper acquired a majority of the assets of The Construction Journal, LTD. (“Construction Journal”), a provider of selling, marketing, and licensing software solutions for the commercial construction industry. Construction Journal was integrated into our ConstructConnect business and its results are reported in the Network Software reportable segment.
On December 30, 2021, Roper acquired 100% of the shares of American LegalNet, Inc. (“ALN”), a provider of court forms, eFiling, calendaring, and docketing software solutions. ALN was integrated into our Aderant business and its results are reported in the Application Software reportable segment.
The Company recorded $138.8 in goodwill and $104.9 of other identifiable intangibles in connection with these seven acquisitions. The amortizable intangible assets include customer relationships of $94.6 (12.9 year weighted average useful life) and technology of $10.3 (5.3 year weighted average useful life).
Dispositions
On March 17, 2021, Roper completed the sale of a minority investment in Sedaru, Inc. for $27.1 in cash. The sale resulted in a pretax gain of $27.1, which is reported within “Other income (expense), net” in our Consolidated Statement of Earnings. In addition, we recognized income tax expense of $5.5 in connection with the sale, which is included within “Income taxes” in our Consolidated Statement of Earnings.
(3) Discontinued Operations
The Company concluded that the 2021 Divestitures and the Indicor Transaction each represented a strategic shift that had a major effect on the Company’s operations and financial results. These transactions have greatly reduced the cyclicality and asset intensity of the Company. In addition, the Company has an increased mix of recurring revenue and a higher margin profile. Accordingly, the financial results related to the 2021 Divestitures and Indicor are presented in our Consolidated Financial Statements as discontinued operations for all periods presented.
2021 Divestitures – During 2021, the Company signed definitive agreements to divest its TransCore, Zetec, and CIVCO Radiotherapy businesses as described below.
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On March 17, 2022, Roper closed on the divestiture of our TransCore business to an affiliate of Singapore Technologies Engineering Ltd, for approximately $2,680 in cash. The sale resulted in a pretax gain of $2,073.7 and income tax expense of $550.5, which are reported within “Gain on disposition of discontinued operations, net of tax” in our Consolidated Statement of Earnings for the year ended December 31, 2022. TransCore was previously included in the historical Network Software & Systems reportable segment.
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On January 5, 2022, Roper closed on the divestiture of our Zetec business to Eddyfi NDT Inc. for approximately $350 in cash. The sale resulted in a pretax gain of $255.3 and income tax expense of $60.9, which are reported within “Gain on disposition of discontinued operations, net of tax” in our Consolidated Statement of Earnings for the year ended December 31, 2022. Zetec was previously included in the historical Process Technologies reportable segment.
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On November 1, 2021, Roper closed on the divestiture of our CIVCO Radiotherapy business to an affiliate of Blue Wolf Capital Partners LLC, for approximately $120 in cash. The sale resulted in a pretax gain of $77.2 and income tax expense of $21.3, which are reported within “Gain on disposition of discontinued operations, net of tax” in our Consolidated Statement of Earnings for the year ended December 31, 2021. The CIVCO Radiotherapy business was previously included in the historical Measurement & Analytical Solutions reportable segment.
The following table summarizes the major classes of revenues and expenses constituting net earnings from discontinued operations attributable to the TransCore, Zetec, and CIVCO Radiotherapy businesses:
| Year ended December 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Net revenues | $ | 100.4 | $ | 638.0 | |||||||
| Cost of sales | 71.2 | 372.9 | |||||||||
| Gross profit | 29.2 | 265.1 | |||||||||
| Selling, general and administrative expenses (1) | 19.9 | 124.0 | |||||||||
| Income from operations | 9.3 | 141.1 | |||||||||
| Other income, net | 0.1 | 1.5 | |||||||||
| Earnings before income taxes (2) | 9.4 | 142.6 | |||||||||
| Income taxes | (6.2) | 28.5 | |||||||||
| Earnings from discontinued operations, net of tax | 15.6 | 114.1 | |||||||||
| Gain on disposition of discontinued operations, net of tax (3) | 1,717.5 | 55.9 | |||||||||
| Net earnings from discontinued operations | $ | 1,733.1 | $ | 170.0 |
(1) Includes stock-based compensation expense of $0.9 and $5.4 for the years ended December 31, 2022 and 2021, respectively. Stock-based compensation was previously reported as a component of unallocated corporate general and administrative expenses.
(2) During the year ended December 31, 2022, there was no depreciation of property, plant and equipment or amortization of intangible assets given the asset classification as held for sale during the period. Depreciation and amortization was $5.2 for the year ended December 31, 2021.
(3) Includes expense of $4.5 and $0.9 associated with accelerated vesting of share-based awards for the years ended December 31, 2022 and 2021, respectively.
Indicor – On November 22, 2022, Roper completed the divestiture of a majority 51% stake in Indicor to CD&R for approximately $2,604 in cash. The consideration was comprised of a cash distribution of approximately $1,775 funded by third-party indebtedness incurred by Indicor and approximately $829 related to the majority 51% equity stake. The Company retained an initial 49% minority equity interest. The sale resulted in a pretax gain of $2,046.0, which included $142.6 of foreign currency translation losses and $535.0 associated with the initial remaining 49% interest in Indicor (described further in Note 10). The Company recognized income tax expense of $407.2 associated with the gain.
The following table summarizes the major classes of revenues and expenses constituting net earnings from discontinued operations attributable to Indicor:
| Year ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Net revenues | $ | — | $ | 916.1 | $ | 944.0 | |||||||||||
| Cost of sales | — | 432.1 | 434.2 | ||||||||||||||
| Gross profit | — | 484.0 | 509.8 | ||||||||||||||
| Selling, general and administrative expenses (1) | 2.3 | 250.5 | 265.7 | ||||||||||||||
| Impairment of intangible assets | — | — | 5.1 | ||||||||||||||
| Income (loss) from operations | (2.3) | 233.5 | 239.0 | ||||||||||||||
| Other income (expense), net | — | (0.7) | 0.1 | ||||||||||||||
| Earnings (loss) before income taxes (2) | (2.3) | 232.8 | 239.1 | ||||||||||||||
| Income taxes | 1.8 | 45.6 | 61.8 | ||||||||||||||
| Earnings (loss) from discontinued operations, net of tax | (4.1) | 187.2 | 177.3 | ||||||||||||||
| Gain on disposition of discontinued operations, net of tax | 19.9 | (3) | 1,638.8 | — | |||||||||||||
| Net earnings from discontinued operations | $ | 15.8 | $ | 1,826.0 | $ | 177.3 |
(1) Certain costs previously reported as a component of unallocated corporate general and administrative expenses have been reclassified to discontinued operations. These costs primarily include stock-based compensation expense of $10.3 and $13.1 for the years ended December 31, 2022 and 2021, respectively.
(2) Includes depreciation and amortization of $6.4 and $18.2 for the years ended December 31, 2022 and 2021, respectively.
(3) Consists of adjustments subsequent to the sale primarily associated with income taxes.
(4) Inventories
The components of inventories at December 31 were as follows:
| 2023 | 2022 | ||||||||||
| Raw materials and supplies | $ | 57.6 | $ | 60.6 | |||||||
| Work in process | 28.7 | 24.9 | |||||||||
| Finished products | 41.8 | 31.3 | |||||||||
| Inventory reserves | (9.5) | (5.5) | |||||||||
| Inventories, net | $ | 118.6 | $ | 111.3 |
(5) Property, Plant and Equipment
The components of property, plant and equipment at December 31 were as follows:
| 2023 | 2022 | ||||||||||
| Land | $ | 1.0 | $ | 1.0 | |||||||
| Buildings and leasehold improvements | 57.7 | 43.0 | |||||||||
| Machinery and other equipment | 137.2 | 113.2 | |||||||||
| Computer equipment | 116.4 | 107.5 | |||||||||
| Software | 76.1 | 71.9 | |||||||||
| Property, plant and equipment, gross | 388.4 | 336.6 | |||||||||
| Accumulated depreciation | (268.8) | (251.3) | |||||||||
| Property, plant and equipment, net | $ | 119.6 | $ | 85.3 |
Depreciation and amortization expense related to property, plant and equipment was $35.4, $37.3, and $44.0 for the years ended December 31, 2023, 2022, and 2021, respectively.
(6) Goodwill and Other Intangible Assets
The carrying value of goodwill by segment was as follows:
| Application Software | Network Software | Technology Enabled Products | Total | ||||||||||||||||||||||||||
| Balances at December 31, 2021 | $ | 8,889.3 | $ | 3,655.3 | $ | 931.7 | $ | 13,476.3 | |||||||||||||||||||||
| Goodwill acquired | 2,559.1 | — | — | 2,559.1 | |||||||||||||||||||||||||
| Currency translation adjustments | (32.1) | (56.3) | (1.4) | (89.8) | |||||||||||||||||||||||||
| Reclassifications and other | 1.2 | (0.7) | — | 0.5 | |||||||||||||||||||||||||
| Balances at December 31, 2022 | $ | 11,417.5 | $ | 3,598.3 | $ | 930.3 | $ | 15,946.1 | |||||||||||||||||||||
| Goodwill acquired | 1,189.6 | — | — | 1,189.6 | |||||||||||||||||||||||||
| Currency translation adjustments | 15.2 | 26.3 | 0.5 | 42.0 | |||||||||||||||||||||||||
| Reclassifications and other | (58.9) | — | — | (58.9) | |||||||||||||||||||||||||
| Balances at December 31, 2023 | $ | 12,563.4 | $ | 3,624.6 | $ | 930.8 | $ | 17,118.8 |
Reclassifications and other during the year ended December 31, 2023 relates to purchase accounting adjustments for acquisitions and is composed primarily of measurement period adjustments of $56.2 to decrease goodwill and deferred tax liabilities in connection with the Frontline opening balance sheet. Refer to Note 2 for information regarding acquisitions.
Other intangible assets were comprised of:
| Cost | Accumulated amortization | Net book value | |||||||||||||||
| Assets subject to amortization: | |||||||||||||||||
| Customer related intangibles | $ | 9,300.7 | $ | (2,437.7) | $ | 6,863.0 | |||||||||||
| Unpatented technology | 954.6 | (506.9) | 447.7 | ||||||||||||||
| Software | 149.0 | (134.0) | 15.0 | ||||||||||||||
| Patents and other protective rights | 10.3 | (1.2) | 9.1 | ||||||||||||||
| Trade names | 9.7 | (3.1) | 6.6 | ||||||||||||||
| Assets not subject to amortization: | |||||||||||||||||
| Trade names | 689.3 | — | 689.3 | ||||||||||||||
| Balances at December 31, 2022 | $ | 11,113.6 | $ | (3,082.9) | $ | 8,030.7 | |||||||||||
| Assets subject to amortization: | |||||||||||||||||
| Customer related intangibles | $ | 10,061.7 | $ | (3,000.5) | $ | 7,061.2 | |||||||||||
| Unpatented technology | 1,047.0 | (638.8) | 408.2 | ||||||||||||||
| Software | 149.2 | (143.4) | 5.8 | ||||||||||||||
| Patents and other protective rights | 10.3 | (1.4) | 8.9 | ||||||||||||||
| Assets not subject to amortization: | |||||||||||||||||
| Trade names | 728.0 | — | 728.0 | ||||||||||||||
| Balances at December 31, 2023 | $ | 11,996.2 | $ | (3,784.1) | $ | 8,212.1 |
Amortization expense of other intangible assets was $698.4, $600.5, and $565.1 during the years ended December 31, 2023, 2022, and 2021, respectively. Amortization expense is expected to be $696.0 in 2024, $666.0 in 2025, $636.0 in 2026, $594.0 in 2027, and $553.0 in 2028.
(7) Other Accrued Liabilities
Other accrued liabilities at December 31 were as follows:
| 2023 | 2022 | ||||||||||
| Interest | $ | 33.6 | $ | 40.2 | |||||||
| Customer deposits | 45.2 | 48.9 | |||||||||
| Accrued dividends | 82.5 | 74.0 | |||||||||
| Rebates | 81.2 | 51.5 | |||||||||
| Operating lease liabilities | 43.3 | 46.4 | |||||||||
| Sales and other taxes payable | 31.8 | 22.9 | |||||||||
| Patent litigation accrual (1) | — | 45.0 | |||||||||
| Other | 128.9 | 125.7 | |||||||||
| Other accrued liabilities | $ | 446.5 | $ | 454.6 |
(1) Refer to Note 13 for details regarding the settlement of the Berall v. Verathon patent litigation matter.
(8) Income Taxes
Earnings before income taxes for the years ended December 31, 2023, 2022, and 2021 consisted of the following components:
| 2023 | 2022 | 2021 | |||||||||||||||
| United States | $ | 1,480.3 | $ | 1,026.4 | $ | 814.7 | |||||||||||
| Other | 262.8 | 255.6 | 217.2 | ||||||||||||||
| Earnings before income taxes | $ | 1,743.1 | $ | 1,282.0 | $ | 1,031.9 |
Components of income tax expense for the years ended December 31, 2023, 2022, and 2021 were as follows:
| 2023 | 2022 | 2021 | |||||||||||||||
| Current: | |||||||||||||||||
| Federal | $ | 352.6 | $ | 322.9 | $ | 110.2 | |||||||||||
| State | 80.7 | 80.8 | 50.8 | ||||||||||||||
| Foreign | 69.9 | 65.9 | 59.9 | ||||||||||||||
| Deferred: | |||||||||||||||||
| Federal | (94.1) | (136.9) | 27.5 | ||||||||||||||
| State | (27.7) | (31.1) | (27.2) | ||||||||||||||
| Foreign | (6.7) | (5.2) | 5.4 | ||||||||||||||
| Income tax expense | $ | 374.7 | $ | 296.4 | $ | 226.6 |
Reconciliations between the U.S. federal statutory income tax rate and the effective income tax rate for the years ended December 31, 2023, 2022, and 2021 were as follows:
| 2023 | 2022 | 2021 | |||||||||||||||
| Federal statutory tax rate | 21.0 | % | 21.0 | % | 21.0 | % | |||||||||||
| Foreign operations, net | 0.5 | 0.8 | 2.5 | ||||||||||||||
| R&D tax credits | (1.9) | (3.0) | (2.1) | ||||||||||||||
| State taxes, net of federal benefit | 3.5 | 3.7 | 2.8 | ||||||||||||||
| Stock-based compensation | (1.5) | (1.0) | (2.4) | ||||||||||||||
| Impact of UK tax rate change | — | — | 2.0 | ||||||||||||||
| Legal entity restructuring | (0.4) | 0.8 | (1.4) | ||||||||||||||
| Other, net | 0.3 | 0.8 | (0.4) | ||||||||||||||
| Effective tax rate | 21.5 | % | 23.1 | % | 22.0 | % |
The deferred income tax balance sheet accounts arise from temporary differences between the amount of assets and liabilities recognized for financial reporting and tax purposes.
Components of deferred tax assets and liabilities at December 31 were as follows:
| 2023 | 2022 | ||||||||||
| Deferred tax assets: | |||||||||||
| Reserves and accrued expenses | $ | 223.2 | $ | 192.4 | |||||||
| Net operating loss carryforwards | 80.2 | 84.6 | |||||||||
| R&D credits | 7.6 | 8.9 | |||||||||
| Capitalized R&D expenditures | 178.7 | 97.8 | |||||||||
| Interest expense limitation carryforwards | 31.0 | 41.1 | |||||||||
| Lease liabilities | 47.1 | 50.1 | |||||||||
| Valuation allowance | (34.8) | (37.1) | |||||||||
| Total deferred tax assets | $ | 533.0 | $ | 437.8 | |||||||
| Deferred tax liabilities: | |||||||||||
| Reserves and accrued expenses | $ | 18.3 | $ | 12.0 | |||||||
| Amortizable intangible assets | 1,752.8 | 1,818.7 | |||||||||
| Accrued tax on unremitted foreign earnings | 8.8 | 5.8 | |||||||||
| Right-of-use assets | 44.7 | 48.0 | |||||||||
| Outside basis difference in Indicor | 189.3 | 174.2 | |||||||||
| Total deferred tax liabilities | $ | 2,013.9 | $ | 2,058.7 |
As of December 31, 2023, the Company has $41.4 of tax-effected U.S. federal net operating loss carryforwards and $40.0 of tax-effected state net operating loss carryforwards without regard for federal benefit of state. The majority of the net operating loss carryforwards are subject to limitation under the Internal Revenue Code of 1986, as amended (“IRC”) Section 382. Additionally, as of December 31, 2023, the Company has $31.0 of IRC Section 163(j) interest expense limitation carryforwards which have an indefinite carryforward period.
As of December 31, 2023, the Company has a $178.7 deferred tax asset related to taxpayer requirements to capitalize and amortize research and development (“R&D”) expenditures under IRC Section 174. The Company amortizes these costs for tax purposes over 5 years if the R&D was performed in the U.S. and over 15 years if the R&D was performed outside of the U.S.
The Company has a deferred tax liability of $189.3 in outside basis difference as of December 31, 2023 associated with the retained minority equity interest in Indicor. See Note 10 for additional information on this minority equity interest.
As of December 31, 2023, the Company determined that a total valuation allowance of $34.8 was necessary to reduce U.S. federal and state deferred tax assets by $28.4 and foreign deferred tax assets by $6.4, where it was more likely than not that all such deferred tax assets will not be realized. As of December 31, 2023, the Company believes it is more likely than not that the remaining net deferred tax assets will be realized based on the Company’s estimate of future taxable income and any applicable tax planning strategies within various tax jurisdictions.
The Company recognizes in the Consolidated Financial Statements only those tax positions determined to be “more likely than not” of being sustained upon examination based on the technical merits of the positions.
A reconciliation of the beginning and ending amounts of unrecognized tax benefits are as follows:
| 2023 | 2022 | 2021 | |||||||||||||||
| Beginning balances | $ | 29.0 | $ | 40.5 | $ | 63.5 | |||||||||||
| Additions for tax positions of prior periods | 4.3 | — | 2.2 | ||||||||||||||
| Additions for tax positions of the current period | 4.3 | 2.3 | 3.3 | ||||||||||||||
| Additions due to acquisitions | — | — | 1.0 | ||||||||||||||
| Reductions for tax positions of prior periods | — | (11.2) | (0.5) | ||||||||||||||
| Reductions attributable to lapses of applicable statutes of limitations | (2.0) | (2.6) | (4.6) | ||||||||||||||
| Reductions attributable to settlements with taxing authorities | — | — | (24.4) | ||||||||||||||
| Ending balances | $ | 35.6 | $ | 29.0 | $ | 40.5 |
The total amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate is $35.6. Interest and penalties related to unrecognized tax benefits were $2.0 in 2023 and are classified as a component of income tax expense. Accrued interest and penalties were $6.6 at December 31, 2023 and $4.6 at December 31, 2022. During the next twelve months, it is reasonably possible that the unrecognized tax benefits may decrease by a net amount of $5.1, mainly due to anticipated statute of limitations lapses in various jurisdictions.
The Company and its subsidiaries are subject to examinations for U.S. federal income tax as well as income tax in various state, city, and foreign jurisdictions. The Company’s federal income tax returns for 2020 through the current period remain open to examination and the relevant state, city, and foreign statutes vary. The Company does not expect the assessment of any significant additional tax in excess of amounts reserved.
The Company intends to distribute all historical unremitted foreign earnings up to the amount of excess foreign cash, as well as all future foreign earnings that can be repatriated without incremental U.S. federal tax cost. Any remaining outside basis differences relating to the Company’s investment in foreign subsidiaries are not expected to be material and will be indefinitely reinvested.
(9) Long-Term Debt
On July 21, 2022, the Company entered into a five-year unsecured credit facility (the “Credit Agreement”) among Roper, the financial institutions from time to time party thereto, JPMorgan Chase Bank, N.A., as administrative agent, Bank of America, N.A. and Wells Fargo Bank, N.A., as syndication agents, and Mizuho Bank, Ltd., MUFG Bank, Ltd., PNC Bank, National Association, TD Bank, N.A., Truist Bank, and U.S. Bank, National Association, as documentation agents, which replaced the previous $3,000.0 unsecured credit facility, dated as of September 2, 2020, as amended. The Credit Agreement comprises a five-year $3,500.0 revolving credit facility, which includes availability of up to $150.0 for letters of credit. The Company may also, subject to compliance with specified conditions, request additional term loans or revolving credit commitments in an aggregate amount not to exceed $500.0.
Loans under the Credit Agreement can be borrowed as term Secured Overnight Financing Rate (“SOFR”) loans or Alternate Base Rate (“ABR”) Loans, at the Company’s option. Each term SOFR loan will bear interest at a rate per annum equal to the applicable Adjusted Term SOFR rate plus a spread ranging from 0.795% to 1.300%, as determined by the Company’s senior unsecured long-term debt rating at such time. Based on the Company’s current rating, the spread for SOFR loans would be 0.910%. Each ABR Loan will bear interest at a rate per annum equal to the Alternate Base Rate plus a spread ranging from 0.000% to 0.300%, as determined by the Company’s senior unsecured long-term debt rating at such time. Based on the Company’s current rating, the spread for ABR Loans would be 0.000%.
Amounts outstanding under the Credit Agreement may be accelerated upon the occurrence of customary events of default. The Credit Agreement requires the Company to maintain a Total Debt to Total Capital Ratio of 0.65 to 1.00 or less. Borrowings under the Credit Agreement are prepayable at Roper’s option at any time in whole or in part without premium or penalty.
At December 31, 2023 and 2022, there were $360.0 and no outstanding borrowings under the Credit Agreement, respectively. The Company was in compliance with its debt covenants throughout the years ended December 31, 2023 and 2022.
On June 22, 2020, the Company completed a public offering of $600.0 aggregate principal amount of 2.00% senior unsecured notes due June 30, 2030 (“2030 Notes”). The 2030 Notes bear interest at a fixed rate and are payable semi-annually in arrears on June 30 and December 30 of each year, beginning December 30, 2020. The net proceeds were used for general corporate purposes, including acquisitions.
On September 1, 2020, the Company completed a public offering of $300.0 aggregate principal amount of 0.45% senior unsecured notes due August 15, 2022 (“2022 Notes”), $700.0 aggregate principal amount of 1.00% senior unsecured notes due September 15, 2025 (“2025 Notes”), $700.0 aggregate principal amount of 1.40% senior unsecured notes due September 15, 2027 (“2027 Notes”), and $1,000.0 aggregate principal amount of 1.75% senior unsecured notes due February 15, 2031 (“2031 Notes” and, together with the 2022 Notes, 2025 Notes, and 2027 Notes, the “Notes”). The 2031 Notes bear interest at a fixed rate and are payable semi-annually in arrears on February 15 and August 15 of each year, beginning February 15, 2021, and the 2025 Notes and 2027 Notes bear interest at a fixed rate and are payable semi-annually in arrears on March 15 and September 15 of each year, beginning March 15, 2021. The net proceeds, together with cash on hand and borrowings under the credit agreement in place at the time, were used to fund the purchase price of the acquisition of Vertafore, Inc. and related costs.
On August 26, 2019, the Company completed a public offering of $500.0 aggregate principal amount of 2.35% senior unsecured notes due September 15, 2024 and $700.0 aggregate principal amount of 2.95% senior unsecured notes due September 15, 2029. The notes bear interest at a fixed rate and are payable semi-annually in arrears on March 15 and September 15 of each year, beginning March 15, 2020. The net proceeds were used to fund a portion of the purchase of iPipeline Holdings, Inc.
On August 28, 2018, the Company completed a public offering of $700.0 aggregate principal amount of 3.65% senior unsecured notes due September 15, 2023 and $800.0 aggregate principal amount of 4.20% senior unsecured notes due September 15, 2028 (“2028 Notes”). The 2028 Notes bear interest at a fixed rate and are payable semi-annually in arrears on March 15 and September 15 of each year, beginning March 15, 2019.
On December 19, 2016, the Company completed a public offering of $500.0 aggregate principal amount of 2.80% senior unsecured notes due December 15, 2021 and $700.0 aggregate principal amount of 3.80% senior unsecured notes due December 15, 2026 (“2026 Notes”). The 2026 Notes bear interest at a fixed rate and are payable semi-annually in arrears on June 15 and December 15 of each year, beginning June 15, 2017.
On December 7, 2015, the Company completed a public offering of $300.0 aggregate principal amount of 3.85% senior unsecured notes due December 15, 2025. The notes bear interest at a fixed rate and are payable semi-annually in arrears on June 15 and December 15 of each year, beginning June 15, 2016.
On November 21, 2012, the Company completed a public offering of $500.0 aggregate principal amount of 3.125% senior unsecured notes due November 15, 2022. The notes bore interest at a fixed rate and were payable semi-annually in arrears on May 15 and November 15 of each year, beginning May 15, 2013.
Roper may redeem some or all of these notes at any time or from time to time, at 100% of their principal amount, plus a make-whole premium based on a spread to U.S. Treasury securities.
On September 15, 2023, $700.0 of 3.65% senior notes due 2023 were repaid at maturity using borrowings under our unsecured credit facility.
On August 15, 2022, $500.0 of 3.125% senior notes due 2022 were redeemed using cash flows generated from operations.
On August 15, 2022, $300.0 of 0.45% senior notes due 2022 were repaid at maturity using cash flows generated from operations.
On November 15, 2021, $500.0 of 2.80% senior notes due 2021 were redeemed predominantly using cash flows generated from operations.
The Company’s senior notes are unsecured senior obligations of the Company and rank equally in right of payment with all of Roper’s existing and future unsecured and unsubordinated indebtedness. The notes are effectively subordinated to any of its existing and future secured indebtedness to the extent of the value of the collateral securing such indebtedness. The notes are not guaranteed by any of Roper’s subsidiaries and are effectively subordinated to all existing and future indebtedness and other liabilities of Roper’s subsidiaries.
Total debt at December 31 consisted of the following:
| 2023 | 2022 | ||||||||||
| Unsecured credit facility | $ | 360.0 | $ | — | |||||||
| $700 3.650% senior notes due 2023 | — | 700.0 | |||||||||
| $500 2.350% senior notes due 2024 | 500.0 | 500.0 | |||||||||
| $300 3.850% senior notes due 2025 | 300.0 | 300.0 | |||||||||
| $700 1.000% senior notes due 2025 | 700.0 | 700.0 | |||||||||
| $700 3.800% senior notes due 2026 | 700.0 | 700.0 | |||||||||
| $700 1.400% senior notes due 2027 | 700.0 | 700.0 | |||||||||
| $800 4.200% senior notes due 2028 | 800.0 | 800.0 | |||||||||
| $700 2.950% senior notes due 2029 | 700.0 | 700.0 | |||||||||
| $600 2.000% senior notes due 2030 | 600.0 | 600.0 | |||||||||
| $1,000 1.750% senior notes due 2031 | 1,000.0 | 1,000.0 | |||||||||
| Other | 0.2 | 0.3 | |||||||||
| Less: Deferred financing costs | (30.1) | (38.6) | |||||||||
| Total debt, net of deferred financing costs | 6,330.1 | 6,661.7 | |||||||||
| Less: Current portion | (499.5) | (699.2) | |||||||||
| Long-term debt, net of deferred financing costs | $ | 5,830.6 | $ | 5,962.5 |
The interest rate on the borrowings under the unsecured credit facility is calculated based upon various recognized indices plus a margin as defined in the Credit Agreement. At December 31, 2023, Roper had $7.4 of outstanding letters of credit.
Future maturities of total debt during each of the next five years ending December 31 and thereafter are as follows:
| 2024 | $ | 500.1 | |||
| 2025 | 1,000.1 | ||||
| 2026 | 700.0 | ||||
| 2027 | 1,060.0 | ||||
| 2028 | 800.0 | ||||
| Thereafter | 2,300.0 | ||||
| Total debt | $ | 6,360.2 |
(10) Fair Value
Financial assets and liabilities are valued using market prices on active markets (Level 1), less active markets (Level 2), and little or no market activity (Level 3). Level 1 instrument valuations are obtained from real-time quotes for transactions in active exchange markets involving identical assets. Level 2 instrument valuations are obtained from readily available pricing sources for comparable instruments, identical instruments in less active markets, or models using market observable inputs. Level 3 instrument valuations typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability.
Debt – Roper’s debt at December 31, 2023 included $6,000.0 of fixed-rate senior notes with the following fair values:
| Fixed-rate senior notes | Fair value | |||||||||||||||||||
| Principal amount | Interest rate | Year of maturity | As of December 31, 2023 | |||||||||||||||||
| $ | 500 | 2.350% | 2024 | $ | 489 | |||||||||||||||
| $ | 300 | 3.850% | 2025 | $ | 295 | |||||||||||||||
| $ | 700 | 1.000% | 2025 | $ | 655 | |||||||||||||||
| $ | 700 | 3.800% | 2026 | $ | 685 | |||||||||||||||
| $ | 700 | 1.400% | 2027 | $ | 627 | |||||||||||||||
| $ | 800 | 4.200% | 2028 | $ | 787 | |||||||||||||||
| $ | 700 | 2.950% | 2029 | $ | 642 | |||||||||||||||
| $ | 600 | 2.000% | 2030 | $ | 511 | |||||||||||||||
| $ | 1,000 | 1.750% | 2031 | $ | 825 |
The fair values of the senior notes are based on the trading prices of each series of notes, which the Company has determined to be Level 2 in the FASB fair value hierarchy.
Indicor Investment – In connection with the Indicor Transaction, the Company initially retained a 49% equity interest in Indicor valued at $535.0 as of the transaction close date. This initial valuation was based on the implied equity value associated with the sale price of the 51% equity interest in Indicor to CD&R for approximately $829, inclusive of the Unit Adjustment received by CD&R as discussed below. During 2023, we revised our valuation methodology to utilize the market multiple approach consisting of comparable guideline public companies revenue and earnings multiples to estimate the fair value of the investment, net of the Unit Adjustment discussed below. Our valuation methodology was updated given the passage of time since the transaction date and in consideration of observable market data, including Indicor’s divestiture of its Compressor Controls business unit (“CCC”) to Honeywell International Inc. (“Honeywell”) for approximately $670 which closed on June 30, 2023.
As part of the investment, Roper is required to make quarterly payments (“Unit Adjustment”), to CD&R, either (i) in cash, with total payments of approximately $29 per year on a pretax basis, or (ii) in-kind through the transfer of Roper’s equity interests in Indicor to CD&R, of approximately 1.7% ownership interest on an annual basis. Roper intends to continue making these quarterly payments in-kind. Roper’s valuation of the Unit Adjustment is based on an expected investment horizon of 5 years from the date of the Indicor Transaction. The Company’s obligation to make such quarterly payments will cease upon the earlier of:
-
Indicor achieving $425.0 of earnings before interest, taxes, depreciation, and amortization in any three twelve-month periods, whether or not consecutive; or
-
Upon the initial public offering of Indicor.
In the event of a sale of Indicor, CD&R would be entitled to a liquidation preference equal to its initial investment of approximately $829, plus any Unit Adjustment paid in-kind. Management’s valuation assumes the expected exit of the Indicor investment is an initial public offering which is not subject to the liquidation preference. Roper’s approval is required prior to a sale of Indicor for a value that would trigger the liquidation preference.
The assessment of fair value for the equity investment requires significant judgments to be made by management. Although our assumptions are considered reasonable and are consistent with the plans and estimates, there is significant judgment applied. Changes in estimates or the application of alternative assumptions could produce significantly different results. The fair value of the investment reflects management’s estimate of assumptions that market participants would use in pricing the equity interest, which the Company has determined to be Level 3 in the FASB fair value hierarchy.
The following table provides a reconciliation of the fair value for our equity investment in Indicor measured using Level 3 inputs:
| Year ended December 31, 2023 | |||||
| Beginning balance | $ | 535.0 | |||
| Change in fair value | 140.9 | ||||
| Ending balance | $ | 675.9 |
The Company received dividend distributions of $32.5 from Indicor during the year ended December 31, 2023, which are reported within “Equity investments activity, net.” These dividends were intended to offset certain cash taxes payable associated with the Company’s ownership stake, including $32.5 of cash taxes paid associated with the Company’s portion of Indicor’s gain on the sale of CCC to Honeywell, and are contemplated in the determination of the fair value related to the equity investment in Indicor.
(11) Retirement and Other Benefit Plans
Roper maintains three defined contribution retirement plans under the provisions of Section 401(k) of the IRC covering substantially all U.S. employees. Roper partially matches employee contributions. Costs related to all such plans were $39.1, $34.1, and $30.2 for 2023, 2022, and 2021, respectively.
(12) Stock-Based Compensation
The Roper Technologies, Inc. 2021 Incentive Plan (“2021 Plan”) is a stock-based compensation plan used to grant incentive stock options, nonqualified stock options, restricted stock, stock appreciation rights, or equivalent instruments to Roper’s employees, officers, directors, and consultants. The 2021 Plan was approved by shareholders at the Annual Meeting of Shareholders on June 14, 2021. The 2021 Plan replaces the Roper Technologies, Inc. 2016 Incentive Plan, as amended (“2016 Plan”), and no additional grants will be made from the 2016 Plan. At December 31, 2023, 7.499 shares were available to grant under the 2021 Plan.
Under the Roper Technologies, Inc. Employee Stock Purchase Plan, as amended and restated (“ESPP”), employees in the U.S. and Canada are allowed to designate up to 10% of eligible earnings to purchase Roper’s common stock at a 10% discount on the lower of the closing price of the stock on the first and last day of each quarterly offering period. Common stock sold to employees pursuant to the stock purchase plan may be either treasury stock, stock purchased on the open market, or newly issued shares.
Stock-based compensation expense is not allocated to our reportable segments, which are described further in Note 14. Stock-based compensation expense for the years ended December 31, 2023, 2022, and 2021 included as a component of “Selling, general and administrative expenses” was as follows:
| 2023 | 2022 | 2021 | |||||||||||||||
| Stock-based compensation | $ | 123.5 | $ | 117.8 | $ | 123.0 | |||||||||||
| Tax benefit recognized in net earnings | 20.4 | 18.6 | 19.8 | ||||||||||||||
Stock Options – Stock options are granted at prices not less than 100% of market value of the underlying stock at the date of grant. Stock options typically vest over a weighted average period of approximately 3 years from the grant date and expire 10 years after the grant date. The Company recorded $38.0, $38.1, and $40.4 of compensation expense relating to outstanding options during 2023, 2022, and 2021, respectively, as a component of corporate general and administrative expenses.
The Company estimates the fair value of its option awards using the Black-Scholes option valuation model. The stock volatility for each grant is measured using the weighted average of historical daily price changes of the Company’s common stock over the most recent period equal to the expected life of the grant. The expected term of options granted is derived from historical data to estimate option exercises and employee forfeitures, and represents the period of time that options granted are expected to be outstanding. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for the expected life of the option.
The weighted-average fair value of options granted in 2023, 2022, and 2021 were calculated using the following weighted average assumptions:
| 2023 | 2022 | 2021 | |||||||||||||||
| Weighted-average fair value ($) | 130.23 | 116.55 | 95.17 | ||||||||||||||
| Risk-free interest rate (%) | 3.76 | 2.19 | 0.94 | ||||||||||||||
| Expected option life (years) | 5.61 | 5.63 | 5.61 | ||||||||||||||
| Expected volatility (%) | 26.05 | 24.59 | 25.14 | ||||||||||||||
| Expected dividend yield (%) | 0.63 | 0.55 | 0.56 |
The following table summarizes stock option activities, with respect to the Company’s share-based compensation plans, for the years ended December 31, 2023 and 2022:
| Number of options | Weighted-average exercise price | Weighted-average remaining contractual term (years) | Aggregate intrinsic value | ||||||||||||||||||||
| Outstanding at December 31, 2021 | 3.223 | $ | 287.15 | ||||||||||||||||||||
| Granted | 0.399 | 452.08 | |||||||||||||||||||||
| Exercised | (0.460) | 239.11 | |||||||||||||||||||||
| Canceled | (0.177) | 359.06 | |||||||||||||||||||||
| Outstanding at December 31, 2022 | 2.985 | 312.34 | 6.18 | $ | 366.3 | ||||||||||||||||||
| Granted | 0.383 | 432.77 | |||||||||||||||||||||
| Exercised | (0.593) | 246.77 | |||||||||||||||||||||
| Canceled | (0.087) | 425.80 | |||||||||||||||||||||
| Outstanding at December 31, 2023 | 2.688 | 340.89 | 6.00 | $ | 549.1 | ||||||||||||||||||
| Exercisable at December 31, 2023 | 1.763 | $ | 291.74 | 4.75 | $ | 446.7 |
At December 31, 2023, there was $53.5 of total unrecognized compensation expense related to nonvested options granted under the Company’s stock-based compensation plans. That cost is expected to be recognized over a weighted average period of 1.86 years. The total intrinsic value of options exercised in 2023, 2022, and 2021 was $133.7, $92.7, and $138.2, respectively. Cash received from option exercises under all plans in 2023, 2022, and 2021 was $146.5, $110.0, and $104.7 respectively.
Restricted Stock Grants – During 2023 and 2022, the Company granted 0.280 and 0.271 shares, respectively, of restricted stock to certain employee and director participants under its stock-based compensation plans. Restricted stock grants generally vest over a period of 1 to 4 years. The Company recorded $83.3, $77.6, and $82.7 of compensation expense related to outstanding shares of restricted stock held by employees and directors during 2023, 2022, and 2021, respectively. A summary of the Company’s nonvested shares activity for 2023 and 2022 is as follows:
| Number of shares | Weighted-average grant date fair value | ||||||||||
| Nonvested at December 31, 2021 | 0.498 | $ | 365.79 | ||||||||
| Granted | 0.271 | 446.42 | |||||||||
| Vested | (0.272) | 360.14 | |||||||||
| Forfeited | (0.052) | 386.06 | |||||||||
| Nonvested at December 31, 2022 | 0.445 | 416.00 | |||||||||
| Granted | 0.280 | 439.72 | |||||||||
| Vested | (0.202) | 406.36 | |||||||||
| Forfeited | (0.083) | 434.87 | |||||||||
| Nonvested at December 31, 2023 | 0.440 | $ | 431.96 |
At December 31, 2023, there was $95.9 of total unrecognized compensation expense related to nonvested awards granted to both employees and directors under the Company’s stock-based compensation plans. That cost is expected to be recognized over a weighted average period of 1.73 years.
Employee Stock Purchase Plan – During 2023, 2022, and 2021, participants of the ESPP purchased 0.038, 0.039, and 0.040 shares, respectively, of Roper’s common stock for total consideration of $15.5, $14.3, and $15.1, respectively. All of these shares were purchased from Roper’s treasury shares.
(13) Contingencies
Roper, in the ordinary course of business, is party to various pending or threatened legal actions, including product liability, intellectual property, antitrust, data privacy, and employment practices that, in general, are of a nature consistent with those over the past several years. After analyzing the Company’s contingent liabilities on a gross basis and, based upon past experience with resolution of such legal claims and the availability and limits of the primary, excess, and umbrella liability insurance coverages with respect to pending claims, management believes that adequate provision has been made to cover any potential liability not covered by insurance, and that the ultimate liability, if any, arising from these actions should not have a material adverse effect on Roper’s consolidated financial position, results of operations, or cash flows. However, no assurances can be given in this regard.
Roper’s subsidiary, PowerPlan, Inc. (“PowerPlan”), is a defendant in an action pending in the U.S. District Court for the Northern District of Georgia (Lucasys Inc. v. PowerPlan, Inc., Case 1:20-cv-02987-AT) in which the plaintiff, a firm started by former PowerPlan employees, alleges PowerPlan has engaged in anticompetitive practices in violation of federal antitrust law. The plaintiff further alleges that PowerPlan violated Georgia’s deceptive trade practices act and undertook other tortious activities which impacted the plaintiff’s ability to commercialize its software and services offerings. The plaintiff claims damages of approximately $66, and seeks treble damages in addition to punitive damages, attorney fees, and pre-judgment interest. PowerPlan strongly denies the allegations in the dispute, and has asserted several affirmative defenses. PowerPlan and the plaintiff have each moved for summary judgment, and in the event such is not granted, PowerPlan anticipates this matter going to trial in the second half of 2024.
Roper’s subsidiary, Vertafore, Inc. (“Vertafore”), had been named in three putative class actions, all of which are now dismissed: two in the U.S. District Court for the Southern District of Texas (Allen, et al. v. Vertafore, Inc., Case 4:20-cv-4139, filed December 4, 2020 and Masciotra, et al. v. Vertafore, Inc. (originally filed on December 8, 2020 as Case 1:20-cv-03603 in the U.S. District Court for the District of Colorado and subsequently transferred)), and one in the U.S. District Court for the Northern District of Texas (Mulvey, et al. v. Vertafore, Inc., Case 3:21-cv-00213-E, filed January 31, 2021). In July 2021, the court granted Vertafore’s motion to dismiss the Allen case, with the dismissal affirmed by the U.S. Fifth Circuit Court of Appeals, effectively concluding the litigation. In July 2021, the plaintiff in the Masciotra case voluntarily dismissed his action without prejudice. In February 2023, the court granted Vertafore’s motion to dismiss the Mulvey case, and the plaintiff failed to appeal the dismissal effectively concluding the matter. Both the Allen and Mulvey cases purported to represent approximately 27.7 million individuals who held Texas driver’s licenses prior to February 2019. In November 2020, Vertafore announced that as a result of human error, three data files were inadvertently stored in an unsecured external storage service that appears to have been accessed without authorization. The files, which included driver information for licenses issued before February 2019, contained Texas driver license numbers, as well as names, dates of birth, addresses, and vehicle registration histories. The files did not contain any Social Security numbers or financial account information. These cases sought recovery under the Driver’s Privacy Protection Act, 18 U.S.C. § 2721. As set forth above, all of these matters against Vertafore have now been dismissed.
Roper’s subsidiary, Verathon, Inc. (“Verathon”), was a defendant in a patent infringement action pending in the U.S. District Court for the Western District of Washington (Berall v. Verathon, Inc., Case 2:2021mc00043). The plaintiff claimed that video laryngoscopes and certain accessories sold by Verathon and other manufacturers from approximately 2004 through 2016 infringed U.S. Patent 5,827,178. Verathon and the plaintiff agreed to settle the matter for $45.0 which is recorded as a component of “Other income (expense), net” within the Consolidated Statement of Earnings for the year ended December 31, 2022. This matter was fully concluded and cash settled in the first quarter of 2023.
As of December 31, 2023, Roper had $7.4 of letters of credit issued to guarantee its performance under certain services contracts or to support certain insurance programs and $50.8 of outstanding surety bonds. Certain contracts require Roper to provide a surety bond as a guarantee of its performance of contractual obligations.
(14) Segment and Geographic Area Information
Our businesses are reported in three segments classified based on business model and delivery of performance obligations. The segments are: Application Software, Network Software, and Technology Enabled Products. The three reportable segments are as follows:
–Application Software - Aderant, CBORD, Clinisys, Data Innovations, Deltek, Frontline, IntelliTrans, PowerPlan, Strata, Vertafore
–Network Software - ConstructConnect, DAT, Foundry, iPipeline, iTradeNetwork, Loadlink, MHA, SHP, SoftWriters
–Technology Enabled Products - CIVCO Medical Solutions, FMI, Inovonics, IPA, Neptune, Northern Digital, rf IDEAS, Verathon
There were no material transactions between Roper’s reportable segments during 2023, 2022, and 2021. Operating profit by reportable segment and by geographic area is defined as net revenues less operating costs and expenses. These costs and expenses do not include unallocated corporate general and administrative expenses, enterprise-wide stock-based compensation, or non-cash impairments. Items below income from operations on Roper’s Consolidated Statements of Earnings are not allocated to reportable segments.
Operating assets are those assets used primarily in the operations of each reportable segment or geographic area. Corporate assets are principally comprised of cash and cash equivalents, income taxes receivable, deferred tax assets, deferred compensation assets, equity investments, and property and equipment.
Selected financial information by reportable segment for 2023, 2022, and 2021 was as follows:
| Application Software | Network Software | Technology Enabled Products | Corporate | Total | |||||||||||||||||||||||||||||||
| 2023 | |||||||||||||||||||||||||||||||||||
| Net revenues | $ | 3,186.9 | $ | 1,439.4 | $ | 1,551.5 | $ | — | $ | 6,177.8 | |||||||||||||||||||||||||
| Operating profit | 820.8 | 632.4 | 518.7 | (226.7) | 1,745.2 | ||||||||||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||||||||||||||
| Operating assets | 730.8 | 235.6 | 337.5 | 35.0 | 1,338.9 | ||||||||||||||||||||||||||||||
| Intangible assets, net | 19,242.4 | 5,005.9 | 1,082.6 | — | 25,330.9 | ||||||||||||||||||||||||||||||
| Other | 377.7 | 122.3 | 65.5 | 932.2 | 1,497.7 | ||||||||||||||||||||||||||||||
| Total assets | 28,167.5 | ||||||||||||||||||||||||||||||||||
| Capital expenditures | 20.1 | 6.4 | 13.8 | 27.7 | 68.0 | ||||||||||||||||||||||||||||||
| Capitalized software expenditures | 39.5 | 0.5 | — | — | 40.0 | ||||||||||||||||||||||||||||||
| Depreciation and other amortization | 563.0 | 162.5 | 29.1 | 0.6 | 755.2 | ||||||||||||||||||||||||||||||
| 2022 | |||||||||||||||||||||||||||||||||||
| Net revenues | $ | 2,639.5 | $ | 1,378.5 | $ | 1,353.8 | $ | — | $ | 5,371.8 | |||||||||||||||||||||||||
| Operating profit | 714.0 | 570.6 | 449.1 | (209.2) | 1,524.5 | ||||||||||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||||||||||||||
| Operating assets | 624.7 | 224.7 | 307.4 | 7.1 | 1,163.9 | ||||||||||||||||||||||||||||||
| Intangible assets, net | 17,758.4 | 5,118.5 | 1,099.9 | — | 23,976.8 | ||||||||||||||||||||||||||||||
| Other | 340.2 | 124.2 | 95.4 | 1,280.3 | 1,840.1 | ||||||||||||||||||||||||||||||
| Total assets | 26,980.8 | ||||||||||||||||||||||||||||||||||
| Capital expenditures | 20.7 | 8.8 | 9.2 | 1.4 | 40.1 | ||||||||||||||||||||||||||||||
| Capitalized software expenditures | 28.5 | 1.7 | — | — | 30.2 | ||||||||||||||||||||||||||||||
| Depreciation and other amortization | 455.8 | 164.2 | 29.8 | 0.3 | 650.1 | ||||||||||||||||||||||||||||||
| 2021 | |||||||||||||||||||||||||||||||||||
| Net revenues | $ | 2,366.7 | $ | 1,223.8 | $ | 1,243.3 | $ | — | $ | 4,833.8 | |||||||||||||||||||||||||
| Operating profit 2 | 633.1 | 476.8 | 415.6 | (189.9) | 1,335.6 | ||||||||||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||||||||||||||
| Operating assets | 576.0 | 215.5 | 250.7 | 15.4 | 1,057.6 | ||||||||||||||||||||||||||||||
| Intangible assets, net | 13,498.4 | 5,364.8 | 1,122.2 | — | 19,985.4 | ||||||||||||||||||||||||||||||
| Other | 205.8 | 50.4 | 33.8 | 498.0 | 788.0 | ||||||||||||||||||||||||||||||
| Total assets 1 | 21,831.0 | ||||||||||||||||||||||||||||||||||
| Capital expenditures | 18.0 | 5.0 | 4.5 | 1.0 | 28.5 | ||||||||||||||||||||||||||||||
| Capitalized software expenditures | 26.3 | 3.4 | — | — | 29.7 | ||||||||||||||||||||||||||||||
| Depreciation and other amortization | 418.7 | 164.8 | 32.1 | 0.3 | 615.9 |
1 Total assets excludes assets held for sale of $1,882.9 associated with the 2021 Divestitures and Indicor, as applicable, on December 31, 2021.
2 Operating profit excludes $94.4 of non-cash impairment charges for the year ended December 31, 2021.
Summarized data for Roper’s U.S. and foreign operations (principally in Canada, Europe, and Asia) for 2023, 2022, and 2021, based upon the country of origin of the Roper entity making the sale, was as follows:
| United States | Non-U.S. | Eliminations | Total | ||||||||||||||||||||
| 2023 | |||||||||||||||||||||||
| Sales to unaffiliated customers | $ | 5,353.6 | $ | 824.2 | $ | — | $ | 6,177.8 | |||||||||||||||
| Sales between geographic areas | 73.5 | 79.7 | (153.2) | — | |||||||||||||||||||
| Net revenues | $ | 5,427.1 | $ | 903.9 | $ | (153.2) | $ | 6,177.8 | |||||||||||||||
| Long-lived assets | $ | 251.1 | $ | 20.1 | $ | — | $ | 271.2 | |||||||||||||||
| 2022 | |||||||||||||||||||||||
| Sales to unaffiliated customers | $ | 4,610.2 | $ | 761.6 | $ | — | $ | 5,371.8 | |||||||||||||||
| Sales between geographic areas | 55.5 | 82.2 | (137.7) | — | |||||||||||||||||||
| Net revenues | $ | 4,665.7 | $ | 843.8 | $ | (137.7) | $ | 5,371.8 | |||||||||||||||
| Long-lived assets | $ | 196.5 | $ | 17.1 | $ | — | $ | 213.6 | |||||||||||||||
| 2021 | |||||||||||||||||||||||
| Sales to unaffiliated customers | $ | 4,105.6 | $ | 728.2 | $ | — | $ | 4,833.8 | |||||||||||||||
| Sales between geographic areas | 81.1 | 81.9 | (163.0) | — | |||||||||||||||||||
| Net revenues | $ | 4,186.7 | $ | 810.1 | $ | (163.0) | $ | 4,833.8 | |||||||||||||||
| Long-lived assets | $ | 167.3 | $ | 19.8 | $ | — | $ | 187.1 |
Export sales from the U.S. during the years ended December 31, 2023, 2022, and 2021 were $198.1, $191.8, and $179.9, respectively. In the year ended December 31, 2023, these exports were shipped primarily to Canada (46%), Europe (26%), Asia (14%), and other (14%).
Sales to customers outside of the U.S. accounted for a significant portion of Roper’s revenues. Sales are attributed to geographic areas based upon the location where the product is ultimately delivered. Roper’s net revenues for the years ended December 31, 2023, 2022, and 2021 are shown below by region, except for Canada, which is presented separately:
| Application Software | Network Software | Technology Enabled Products | Total | ||||||||||||||||||||||||||
| 2023 | |||||||||||||||||||||||||||||
| Canada | $ | 63.7 | $ | 99.5 | $ | 91.4 | $ | 254.6 | |||||||||||||||||||||
| Europe | 260.7 | 64.2 | 128.3 | 453.2 | |||||||||||||||||||||||||
| Asia | 4.6 | 14.6 | 55.9 | 75.1 | |||||||||||||||||||||||||
| Rest of the world | 34.6 | 9.2 | 46.7 | 90.5 | |||||||||||||||||||||||||
| Total | $ | 363.6 | $ | 187.5 | $ | 322.3 | $ | 873.4 | |||||||||||||||||||||
| 2022 | |||||||||||||||||||||||||||||
| Canada | $ | 57.8 | $ | 95.9 | $ | 68.6 | $ | 222.3 | |||||||||||||||||||||
| Europe | 241.2 | 65.7 | 117.7 | 424.6 | |||||||||||||||||||||||||
| Asia | 4.9 | 12.2 | 56.2 | 73.3 | |||||||||||||||||||||||||
| Rest of the world | 35.1 | 7.5 | 43.7 | 86.3 | |||||||||||||||||||||||||
| Total | $ | 339.0 | $ | 181.3 | $ | 286.2 | $ | 806.5 | |||||||||||||||||||||
| 2021 | |||||||||||||||||||||||||||||
| Canada | $ | 51.2 | $ | 85.2 | $ | 61.7 | $ | 198.1 | |||||||||||||||||||||
| Europe | 248.2 | 59.2 | 125.3 | 432.7 | |||||||||||||||||||||||||
| Asia | 3.7 | 10.9 | 49.4 | 64.0 | |||||||||||||||||||||||||
| Rest of the world | 37.1 | 6.5 | 37.5 | 81.1 | |||||||||||||||||||||||||
| Total | $ | 340.2 | $ | 161.8 | $ | 273.9 | $ | 775.9 |
(15) Concentration of Risk
Financial instruments which potentially subject the Company to credit risk consist primarily of cash and cash equivalents, trade receivables, and unbilled receivables.
The Company maintains cash and cash equivalents with various major financial institutions around the world. The Company limits the amount of credit exposure with any one financial institution and believes that no significant concentration of credit risk exists with respect to cash and cash equivalent balances.
Trade and unbilled receivables subject the Company to the potential for credit risk with customers. To reduce credit risk, the Company performs ongoing evaluations of its customers’ financial condition.
(16) Contract Balances
Contract balances at December 31 are set forth in the following table:
| Balance sheet account | 2023 | 2022 | Change | ||||||||||||||
| Unbilled receivables | $ | 106.4 | $ | 91.5 | $ | 14.9 | |||||||||||
| Deferred revenue – current | (1,583.8) | (1,370.7) | (213.1) | ||||||||||||||
| Deferred revenue – non-current | (130.7) | (111.5) | (19.2) | ||||||||||||||
| Net contract assets/(liabilities) | $ | (1,608.1) | $ | (1,390.7) | $ | (217.4) |
The change in our net contract assets/(liabilities) from December 31, 2022 to December 31, 2023 was due primarily to net contract liabilities of approximately $125 associated with the acquisitions completed during the year ended December 31, 2023, and the timing of payments and invoicing relating to SaaS and post-contract support (PCS) renewals.
Revenue recognized during the years ended December 31, 2023 and 2022 that was included in the deferred revenue balance on December 31, 2022 and 2021 was $1,322.0 and $1,053.1, respectively. In order to determine revenues recognized in the period from contract liabilities, we allocate revenue to the individual deferred revenue balance outstanding at the beginning of the year until the revenue exceeds that balance.
Impairment losses recognized on our accounts receivable and unbilled receivables were immaterial in each of the years ended December 31, 2023, 2022, and 2021, respectively.
(17) Leases
The Company’s operating leases are primarily for real property in support of our business operations. Although many of our leases contain renewal options, we generally are not reasonably certain to exercise these options at the commencement date. Accordingly, renewal options are generally not included in the lease term for determining the right-of-use (“ROU”) asset and lease liability at commencement. Variable lease payments generally depend on an inflation-based index and such payments are not included in the original estimate of the lease liability. These variable lease payments are not material.
For the years ended December 31, 2023, 2022, and 2021, the Company recognized $50.6, $48.7, and $51.8 of operating lease expense, respectively.
The following table presents the supplemental cash flow information related to the Company’s operating leases for the years ended December 31:
| 2023 | 2022 | 2021 | |||||||||||||||
| Operating cash flows used for operating leases | $ | 50.6 | $ | 48.3 | $ | 51.5 | |||||||||||
| Right-of-use assets obtained in exchange for operating lease obligations | 29.6 | 53.9 | 28.2 |
The following table presents the lease balances within the Consolidated Balance Sheets related to the Company’s operating leases as of December 31:
| Lease assets and liabilities | Balance sheet account | 2023 | 2022 | |||||||||||||||||
| ASSETS: | ||||||||||||||||||||
| Operating lease ROU assets | Other assets | $ | 189.8 | $ | 196.1 | |||||||||||||||
| LIABILITIES: | ||||||||||||||||||||
| Current operating lease liabilities | Other accrued liabilities | 43.3 | 46.4 | |||||||||||||||||
| Operating lease liabilities | Other liabilities | 158.7 | 164.2 | |||||||||||||||||
| Total operating lease liabilities | $ | 202.0 | $ | 210.6 |
Future minimum lease payments under non-cancellable leases were as follows:
| 2024 | $ | 47.9 | |||
| 2025 | 42.9 | ||||
| 2026 | 35.1 | ||||
| 2027 | 28.3 | ||||
| 2028 | 21.9 | ||||
| Thereafter | 44.6 | ||||
| Total operating lease payments | 220.7 | ||||
| Less: Imputed interest | 18.7 | ||||
| Total operating lease liabilities | $ | 202.0 |
| Weighted average remaining lease term – operating leases (years) | 6 | ||||
| Weighted average discount rate (%) | 3.0 |
(18) Quarterly Financial Data (unaudited)
The unaudited interim financial information below has been adjusted to incorporate the presentation of discontinued operations. Refer to Note 3 for further information on discontinued operations.
| First Quarter | Second Quarter | Third Quarter | Fourth Quarter | ||||||||||||||||||||
| 2023 | |||||||||||||||||||||||
| Net revenues | $ | 1,469.7 | $ | 1,531.2 | $ | 1,563.4 | $ | 1,613.5 | |||||||||||||||
| Gross profit | 1,018.6 | 1,067.1 | 1,096.3 | 1,125.2 | |||||||||||||||||||
| Income from operations | 401.0 | 435.3 | 446.1 | 462.8 | |||||||||||||||||||
| Net earnings from continuing operations | 284.3 | 361.0 | 345.6 | 377.5 | |||||||||||||||||||
| Net earnings (loss) from discontinued operations | (1.2) | 3.9 | 1.6 | 11.5 | |||||||||||||||||||
| Net earnings | 283.1 | 364.9 | 347.2 | 389.0 | |||||||||||||||||||
| Net earnings per share from continuing operations: | |||||||||||||||||||||||
| Basic | $ | 2.67 | $ | 3.38 | $ | 3.23 | $ | 3.53 | |||||||||||||||
| Diluted | $ | 2.66 | $ | 3.36 | $ | 3.21 | $ | 3.50 | |||||||||||||||
| Net earnings (loss) per share from discontinued operations: | |||||||||||||||||||||||
| Basic | $ | (0.01) | $ | 0.04 | $ | 0.02 | $ | 0.11 | |||||||||||||||
| Diluted | $ | (0.01) | $ | 0.04 | $ | 0.02 | $ | 0.11 | |||||||||||||||
| Net earnings per share: | |||||||||||||||||||||||
| Basic | $ | 2.66 | $ | 3.42 | $ | 3.25 | $ | 3.64 | |||||||||||||||
| Diluted | $ | 2.65 | $ | 3.40 | $ | 3.23 | $ | 3.61 | |||||||||||||||
| 2022 | |||||||||||||||||||||||
| Net revenues | $ | 1,279.8 | $ | 1,310.8 | $ | 1,350.3 | $ | 1,430.9 | |||||||||||||||
| Gross profit | 897.2 | 911.5 | 941.8 | 1,002.3 | |||||||||||||||||||
| Income from operations | 355.9 | 362.9 | 393.2 | 412.5 | |||||||||||||||||||
| Net earnings from continuing operations | 236.4 | 225.0 | 276.9 | 247.3 | |||||||||||||||||||
| Net earnings from discontinued operations | 1,784.1 | 43.8 | 50.1 | 1,681.1 | |||||||||||||||||||
| Net earnings | 2,020.5 | 268.8 | 327.0 | 1,928.4 | |||||||||||||||||||
| Net earnings per share from continuing operations: | |||||||||||||||||||||||
| Basic | $ | 2.24 | $ | 2.13 | $ | 2.61 | $ | 2.33 | |||||||||||||||
| Diluted | $ | 2.22 | $ | 2.11 | $ | 2.59 | $ | 2.32 | |||||||||||||||
| Net earnings per share from discontinued operations: | |||||||||||||||||||||||
| Basic | $ | 16.89 | $ | 0.41 | $ | 0.47 | $ | 15.85 | |||||||||||||||
| Diluted | $ | 16.72 | $ | 0.41 | $ | 0.47 | $ | 15.74 | |||||||||||||||
| Net earnings per share: | |||||||||||||||||||||||
| Basic | $ | 19.13 | $ | 2.54 | $ | 3.08 | $ | 18.18 | |||||||||||||||
| Diluted | $ | 18.94 | $ | 2.52 | $ | 3.06 | $ | 18.06 |
The sum of the four quarters may not agree with the total for the year due to rounding.
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