filings.toolsItem 1. FINANCIAL STATEMENTS
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Item 1. FINANCIAL STATEMENTS
Roper Technologies, Inc. and Subsidiaries
Condensed Consolidated Statements of Earnings (unaudited)
(in millions, except per share data)
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Net revenues | $ | 1,462.8 | $ | 1,198.2 | $ | 4,265.5 | $ | 3,518.6 | |||||||||||||||
| Cost of sales | 466.7 | 388.3 | 1,366.1 | 1,148.7 | |||||||||||||||||||
| Gross profit | 996.1 | 809.9 | 2,899.4 | 2,369.9 | |||||||||||||||||||
| Selling, general and administrative expenses | 592.6 | 479.4 | 1,739.8 | 1,439.4 | |||||||||||||||||||
| Income from operations | 403.5 | 330.5 | 1,159.6 | 930.5 | |||||||||||||||||||
| Interest expense, net | 58.2 | 62.2 | 178.2 | 154.8 | |||||||||||||||||||
| Other income (expense), net | (1.7) | (2.1) | 24.9 | (4.0) | |||||||||||||||||||
| Earnings before income taxes | 343.6 | 266.2 | 1,006.3 | 771.7 | |||||||||||||||||||
| Income taxes | 83.8 | 59.2 | 223.6 | 171.2 | |||||||||||||||||||
| Net earnings from continuing operations | 259.8 | 207.0 | 782.7 | 600.5 | |||||||||||||||||||
| Net earnings from discontinued operations | 29.7 | 27.4 | 82.1 | 93.4 | |||||||||||||||||||
| Net earnings | $ | 289.5 | $ | 234.4 | $ | 864.8 | $ | 693.9 | |||||||||||||||
| Net earnings per share from continuing operations: | |||||||||||||||||||||||
| Basic | $ | 2.47 | $ | 1.98 | $ | 7.44 | $ | 5.75 | |||||||||||||||
| Diluted | $ | 2.43 | $ | 1.95 | $ | 7.36 | $ | 5.69 | |||||||||||||||
| Net earnings per share from discontinued operations: | |||||||||||||||||||||||
| Basic | $ | 0.28 | $ | 0.26 | $ | 0.78 | $ | 0.89 | |||||||||||||||
| Diluted | $ | 0.28 | $ | 0.26 | $ | 0.77 | $ | 0.88 | |||||||||||||||
| Net earnings per share: | |||||||||||||||||||||||
| Basic | $ | 2.75 | $ | 2.24 | $ | 8.22 | $ | 6.64 | |||||||||||||||
| Diluted | $ | 2.71 | $ | 2.21 | $ | 8.13 | $ | 6.57 | |||||||||||||||
| Weighted average common shares outstanding: | |||||||||||||||||||||||
| Basic | 105.4 | 104.7 | 105.2 | 104.5 | |||||||||||||||||||
| Diluted | 106.7 | 105.9 | 106.4 | 105.6 |
See accompanying notes to Condensed Consolidated Financial Statements.
Roper Technologies, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income (unaudited)
(in millions)
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Net earnings | $ | 289.5 | $ | 234.4 | $ | 864.8 | $ | 693.9 | |||||||||||||||
| Other comprehensive income (loss), net of tax: | |||||||||||||||||||||||
| Foreign currency translation adjustments | (35.4) | 43.4 | (3.5) | (28.6) | |||||||||||||||||||
| Total other comprehensive income (loss), net of tax | (35.4) | 43.4 | (3.5) | (28.6) | |||||||||||||||||||
| Comprehensive income | $ | 254.1 | $ | 277.8 | $ | 861.3 | $ | 665.3 |
See accompanying notes to Condensed Consolidated Financial Statements.
Roper Technologies, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (unaudited)
(in millions)
| September 30, 2021 | December 31, 2020 | ||||||||||
| ASSETS: | |||||||||||
| Cash and cash equivalents | $ | 352.5 | $ | 308.3 | |||||||
| Accounts receivable, net | 749.4 | 745.7 | |||||||||
| Inventories, net | 174.4 | 165.1 | |||||||||
| Income taxes receivable | 26.6 | 21.9 | |||||||||
| Unbilled receivables | 102.5 | 72.8 | |||||||||
| Other current assets | 136.2 | 114.3 | |||||||||
| Current assets held for sale | 833.6 | 324.2 | |||||||||
| Total current assets | 2,375.2 | 1,752.3 | |||||||||
| Property, plant and equipment, net | 105.6 | 127.3 | |||||||||
| Goodwill | 13,989.2 | 13,966.0 | |||||||||
| Other intangible assets, net | 6,745.9 | 7,168.2 | |||||||||
| Deferred taxes | 103.6 | 103.2 | |||||||||
| Other assets | 408.6 | 386.2 | |||||||||
| Assets held for sale | — | 521.6 | |||||||||
| Total assets | $ | 23,728.1 | $ | 24,024.8 | |||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY: | |||||||||||
| Accounts payable | $ | 146.9 | $ | 127.1 | |||||||
| Accrued compensation | 283.1 | 262.6 | |||||||||
| Deferred revenue | 995.5 | 990.2 | |||||||||
| Other accrued liabilities | 411.9 | 418.6 | |||||||||
| Income taxes payable | 55.9 | 25.7 | |||||||||
| Current portion of long-term debt, net | 799.2 | 499.4 | |||||||||
| Current liabilities held for sale | 168.6 | 120.8 | |||||||||
| Total current liabilities | 2,861.1 | 2,444.4 | |||||||||
| Long-term debt, net of current portion | 7,529.9 | 9,061.4 | |||||||||
| Deferred taxes | 1,526.0 | 1,531.5 | |||||||||
| Other liabilities | 468.8 | 443.6 | |||||||||
| Liabilities held for sale | — | 64.1 | |||||||||
| Total liabilities | 12,385.8 | 13,545.0 | |||||||||
| Commitments and contingencies (Note 10) | |||||||||||
| Common stock | 1.1 | 1.1 | |||||||||
| Additional paid-in capital | 2,276.2 | 2,097.5 | |||||||||
| Retained earnings | 9,233.2 | 8,546.2 | |||||||||
| Accumulated other comprehensive loss | (150.5) | (147.0) | |||||||||
| Treasury stock | (17.7) | (18.0) | |||||||||
| Total stockholders’ equity | 11,342.3 | 10,479.8 | |||||||||
| Total liabilities and stockholders’ equity | $ | 23,728.1 | $ | 24,024.8 |
See accompanying notes to Condensed Consolidated Financial Statements.
Roper Technologies, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (unaudited)
(in millions)
| Nine months ended September 30, | |||||||||||
| 2021 | 2020 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net earnings from continuing operations | $ | 782.7 | $ | 600.5 | |||||||
| Adjustments to reconcile net earnings from continuing operations to cash flows from operating activities: | |||||||||||
| Depreciation and amortization of property, plant and equipment | 38.2 | 33.1 | |||||||||
| Amortization of intangible assets | 438.8 | 318.9 | |||||||||
| Amortization of deferred financing costs | 10.1 | 7.4 | |||||||||
| Non-cash stock compensation | 102.9 | 84.8 | |||||||||
| Gain on sale of assets, net of tax | (21.6) | — | |||||||||
| Income tax provision, excluding tax associated with gain on sale of assets | 218.1 | 171.2 | |||||||||
| Changes in operating assets and liabilities, net of acquired businesses: | |||||||||||
| Accounts receivable | (8.9) | 108.0 | |||||||||
| Unbilled receivables | (26.2) | (9.3) | |||||||||
| Inventories | (11.0) | (15.4) | |||||||||
| Accounts payable and accrued liabilities | 36.8 | 46.8 | |||||||||
| Deferred revenue | 31.5 | (53.0) | |||||||||
| Cash tax paid for gain on disposal of businesses | — | (201.9) | |||||||||
| Cash income taxes paid | (240.9) | (234.6) | |||||||||
| Other, net | (31.2) | (13.8) | |||||||||
| Cash provided by operating activities from continuing operations | 1,319.3 | 842.7 | |||||||||
| Cash provided by operating activities from discontinued operations | 113.1 | 108.2 | |||||||||
| Cash provided by operating activities | 1,432.4 | 950.9 | |||||||||
| Cash flows from (used in) investing activities: | |||||||||||
| Acquisitions of businesses, net of cash acquired | (19.4) | (5,653.3) | |||||||||
| Capital expenditures | (22.5) | (20.9) | |||||||||
| Capitalized software expenditures | (22.3) | (9.8) | |||||||||
| Proceeds used in disposal of businesses | (0.1) | (4.2) | |||||||||
| Proceeds from sale of assets | 27.1 | — | |||||||||
| Other, net | (1.0) | (2.7) | |||||||||
| Cash used in investing activities from continuing operations | (38.2) | (5,690.9) | |||||||||
| Cash used in investing activities from discontinued operations | (4.2) | (2.1) | |||||||||
| Cash used in investing activities | (42.4) | (5,693.0) | |||||||||
| Cash flows from (used in) financing activities: | |||||||||||
| Proceeds from senior notes | — | 3,300.0 | |||||||||
| Borrowings (payments) under revolving line of credit, net | (1,240.0) | 1,160.0 | |||||||||
| Debt issuance costs | — | (42.0) | |||||||||
| Cash dividends to stockholders | (176.9) | (160.0) | |||||||||
| Proceeds from stock-based compensation, net | 63.9 | 72.5 | |||||||||
| Treasury stock sales | 11.8 | 7.3 | |||||||||
| Other | — | (0.2) | |||||||||
| Cash flows provided by (used in) financing activities from continuing operations | (1,341.2) | 4,337.6 | |||||||||
| Cash flows provided by (used in) financing activities from discontinued operations | 0.3 | (1.2) | |||||||||
| Cash flows provided by (used in) financing activities | (1,340.9) | 4,336.4 | |||||||||
| (Continued) | |||||||||||
Roper Technologies, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (unaudited) - Continued
(in millions)
| Nine months ended September 30, | |||||||||||
| 2021 | 2020 | ||||||||||
| Effect of foreign currency exchange rate changes on cash | (4.9) | (1.9) | |||||||||
| Net increase (decrease) in cash and cash equivalents | 44.2 | (407.6) | |||||||||
| Cash and cash equivalents, beginning of period | 308.3 | 709.7 | |||||||||
| Cash and cash equivalents, end of period | $ | 352.5 | $ | 302.1 |
See accompanying notes to Condensed Consolidated Financial Statements.
Roper Technologies, Inc. and Subsidiaries
Condensed Consolidated Statements of Changes in Stockholders’ Equity (unaudited)
(in millions)
| Common stock | Additional paid-in capital | Retained earnings | Accumulated other comprehensive loss | Treasury stock | Total stockholders’ equity | ||||||||||||||||||||||||||||||
| Balances at June 30, 2021 | $ | 1.1 | $ | 2,217.9 | $ | 9,003.1 | $ | (115.1) | $ | (17.8) | $ | 11,089.2 | |||||||||||||||||||||||
| Net earnings | — | — | 289.5 | — | — | 289.5 | |||||||||||||||||||||||||||||
| Stock option exercises | — | 20.7 | — | — | — | 20.7 | |||||||||||||||||||||||||||||
| Treasury stock sold | — | 3.5 | — | — | 0.1 | 3.6 | |||||||||||||||||||||||||||||
| Currency translation adjustments | — | — | — | (35.4) | — | (35.4) | |||||||||||||||||||||||||||||
| Stock-based compensation | — | 36.1 | — | — | — | 36.1 | |||||||||||||||||||||||||||||
| Restricted stock activity | — | (2.0) | — | — | — | (2.0) | |||||||||||||||||||||||||||||
| Dividends declared ($0.5625 per share) | — | — | (59.4) | — | — | (59.4) | |||||||||||||||||||||||||||||
| Balances at September 30, 2021 | $ | 1.1 | $ | 2,276.2 | $ | 9,233.2 | $ | (150.5) | $ | (17.7) | $ | 11,342.3 | |||||||||||||||||||||||
| Balances at December 31, 2020 | $ | 1.1 | $ | 2,097.5 | $ | 8,546.2 | $ | (147.0) | $ | (18.0) | $ | 10,479.8 | |||||||||||||||||||||||
| Net earnings | — | — | 864.8 | — | — | 864.8 | |||||||||||||||||||||||||||||
| Stock option exercises | — | 81.8 | — | — | — | 81.8 | |||||||||||||||||||||||||||||
| Treasury stock sold | — | 11.5 | — | — | 0.3 | 11.8 | |||||||||||||||||||||||||||||
| Currency translation adjustments | — | — | — | (3.5) | — | (3.5) | |||||||||||||||||||||||||||||
| Stock-based compensation | — | 103.3 | — | — | — | 103.3 | |||||||||||||||||||||||||||||
| Restricted stock activity | — | (17.9) | — | — | — | (17.9) | |||||||||||||||||||||||||||||
| Dividends declared ($1.6875 per share) | — | — | (177.8) | — | — | (177.8) | |||||||||||||||||||||||||||||
| Balances at September 30, 2021 | $ | 1.1 | $ | 2,276.2 | $ | 9,233.2 | $ | (150.5) | $ | (17.7) | $ | 11,342.3 | |||||||||||||||||||||||
| Balances at June 30, 2020 | $ | 1.1 | $ | 2,012.9 | $ | 8,168.7 | $ | (284.8) | $ | (18.2) | $ | 9,879.7 | |||||||||||||||||||||||
| Net earnings | — | — | 234.4 | — | — | 234.4 | |||||||||||||||||||||||||||||
| Stock option exercises | — | 25.9 | — | — | — | 25.9 | |||||||||||||||||||||||||||||
| Treasury stock sold | — | 2.7 | — | — | 0.1 | 2.8 | |||||||||||||||||||||||||||||
| Currency translation adjustments | — | — | — | 43.4 | — | 43.4 | |||||||||||||||||||||||||||||
| Stock-based compensation | — | 29.5 | — | — | — | 29.5 | |||||||||||||||||||||||||||||
| Restricted stock activity | — | (1.1) | — | — | — | (1.1) | |||||||||||||||||||||||||||||
| Dividends declared ($0.5125 per share) | — | — | (53.7) | — | — | (53.7) | |||||||||||||||||||||||||||||
| Balances at September 30, 2020 | $ | 1.1 | $ | 2,069.9 | $ | 8,349.4 | $ | (241.4) | $ | (18.1) | $ | 10,160.9 | |||||||||||||||||||||||
| Balances at December 31, 2019 | $ | 1.1 | $ | 1,903.9 | $ | 7,818.0 | $ | (212.8) | $ | (18.3) | $ | 9,491.9 | |||||||||||||||||||||||
| Adoption of ASC 326 | — | — | (1.7) | — | — | (1.7) | |||||||||||||||||||||||||||||
| Net earnings | — | — | 693.9 | — | — | 693.9 | |||||||||||||||||||||||||||||
| Stock option exercises | — | 88.9 | — | — | — | 88.9 | |||||||||||||||||||||||||||||
| Treasury stock sold | — | 7.1 | — | — | 0.2 | 7.3 | |||||||||||||||||||||||||||||
| Currency translation adjustments | — | — | — | (28.6) | — | (28.6) | |||||||||||||||||||||||||||||
| Stock-based compensation | — | 86.4 | — | — | — | 86.4 | |||||||||||||||||||||||||||||
| Restricted stock activity | — | (16.4) | — | — | — | (16.4) | |||||||||||||||||||||||||||||
| Dividends declared ($1.5375 per share) | — | — | (160.8) | — | — | (160.8) | |||||||||||||||||||||||||||||
| Balances at September 30, 2020 | $ | 1.1 | $ | 2,069.9 | $ | 8,349.4 | $ | (241.4) | $ | (18.1) | $ | 10,160.9 |
See accompanying notes to Condensed Consolidated Financial Statements.
Roper Technologies, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
All currency and share amounts are in millions, except per share data
1. Basis of Presentation
The accompanying Condensed Consolidated Financial Statements for the three and nine months ended September 30, 2021 and 2020 are unaudited. In the opinion of management, the accompanying unaudited Condensed Consolidated Financial Statements reflect all adjustments, which include only normal recurring adjustments, necessary to state fairly the financial position, results of operations, comprehensive income and cash flows of Roper Technologies, Inc. and its subsidiaries (“Roper,” the “Company,” “we,” “our” or “us”) for all periods presented. The December 31, 2020 financial position data included herein was derived from the audited consolidated financial statements included in the Company’s 2020 Annual Report on Form 10-K (“Annual Report”) filed on February 22, 2021 with the Securities and Exchange Commission (“SEC”) but does not include all disclosures required by U.S. generally accepted accounting principles (“GAAP”).
Roper’s management has made estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these Condensed Consolidated Financial Statements in conformity with GAAP. Actual results could differ from those estimates.
During and subsequent to the third quarter of 2021, the Company signed definitive agreements to divest its TransCore, Zetec and CIVCO Radiotherapy businesses which are presented as discontinued operations for all periods presented. Unless otherwise noted, discussion within these notes to the Condensed Consolidated Financial Statements relate to continuing operations. Refer to Note 5 for additional information on discontinued operations.
The results of operations for the three and nine months ended September 30, 2021 are not necessarily indicative of the results to be expected for the full year. You should read these unaudited Condensed Consolidated Financial Statements in conjunction with Roper’s audited consolidated financial statements and the notes thereto included in its Annual Report. Certain prior period amounts have been reclassified to conform to current period presentation.
2. 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 Accounting Standards Codification (“ASC”). The Company considers the applicability and impact of all ASUs. Any recent ASUs not listed were assessed and determined to be either 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
The Company adopted ASC Topic 326, Financial Instruments - Credit Losses (“ASC 326”), as of January 1, 2020 using the modified retrospective transition method. This ASU amends the impairment model to utilize an expected loss methodology in place of the incurred loss methodology for financial instruments, including trade receivables, and unbilled receivables. We recorded a noncash cumulative effect decrease to retained earnings of $1.7, net of income taxes, on our opening consolidated balance sheet as of January 1, 2020.
Recently Issued 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 expects to early adopt this update in the fourth quarter of 2021. This update will not impact the acquisitions completed in 2021 and the future impact of adoption, if any, will depend on the acquisitions made by the Company.
3. Weighted Average Shares Outstanding
Basic earnings per share were calculated using net earnings and the weighted average number of shares of common stock outstanding during the respective period. Diluted earnings per share were calculated using net earnings and the weighted average number of shares of common stock and potential common stock outstanding during the respective period. Potentially dilutive common stock consisted of stock options based upon the trading price of Roper’s common stock. The effects of potential common stock were determined using the treasury stock method.
Weighted average shares outstanding are shown below:
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Basic shares outstanding | 105.4 | 104.7 | 105.2 | 104.5 | |||||||||||||||||||
| Effect of potential common stock: | |||||||||||||||||||||||
| Common stock awards | 1.3 | 1.2 | 1.2 | 1.1 | |||||||||||||||||||
| Diluted shares outstanding | 106.7 | 105.9 | 106.4 | 105.6 |
For the three and nine months ended September 30, 2021, there were 0.502 and 0.530 outstanding stock options, respectively, that were not included in the determination of diluted earnings per share because doing so would have been antidilutive, as compared to 0.135 and 0.809 outstanding stock options that would have been antidilutive in the respective 2020 periods.
4. Business Acquisitions and Disposition
Roper completed four business acquisitions in the nine months ended September 30, 2021, with an aggregate purchase price of $19.7, net of cash acquired. All four of these acquisitions have been integrated into our Deltek business and its results are reported in the Application Software reportable segment. The results of operations of the acquired businesses are included in Roper’s Condensed Consolidated Financial Statements since the date of each acquisition. Pro forma results of operations and the revenue and net income subsequent to the acquisition date for the acquisitions completed during the first nine months of fiscal 2021 have not been presented because the effects of the acquisitions, individually and in the aggregate, were not material to our financial results.
The Company recorded $13.6 in goodwill and $8.3 of other identifiable intangibles in connection with these four acquisitions. The amortizable intangible assets include customer relationships of $8.0 (13.6 year weighted average useful life) and technology of $0.3 (5.0 year weighted average useful life).
Disposition
On March 17, 2021, Roper completed the sale of a minority investment in Sedaru, Inc. for $27.1. The pretax gain on the sale was $27.1, which is reported in Other income (expense), net in the Condensed Consolidated Statement of Earnings.
5. Discontinued Operations
During and subsequent to the third quarter of 2021, the Company signed definitive agreements to divest its TransCore, Zetec and CIVCO Radiotherapy businesses as described below.
-
On August 10, 2021, Roper signed a definitive agreement to divest its Zetec business to Eddyfi NDT Inc. for approximately $350.0 in cash. The transaction, which is expected to close in the fourth quarter of 2021, is subject to customary closing conditions, including regulatory approvals. Zetec was previously included in the Process Technologies reportable segment.
-
On October 1, 2021, Roper signed a definitive agreement to divest its TransCore business to an affiliate of Singapore Technologies Engineering Ltd., for approximately $2,680.0 in cash. The transaction, which is expected to close in the first quarter of 2022, is subject to customary closing conditions, including regulatory approvals. TransCore was previously included in the Network Software & Systems reportable segment.
-
On October 14, 2021, Roper signed a definitive agreement to divest its CIVCO Radiotherapy business to an affiliate of Blue Wolf Capital Partners LLC, for approximately $120.0 in cash. On November 1, 2021, the Company closed on its sale of its CIVCO Radiotherapy business. The Company is currently calculating the gain and associated tax expense on the sale, which will be disclosed within the Company’s 2021 Annual Report on Form 10-K. The CIVCO Radiotherapy business was previously included in the Measurement & Analytical Solutions reportable segment.
The Company concluded these disposal activities, in the aggregate, represented a strategic shift that will have a major effect on the Company’s operations and financial results. These divestitures significantly enhance our mix of high-margin, recurring revenue businesses and notably reduce our working capital requirements. Accordingly, the financial results of the TransCore, Zetec and CIVCO Radiotherapy businesses are presented in the Condensed Consolidated Financial Statements as discontinued operations for all periods presented. Current and non-current assets and liabilities of these businesses are presented in the Condensed Consolidated Balance Sheet as assets and liabilities of discontinued operations classified as held for sale for both periods presented.
The following tables summarize the major classes of assets and liabilities related to the discontinued operations of the TransCore, Zetec and CIVCO Radiotherapy businesses, as reported in the Condensed Consolidated Balance Sheets:
| September 30, 2021 (1) | December 31, 2020 | ||||||||||
| Accounts receivable, net | $ | 86.8 | $ | 117.3 | |||||||
| Inventories, net | 53.8 | 33.3 | |||||||||
| Unbilled receivables | 154.6 | 168.9 | |||||||||
| Goodwill | 428.5 | — | |||||||||
| Other intangible assets, net | 37.8 | — | |||||||||
| Other current assets | 72.1 | 4.7 | |||||||||
| Current assets held for sale | 833.6 | 324.2 | |||||||||
| Goodwill | — | 429.2 | |||||||||
| Other intangible assets, net | — | 38.7 | |||||||||
| Other assets | — | 53.7 | |||||||||
| Assets held for sale | $ | — | $ | 521.6 | |||||||
| Accounts payable | $ | 49.7 | $ | 50.7 | |||||||
| Accrued compensation | 30.2 | 23.5 | |||||||||
| Deferred taxes | 25.2 | — | |||||||||
| Other current liabilities | 63.5 | 46.6 | |||||||||
| Current liabilities held for sale | 168.6 | 120.8 | |||||||||
| Deferred taxes | — | 31.0 | |||||||||
| Other liabilities | — | 33.1 | |||||||||
| Liabilities held for sale | $ | — | $ | 64.1 |
(1) All assets and liabilities held for sale were classified as current as it is probable the sale of TransCore, Zetec and CIVCO Radiotherapy will be completed within one year.
The following table summarizes the major classes of revenue and expenses constituting net income from discontinued operations attributable to the TransCore, Zetec and CIVCO Radiotherapy businesses:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Net revenues | $ | 158.6 | $ | 167.9 | $ | 472.1 | $ | 503.2 | |||||||||||||||
| Cost of sales | 91.3 | 101.9 | 280.2 | 296.7 | |||||||||||||||||||
| Gross profit | 67.3 | 66.0 | 191.9 | 206.5 | |||||||||||||||||||
| Selling, general and administrative expenses(1) | 25.6 | 28.9 | 87.8 | 86.6 | |||||||||||||||||||
| Income from operations | 41.7 | 37.1 | 104.1 | 119.9 | |||||||||||||||||||
| Other income (expense), net | 0.2 | (0.2) | 1.4 | 0.2 | |||||||||||||||||||
| Earnings before income taxes | 41.9 | 36.9 | 105.5 | 120.1 | |||||||||||||||||||
| Income taxes | 12.2 | 9.5 | 23.4 | 26.7 | |||||||||||||||||||
| Net earnings from discontinued operations | $ | 29.7 | $ | 27.4 | $ | 82.1 | $ | 93.4 |
(1) Includes stock-based compensation expense of $1.4 and $1.2 for the three months ended September 30, 2021 and 2020, respectively, and $3.2 and $3.5 for the nine months ended September 30, 2021 and 2020, respectively. Stock-based compensation for discontinued operations was previously reported as a component of unallocated corporate general and administrative expenses.
6. 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 under the 2016 Plan.
The following table provides information regarding the Company’s stock-based compensation expense:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Stock-based compensation | $ | 35.4 | $ | 28.9 | $ | 102.9 | $ | 84.8 | |||||||||||||||
| Tax effect recognized in net earnings from continuing operations | 7.4 | 6.1 | 21.6 | 17.8 |
Stock Options - In the nine months ended September 30, 2021, 0.513 options were granted with a weighted average fair value of $95.04 per option. During the same period in 2020, 0.758 options were granted with a weighted average fair value of $63.01 per option. All options were issued with an exercise price equal to the closing price of Roper’s common stock on the date of grant, as required by the 2021 Plan and 2016 Plan.
Roper records compensation expense for employee stock options based on the estimated fair value of the options on the date of grant using the Black-Scholes option-pricing model. Historical data is used to estimate the expected price volatility, the expected dividend yield, the expected option life and the expected forfeiture rate. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for the estimated life of the option.
The following weighted average assumptions were used to estimate the fair value of options granted during current and prior year periods using the Black-Scholes option-pricing model:
| Nine months ended September 30, | |||||||||||
| 2021 | 2020 | ||||||||||
| Risk-free interest rate (%) | 0.94 | 0.81 | |||||||||
| Expected option life (years) | 5.61 | 5.64 | |||||||||
| Expected volatility (%) | 25.15 | 20.36 | |||||||||
| Expected dividend yield (%) | 0.56 | 0.62 |
Cash received from option exercises for the nine months ended September 30, 2021 and 2020 was $81.8 and $88.9, respectively.
Restricted Stock Grants - During the nine months ended September 30, 2021, the Company granted 0.225 shares with a weighted average grant date fair value of $408.07 per restricted share. During the same period in 2020, the Company granted 0.234 shares with a weighted average grant date fair value of $353.68 per restricted share. All grants were issued at grant date fair value.
During the nine months ended September 30, 2021, 0.146 restricted shares vested with a weighted average grant date fair value of $314.01 per restricted share and a weighted average vest date fair value of $406.74 per restricted share.
Employee Stock Purchase Plan - Roper’s employee stock purchase plan (“ESPP”) previously allowed employees in the U.S. and Canada to designate up to 10% of eligible earnings to purchase Roper’s common stock at a 5% discount to the average closing price of the stock at the beginning and end of a 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.
We amended the ESPP effective July 1, 2020, which allows employees in the U.S. and Canada 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 ESPP may be either treasury stock, stock purchased on the open market, or newly issued shares.
During the nine months ended September 30, 2021 and 2020, participants in the ESPP purchased 0.031 and 0.022 shares of Roper’s common stock for total consideration of $11.8 and $7.3, respectively. All shares were purchased from Roper’s treasury shares.
7. Inventories
The components of inventory were as follows:
| September 30, 2021 | December 31, 2020 | ||||||||||
| Raw materials and supplies | $ | 105.9 | $ | 104.0 | |||||||
| Work in process | 27.6 | 22.9 | |||||||||
| Finished products | 77.1 | 74.4 | |||||||||
| Inventory reserves | (36.2) | (36.2) | |||||||||
| Inventories, net | $ | 174.4 | $ | 165.1 |
8. Goodwill and Other Intangible Assets
The carrying value of goodwill by segment was as follows:
| Application Software | Network Software & Systems | Measurement & Analytical Solutions | Process Technologies | Total | |||||||||||||||||||||||||
| Balances at December 31, 2020 | $ | 8,802.3 | $ | 3,746.2 | $ | 1,167.3 | $ | 250.2 | $ | 13,966.0 | |||||||||||||||||||
| Additions | 13.6 | — | — | — | 13.6 | ||||||||||||||||||||||||
| Other | 3.1 | 0.9 | — | — | 4.0 | ||||||||||||||||||||||||
| Currency translation adjustments | 1.1 | 6.8 | (1.8) | (0.5) | 5.6 | ||||||||||||||||||||||||
| Balances at September 30, 2021 | $ | 8,820.1 | $ | 3,753.9 | $ | 1,165.5 | $ | 249.7 | $ | 13,989.2 |
Other relates primarily to purchase accounting adjustments for acquisitions.
Other intangible assets were comprised of:
| Cost | Accumulated amortization | Net book value | |||||||||||||||
| Assets subject to amortization: | |||||||||||||||||
| Customer related intangibles | $ | 7,473.7 | $ | (1,688.2) | $ | 5,785.5 | |||||||||||
| Unpatented technology | 942.8 | (363.9) | 578.9 | ||||||||||||||
| Software | 172.4 | (127.4) | 45.0 | ||||||||||||||
| Patents and other protective rights | 12.0 | (6.0) | 6.0 | ||||||||||||||
| Trade names | 7.3 | (5.6) | 1.7 | ||||||||||||||
| Assets not subject to amortization: | |||||||||||||||||
| Trade names | 751.1 | — | 751.1 | ||||||||||||||
| Balances at December 31, 2020 | $ | 9,359.3 | $ | (2,191.1) | $ | 7,168.2 | |||||||||||
| Assets subject to amortization: | |||||||||||||||||
| Customer related intangibles | $ | 7,478.5 | $ | (2,020.1) | $ | 5,458.4 | |||||||||||
| Unpatented technology | 907.0 | (413.3) | 493.7 | ||||||||||||||
| Software | 172.4 | (138.2) | 34.2 | ||||||||||||||
| Patents and other protective rights | 12.6 | (5.0) | 7.6 | ||||||||||||||
| Trade names | 6.7 | (5.7) | 1.0 | ||||||||||||||
| Assets not subject to amortization: | |||||||||||||||||
| Trade names | 751.0 | — | 751.0 | ||||||||||||||
| Balances at September 30, 2021 | $ | 9,328.2 | $ | (2,582.3) | $ | 6,745.9 |
Amortization expense of other intangible assets was $434.2 and $315.5 during the nine months ended September 30, 2021 and 2020, respectively.
An evaluation of the carrying value of goodwill and indefinite-lived intangibles is required to be performed on an annual basis and on 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. There have been no events or changes in circumstances which indicate an interim impairment review is required in 2021. The Company will perform the annual analysis during the fourth quarter of 2021.
9. Fair Value of Financial Instruments and Debt
Roper’s debt at September 30, 2021 included $8,000 of fixed-rate senior notes with the following fair values:
| $500 2.800% senior notes due 2021 | 502 | ||||
| $500 3.125% senior notes due 2022 | 512 | ||||
| $300 0.450% senior notes due 2022 | 301 | ||||
| $700 3.650% senior notes due 2023 | 742 | ||||
| $500 2.350% senior notes due 2024 | 524 | ||||
| $300 3.850% senior notes due 2025 | 330 | ||||
| $700 1.000% senior notes due 2025 | 697 | ||||
| $700 3.800% senior notes due 2026 | 779 | ||||
| $700 1.400% senior notes due 2027 | 691 | ||||
| $800 4.200% senior notes due 2028 | 915 | ||||
| $700 2.950% senior notes due 2029 | 745 | ||||
| $600 2.000% senior notes due 2030 | 591 | ||||
| $1,000 1.750% senior notes due 2031 | 957 |
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.
Subsequent to the nine months ended September 30, 2021, on October 8, 2021, the Company elected to exercise its optional redemption rights to redeem all of its outstanding 2.800% Notes due December 15, 2021 (the “Notes”) in the original aggregate principal amount of $500, and Wells Fargo Bank, National Association, as trustee under the indenture governing the Notes (the “Indenture”), issued redemption notices to registered holders of the Notes. The date fixed for the redemption of the Notes is November 15, 2021 (the “Redemption Date”). The Notes will be redeemed at 100% of the aggregate principal amount of the Notes, plus accrued and unpaid interest thereon to the Redemption Date in accordance with the terms and conditions set forth in the Indenture. The foregoing does not constitute a notice of redemption with respect to any of the Notes.
10. Contingencies
Roper, in the ordinary course of business, is party to various pending or threatened legal actions, including product liability, intellectual property, 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.
Roper’s subsidiary, Vertafore, Inc., was named in three putative class actions, 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. Plaintiff has appealed the dismissal to the U.S. Fifth Circuit Court of Appeals. In July 2021, the plaintiff in the Masciotra case voluntarily dismissed his action without prejudice. The Mulvey case purports 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. The case seeks recovery under the Driver’s Privacy Protection Act, 18 U.S.C. § 2721. Vertafore is vigorously defending the case. In addition, Roper has been advised that the Texas Attorney General is investigating the data event.
Roper or its subsidiaries have been named defendants along with numerous industrial companies in asbestos-related litigation claims in certain U.S. states. No significant resources have been required by Roper to respond to these cases and Roper believes
it has valid defenses to such claims and, if required, intends to defend them vigorously. Given the state of these claims, it is not possible to determine the potential liability, if any.
11. Business Segments
The following table presents selected financial information by reportable segment:
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||||||||||||||
| 2021 | 2020 | Change % | 2021 | 2020 | Change % | ||||||||||||||||||||||||||||||
| Net revenues: | |||||||||||||||||||||||||||||||||||
| Application Software | $ | 603.4 | $ | 447.9 | 34.7 | % | $ | 1,771.6 | $ | 1,251.4 | 41.6 | % | |||||||||||||||||||||||
| Network Software & Systems | 343.4 | 288.1 | 19.2 | % | 983.3 | 864.0 | 13.8 | % | |||||||||||||||||||||||||||
| Measurement & Analytical Solutions | 392.4 | 356.9 | 9.9 | % | 1,146.8 | 1,065.3 | 7.7 | % | |||||||||||||||||||||||||||
| Process Technologies | 123.6 | 105.3 | 17.4 | % | 363.8 | 337.9 | 7.7 | % | |||||||||||||||||||||||||||
| Total | $ | 1,462.8 | $ | 1,198.2 | 22.1 | % | $ | 4,265.5 | $ | 3,518.6 | 21.2 | % | |||||||||||||||||||||||
| Gross profit: | |||||||||||||||||||||||||||||||||||
| Application Software | $ | 420.2 | $ | 307.6 | 36.6 | % | $ | 1,228.2 | $ | 851.8 | 44.2 | % | |||||||||||||||||||||||
| Network Software & Systems | 284.3 | 235.1 | 20.9 | % | 807.9 | 701.1 | 15.2 | % | |||||||||||||||||||||||||||
| Measurement & Analytical Solutions | 224.0 | 212.1 | 5.6 | % | 665.7 | 636.5 | 4.6 | % | |||||||||||||||||||||||||||
| Process Technologies | 67.6 | 55.1 | 22.7 | % | 197.6 | 180.5 | 9.5 | % | |||||||||||||||||||||||||||
| Total | $ | 996.1 | $ | 809.9 | 23.0 | % | $ | 2,899.4 | $ | 2,369.9 | 22.3 | % | |||||||||||||||||||||||
| Operating profit*: | |||||||||||||||||||||||||||||||||||
| Application Software | $ | 164.6 | $ | 125.6 | 31.1 | % | $ | 472.5 | $ | 336.6 | 40.4 | % | |||||||||||||||||||||||
| Network Software & Systems | 134.4 | 102.3 | 31.4 | % | 368.4 | 298.3 | 23.5 | % | |||||||||||||||||||||||||||
| Measurement & Analytical Solutions | 119.0 | 119.7 | (0.6) | % | 361.6 | 352.4 | 2.6 | % | |||||||||||||||||||||||||||
| Process Technologies | 37.0 | 28.0 | 32.1 | % | 112.5 | 80.7 | 39.4 | % | |||||||||||||||||||||||||||
| Total | $ | 455.0 | $ | 375.6 | 21.1 | % | $ | 1,315.0 | $ | 1,068.0 | 23.1 | % | |||||||||||||||||||||||
| Long-lived assets: | |||||||||||||||||||||||||||||||||||
| Application Software | $ | 129.8 | $ | 114.1 | 13.8 | % | |||||||||||||||||||||||||||||
| Network Software & Systems | 27.4 | 28.8 | (4.9) | % | |||||||||||||||||||||||||||||||
| Measurement & Analytical Solutions | 30.9 | 35.4 | (12.7) | % | |||||||||||||||||||||||||||||||
| Process Technologies | 14.4 | 19.0 | (24.2) | % | |||||||||||||||||||||||||||||||
| Total | $ | 202.5 | $ | 197.3 | 2.6 | % |
*Segment operating profit is before unallocated corporate general and administrative expenses. These expenses were $51.5 and $45.1 for the three months ended September 30, 2021 and 2020, respectively, and $155.4 and $137.5 for the nine months ended September 30, 2021 and 2020, respectively.
12. Revenues from Contracts
Disaggregated Revenue - We disaggregate our revenues into two categories: (i) software and related services; and (ii) engineered products and related services. Software and related services revenues are primarily derived from our Application Software and Network Software & Systems reportable segments. Engineered products and related services revenues are derived from all of our reportable segments except Application Software and comprise substantially all of the revenues generated in our Measurement & Analytical Solutions and Process Technologies reportable segments. See details in the table below.
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Software and related services | $ | 919.3 | $ | 714.8 | $ | 2,673.6 | $ | 2,038.8 | |||||||||||||||
| Engineered products and related services | 543.5 | 483.4 | 1,591.9 | 1,479.8 | |||||||||||||||||||
| Net revenues | $ | 1,462.8 | $ | 1,198.2 | $ | 4,265.5 | $ | 3,518.6 |
Remaining performance obligations - Remaining performance obligations represent the transaction price of firm orders for which work has not been performed and excludes unexercised contract options. As of September 30, 2021, the aggregate amount of the transaction price allocated to remaining performance obligations was $3,349.7. We expect to recognize revenue on approximately 65% of our remaining performance obligations over the next 12 months (“Backlog”), with the remainder to be recognized thereafter.
Contract balances
| Balance Sheet Account | September 30, 2021 | December 31, 2020 | Change | ||||||||||||||
| Unbilled receivables | $ | 102.5 | $ | 72.8 | $ | 29.7 | |||||||||||
| Contract liabilities - current (1) | (995.6) | (990.3) | (5.3) | ||||||||||||||
| Deferred revenue - non-current (2) | (70.8) | (42.8) | (28.0) | ||||||||||||||
| Net contract assets/(liabilities) | $ | (963.9) | $ | (960.3) | $ | (3.6) |
(1) Consists primarily of “Deferred revenue.”
(2) The non-current portion of deferred revenue is included in “Other liabilities” in our Condensed Consolidated Balance Sheets.
The change in our net contract assets/(liabilities) from December 31, 2020 to September 30, 2021 was due primarily to the timing of payments and invoicing relating to Software-as-a-Service (“SaaS”) and post contract support (“PCS”) renewals, partially offset by the increase in unbilled receivables due to the timing of invoicing related to software milestone billings associated with multi-year term license renewals and software implementations.
Most of the Company’s project-based contracts where the input method of revenue recognition is utilized are billed as work progresses in accordance with the contract terms and conditions, either at periodic intervals or upon achievement of certain milestones. Often this results in unbilled receivables where billing occurs after revenue recognition. The Company records contract liabilities when cash payments are received or due in advance of the Company’s performance relating primarily to SaaS and PCS renewals. Revenue recognized from the contract liability balance on December 31, 2020 and 2019 was $155.6 and $157.8 for the three months ended September 30, 2021 and 2020, respectively, and $870.6 and $706.2 for the nine months ended September 30, 2021 and 2020, respectively.
In order to determine revenues recognized in the period from contract liabilities, we allocate revenue to the individual deferred revenue or billings in-excess of revenues balance outstanding at the beginning of the year until the revenue exceeds that balance.
The current and non-current portions of deferred commissions are included in “Other current assets” and “Other assets,” respectively, in our Condensed Consolidated Balance Sheets. At September 30, 2021 and December 31, 2020 we had $48.8 and $42.5 of deferred commissions, respectively.
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