Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2023 (“Annual Report”) as filed on February 22, 2024 with the U.S. Securities and Exchange Commission (“SEC”) and the Notes to Condensed Consolidated Financial Statements included elsewhere in this report.

Information About Forward-Looking Statements

This report includes “forward-looking statements” within the meaning of the federal securities laws. In addition, we, or our executive officers on our behalf, may from time to time make forward-looking statements in reports and other documents we file with the SEC or in connection with oral statements made to the press, potential investors, or others. All statements that are not historical facts are “forward-looking statements.” Forward-looking statements may be indicated by words or phrases such as “anticipate,” “estimate,” “plans,” “expects,” “projects,” “should,” “will,” “believes,” “intends,” and similar words and phrases. These statements reflect management’s current beliefs and are not guarantees of future performance. They involve risks and uncertainties that could cause actual results to differ materially from those expressed or implied in any forward-looking statement.

Examples of forward-looking statements in this report include but are not limited to statements regarding operating results, the success of our operating plans, our expectations regarding our ability to generate cash and reduce debt and associated interest expense, profit and cash flow expectations, the prospects for newly acquired businesses to be integrated and contribute to future growth, and our expectations regarding growth through acquisitions. Important assumptions relating to the forward-looking statements include, among others, demand for our products, the cost, timing, and success of product upgrades and new product introductions, raw materials costs, expected pricing levels, expected outcomes of pending litigation, competitive conditions, and general economic conditions. These assumptions could prove inaccurate. Although we believe that the estimates and projections reflected in the forward-looking statements are reasonable, our expectations may prove to be incorrect. Important factors that could cause actual results to differ materially from estimates or projections contained in the forward-looking statements include but are not limited to:

• general economic conditions;

• difficulty making acquisitions and successfully integrating acquired businesses;

• any unforeseen liabilities associated with future acquisitions;

• information technology system failures, data security breaches, network disruptions, and cybersecurity events, including any litigation arising therefrom;

• failure to comply with new data privacy laws and regulations, including any litigation arising therefrom;

• risks and costs associated with our international sales and operations;

• rising interest rates;

• limitations on our business imposed by our indebtedness;

• product liability, litigation, and insurance risks;

• future competition;

• reduction of business with large customers;

• risks associated with government contracts;

• changes in the supply of, or price for, labor, energy, raw materials, parts, and components, including as a result of impacts from the current inflationary environment, or supply chain constraints;

• potential write-offs of our goodwill and other intangible assets;

• our ability to successfully develop new products;

• failure to protect our intellectual property;

• unfavorable changes in foreign exchange rates;

• difficulties associated with exports/imports and risks of changes to tariff rates;

• increased warranty exposure;

• environmental compliance costs and liabilities;

• the effect of, or change in, government regulations (including tax);

• risks associated with the use of artificial intelligence;

• economic disruption caused by armed conflicts (such as the war in Ukraine and the conflict in the Middle East), terrorist attacks, health crises (such as the COVID-19 pandemic), or other unforeseen geopolitical events; and

• the factors discussed in other reports we file with the SEC from time to time.

You should not place undue reliance on any forward-looking statements, which are based on current expectations. Further, forward-looking statements speak only as of the date they are made, and we undertake no obligation to publicly update any of these statements in light of new information or future events.

Overview

Roper is a diversified technology company. Roper has a proven, long-term, successful track record of compounding cash flow and shareholder value. We operate market leading businesses that design and develop vertical software and technology enabled products for a variety of defensible niche markets.

We pursue consistent and sustainable growth in revenue, earnings, and cash flow by enabling continuous improvement in the operating performance of our businesses and by acquiring other businesses that offer high value-added software, services, technology-enabled products, and solutions that we believe are capable of achieving growth and maintaining high margins.

In 2022, Roper completed the divestiture of a majority equity stake in its industrial businesses (“Indicor”). The financial results related to Indicor are reported as discontinued operations for all periods presented.

Refer to Note 10 of the Notes to Condensed Consolidated Financial Statements for information regarding Roper’s minority equity interest in Indicor.

Unless otherwise noted, discussion within Management’s Discussion and Analysis of Financial Condition and Results of Operations relates to continuing operations.

Critical Accounting Policies

There were no material changes during the nine months ended September 30, 2024 to the items that we disclosed as our critical accounting policies and estimates in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report.

Recently Issued Accounting Standards

Information regarding new accounting pronouncements is included in Note 2 of the Notes to Condensed Consolidated Financial Statements.

Results of Continuing Operations

All currency amounts are in millions, percentages are of net revenues

Percentages may not sum due to rounding.

The following table sets forth selected information for the periods indicated:

			Three months ended September 30,												Nine months ended September 30,
			2024						2023						2024						2023
Net revenues:
Application Software			$	984.4					$	803.4					$	2,811.4					$	2,335.1
Network Software			367.1						364.1						1,102.1						1,076.7
Technology Enabled Products			413.1						395.9						1,248.6						1,152.5
Total			$	1,764.6					$	1,563.4					$	5,162.1					$	4,564.3
Gross margin:
Application Software			68.3		%				69.4		%				69.0		%				68.9		%
Network Software			84.9		%				85.3		%				84.9		%				84.9		%
Technology Enabled Products			57.4		%				57.6		%				57.7		%				57.2		%
Total			69.2		%				70.1		%				69.7		%				69.7		%
Selling, general and administrative expenses:
Application Software			(42.0)		%				(43.7)		%				(42.3)		%				(43.2)		%
Network Software			(39.7)		%				(40.2)		%				(40.3)		%				(41.7)		%
Technology Enabled Products			(23.2)		%				(22.9)		%				(23.7)		%				(23.2)		%
Total			(37.1)		%				(37.6)		%				(37.4)		%				(37.8)		%
Segment operating margin:
Application Software			26.4		%				25.8		%				26.7		%				25.8		%
Network Software			45.2		%				45.2		%				44.7		%				43.2		%
Technology Enabled Products			34.2		%				34.6		%				34.0		%				34.0		%
Total			32.1		%				32.5		%				32.3		%				31.9		%
Corporate administrative expenses *			(4.0)		%				(4.0)		%				(3.8)		%				(3.8)		%
Income from operations			28.1						28.5						28.5						28.1
Interest expense, net			(3.8)						(2.7)						(3.6)						(2.5)
Equity investments gain, net			2.1						2.2						1.8						2.2
Other income (expense), net			0.1						0.3						—						—
Earnings before income taxes			26.5						28.3						26.7						27.7
Income taxes			(5.6)						(6.2)						(5.6)						(6.0)
Net earnings from continuing operations			20.8		%				22.1		%				21.1		%				21.7		%

• Includes unallocated corporate general and administrative expenses and enterprise-wide stock-based compensation.

Three Months Ended September 30, 2024 compared to the Three Months Ended September 30, 2023

Net revenues for the three months ended September 30, 2024 were $1,764.6 as compared to $1,563.4 for the three months ended September 30, 2023, an increase of 12.9%. The components of revenue growth for the three months ended September 30, 2024 were as follows:

			Application Software						Network Software						Technology Enabled Products												Roper
Total Revenue Growth			22.5		%				0.8		%				4.3		%										12.9		%
Less Impact of:
Acquisitions			16.9						—						—												8.7
Foreign Exchange			0.1						—						(0.1)												0.1
Organic Revenue Growth			5.5		%				0.8		%				4.4		%										4.1		%

In our Application Software segment, net revenues in the third quarter of 2024 were $984.4 as compared to $803.4 in the third quarter of 2023. The growth of 5.5% in organic revenues was broad-based across the segment led by our businesses serving the acute healthcare, legal, and government contracting markets. Gross margin decreased to 68.3% in the third quarter of 2024 as compared to 69.4% in the third quarter of 2023 due primarily to a lower gross margin profile associated with the higher payments revenue mix at Procare and Transact, our 2024 acquisitions, partially offset by operating leverage on higher organic revenues. Selling, general and administrative (“SG&A”) expenses as a percentage of net revenues decreased to 42.0% in the third quarter of 2024 as compared to 43.7% in the third quarter of 2023, due primarily to cost synergies resulting from the integration of Syntellis, and a lower SG&A profile associated with the higher payments revenue mix at Transact and Procare. The resulting operating margin was 26.4% in the third quarter of 2024 as compared to 25.8% in the third quarter of 2023.

In our Network Software segment, net revenues in the third quarter of 2024 were $367.1 as compared to $364.1 in the third quarter of 2023. The growth of 0.8% in organic revenues was led by our network software businesses serving the construction and alternate site healthcare markets, partially offset by a decline in our businesses serving the freight match and media and entertainment markets. Gross margin decreased to 84.9% in the third quarter of 2024 as compared to 85.3% in the third quarter of 2023 due primarily to revenue mix. SG&A expenses as a percentage of net revenues decreased to 39.7% in the third quarter of 2024 as compared to 40.2% in the third quarter of 2023 due primarily to expense reductions resulting from cost structure rationalization at our businesses serving the freight match market and operating leverage on higher organic revenues. As a result, operating margin was 45.2% in both the third quarter of 2024 and 2023.

In our Technology Enabled Products segment, net revenues in the third quarter of 2024 were $413.1 as compared to $395.9 in the third quarter of 2023. The growth of 4.4% in organic revenues was led by our medical products businesses, excluding our precision measurement business, and growth in our water meter technology business. These increases were partially offset by declines in our access management businesses, primarily attributable to the easing of supply chain issues in the third quarter of 2023, and our precision measurement business due to customer program timing. Gross margin decreased to 57.4% in the third quarter of 2024 as compared to 57.6% in the third quarter of 2023 due primarily to revenue mix and reduced operating leverage associated with our precision measurement business’s reduced third quarter 2024 revenues. SG&A expenses as a percentage of net revenues increased to 23.2% in the third quarter of 2024 as compared to 22.9% in the third quarter of 2023 due primarily to revenue mix. The resulting operating margin was 34.2% in the third quarter of 2024 as compared to 34.6% in the third quarter of 2023.

Corporate expenses increased to $70.3, or 4.0% of net revenues, in the third quarter of 2024 as compared to $62.3, or 4.0% of net revenues, in the third quarter of 2023. The dollar increase was due primarily to higher stock-based compensation expense.

Interest expense, net, increased to $67.7 for the third quarter of 2024 as compared to $42.4 for the third quarter of 2023 due to higher weighted average debt balances and less interest income earned on our cash and cash equivalents.

Equity investments gain, net, was $37.4 in the third quarter of 2024 due primarily to a $37.6 increase in the fair value of our equity investment in Indicor. Equity investments gain, net, was $33.9 in the third quarter of 2023 due primarily to a $20.1 increase in the fair value of our equity investment in Indicor and $13.2 of dividend distributions received from Indicor.

Other income, net, of $0.9 for the third quarter of 2024 was composed primarily of foreign exchange gains at our non-U.S. based subsidiaries. Other income, net, of $5.0 for the third quarter of 2023 was composed primarily of a gain on the sale of non-operating assets and foreign exchange gains at our non-U.S. based subsidiaries.

Income taxes as a percentage of pretax earnings decreased to 21.3% for the third quarter of 2024 as compared to 21.9% for the third quarter of 2023. The 2024 rate was favorably impacted by the recognition of a net tax benefit associated with international legal entity restructuring.

Backlog is equal to our remaining performance obligations expected to be recognized as revenue within the next 12 months as discussed in Note 13 of the Notes to Condensed Consolidated Financial Statements. Backlog increased 3.9% to $3,026.1 at September 30, 2024 as compared to $2,913.7 at September 30, 2023 due primarily to organic growth and acquisitions in our Application Software segment, partially offset by a decrease in our Technology Enabled Products segment.

			Backlog as of September 30,
			2024						2023
Application Software			$	2,150.3					$	1,887.3
Network Software			487.0						467.1
Technology Enabled Products			388.8						559.3
Total			$	3,026.1					$	2,913.7

Nine Months Ended September 30, 2024 compared to the Nine Months Ended September 30, 2023

Net revenues for the nine months ended September 30, 2024 were $5,162.1 as compared to $4,564.3 for the nine months ended September 30, 2023, an increase of 13.1%. The components of revenue growth for the nine months ended September 30, 2024 were as follows:

			Application Software						Network Software						Technology Enabled Products												Roper
Total Revenue Growth			20.4		%				2.4		%				8.3		%										13.1		%
Less Impact of:
Acquisitions			15.0						—						—												7.6
Foreign Exchange			0.1						0.1						(0.1)												0.1
Organic Revenue Growth			5.3		%				2.3		%				8.4		%										5.4		%

In our Application Software segment, net revenues in the nine months ended September 30, 2024 were $2,811.4 as compared to $2,335.1 in the nine months ended September 30, 2023. The growth of 5.3% in organic revenues was broad-based across the segment led by our businesses serving the acute healthcare, legal, property and casualty insurance, and project-based private sector markets. Gross margin increased slightly to 69.0% in the nine months ended September 30, 2024 as compared to 68.9% in the nine months ended September 30, 2023 due primarily to operating leverage on higher organic revenues, mostly offset by a lower gross margin profile associated with the higher payments revenue mix at our Procare and Transact acquisitions. SG&A expenses as a percentage of net revenues decreased to 42.3% in the nine months ended September 30, 2024 as compared to 43.2% in the nine months ended September 30, 2023, due primarily to a lower SG&A profile associated with the higher payments revenue mix at Procare and Transact, operating leverage on higher organic revenues, and cost synergies resulting from the integration of Syntellis. The resulting operating margin was 26.7% in the nine months ended September 30, 2024 as compared to 25.8% in the nine months ended September 30, 2023.

In our Network Software segment, net revenues in the nine months ended September 30, 2024 were $1,102.1 as compared to $1,076.7 in the nine months ended September 30, 2023. The growth of 2.3% in organic revenues was led by our network software businesses serving the alternate site healthcare, life insurance/annuities, and construction markets, partially offset by a decline in our businesses serving the freight match and media and entertainment markets. Gross margin remained consistent at 84.9% in both the nine months ended September 30, 2024 and 2023. SG&A expenses as a percentage of net revenues decreased to 40.3% in the nine months ended September 30, 2024 as compared to 41.7% in the nine months ended September 30, 2023 due primarily to expense reductions resulting from cost structure rationalization at our businesses serving the freight match market and operating leverage on higher organic revenues. As a result, operating margin was 44.7% in the nine months ended September 30, 2024 as compared to 43.2% in the nine months ended September 30, 2023.

In our Technology Enabled Products segment, net revenues in the nine months ended September 30, 2024 were $1,248.6 as compared to $1,152.5 in the nine months ended September 30, 2023. The growth of 8.4% in organic revenues was led by our medical products businesses, excluding our precision measurement business, and growth in our water meter technology business. These increases were partially offset by a decline in our access management businesses. Gross margin increased to 57.7% in the nine months ended September 30, 2024 as compared to 57.2% in the nine months ended September 30, 2023 due primarily to operating leverage on higher organic revenues. SG&A expenses as a percentage of net revenues increased to 23.7% in the nine months ended September 30, 2024 as compared to 23.2% in the nine months ended September 30, 2023 due primarily to revenue mix. The resulting operating margin was 34.0% in both the nine months ended September 30, 2024 and 2023.

Corporate expenses increased to $194.5, or 3.8% of net revenues, in the nine months ended September 30, 2024 as compared to $175.6, or 3.8% of net revenues, in the nine months ended September 30, 2023. The dollar increase was due primarily to higher stock-based compensation expense.

Interest expense, net, increased to $188.4 for the nine months ended September 30, 2024 as compared to $114.6 for the nine months ended September 30, 2023 due to higher borrowings on our unsecured credit facility and less interest income earned on our cash and cash equivalents, partially offset by lower weighted average fixed-rate debt balances.

Equity investments gain, net, was $93.6 in the nine months ended September 30, 2024 due primarily to a $92.7 increase in the fair value of our equity investment in Indicor and $9.5 of dividend distributions received from Indicor, partially offset by our proportionate share of net loss associated with our investment in Certinia of $9.8 in accordance with the equity method of accounting. Equity investments gain, net, was $98.7 in the nine months ended September 30, 2023 due primarily to a $76.4 increase in the fair value of our equity investment in Indicor and $25.3 of dividend distributions received from Indicor.

Income taxes as a percentage of pretax earnings decreased to 21.0% for the nine months ended September 30, 2024 as compared to 21.8% for the nine months ended September 30, 2023. The 2024 rate was favorably impacted by the recognition of a net tax benefit associated with international legal entity restructuring.

Financial Condition, Liquidity, and Capital Resources

All currency amounts are in millions

Selected cash flows for the nine months ended September 30, 2024 and 2023 were as follows:

			Nine months ended September 30,
Cash provided by (used in) continuing operations from:			2024						2023
Operating activities			$	1,671.0					$	1,415.7
Investing activities			$	(3,528.2)					$	(2,010.7)
Financing activities			$	1,901.7					$	103.3
Cash used in discontinued operations			$	—					$	(0.4)

Operating activities – Net cash provided by operating activities from continuing operations increased by 18% to $1,671.0 in the nine months ended September 30, 2024 as compared to $1,415.7 in the nine months ended September 30, 2023 primarily due to higher net earnings from continuing operations net of non-cash expenses, increased collections on accounts receivable, and the cash payment of $45.0 in 2023 related to the settlement of a patent litigation matter, partially offset by higher cash taxes paid.

Investing activities – Cash used in investing activities from continuing operations during the nine months ended September 30, 2024 was primarily for the acquisitions of Procare and Transact. Cash used in investing activities from continuing operations during the nine months ended September 30, 2023 was primarily for business acquisitions, most notably Syntellis and Replicon.

Financing activities – Cash provided by financing activities during the nine months ended September 30, 2024 was primarily from the issuance of $2,000.0 of senior notes and net borrowings under our unsecured credit facility, partially offset by $500.0 of senior notes repaid at maturity and dividend payments. Cash provided by financing activities during the nine months ended September 30, 2023 was primarily from net borrowings under our unsecured credit facility and net proceeds from stock-based compensation, partially offset by $700.0 of senior notes repaid at maturity and dividend payments.

Total debt consisted of the following:

			As of September 30, 2024
Fixed-rate senior notes			$	7,500.0
Unsecured credit facility			925.0
Other			0.3
Less: Deferred financing costs			(48.7)
Total debt, net of deferred financing costs			8,376.6
Less: Current portion			(699.0)
Long-term debt, net of deferred financing costs			$	7,677.6

The interest rate on borrowings under the $3,500.0 unsecured credit facility is calculated based upon various recognized indices plus a margin as defined in the credit agreement. At September 30, 2024, we had $925.0 of borrowings outstanding under our unsecured credit facility and $6.8 of outstanding letters of credit.

In relation to our total cash and cash equivalents, amounts held at our foreign subsidiaries represented 51.3% or $138.3 at September 30, 2024 as compared to 69.2% or $148.3 at December 31, 2023. The decrease in foreign cash was due primarily to repatriation of $223.2, partially offset by the cash generated at our foreign subsidiaries during the nine months ended September 30, 2024. We intend to repatriate substantially all historical and future earnings.

We expect existing cash balances, together with cash generated by our operations and amounts available under our credit facility, will be sufficient to fund our operating requirements for the foreseeable future.

We were in compliance with all debt covenants related to our unsecured credit facility throughout the nine months ended September 30, 2024.

Net working capital (total current assets, excluding cash, less total current liabilities, excluding debt) was negative $1,268.0 at September 30, 2024 as compared to negative $1,196.6 at December 31, 2023 primarily driven by the increase in deferred revenue predominantly due to the timing of SaaS renewals associated with Frontline as well as the acquisition of Transact. Total debt, net of deferred financing costs was $8,376.6 at September 30, 2024 as compared to $6,330.1 at December 31, 2023. Our leverage on a continuing operations basis is presented in the following table:

			September 30, 2024						December 31, 2023
Total debt, net of deferred financing costs			$	8,376.6					$	6,330.1
Less: Cash and cash equivalents			(269.6)						(214.3)
Net debt			8,107.0						6,115.8
Stockholders’ equity			18,515.5						17,444.8
Total net capital			$	26,622.5					$	23,560.6
Net debt / Total net capital			30.5		%				26.0		%

Capital expenditures were $39.2 for the nine months ended September 30, 2024 as compared to $37.8 for the nine months ended September 30, 2023. Capitalized software expenditures were $33.4 for the nine months ended September 30, 2024 as compared to $28.7 for the nine months ended September 30, 2023. We expect the aggregate of capital expenditures and capitalized software expenditures for 2024 to be comparable to prior years as a percentage of net revenues.

On September 15, 2024, $500.0 of 2.350% senior notes due 2024 were repaid at maturity using borrowings under our unsecured credit facility as well as a portion of the net proceeds from the issuance of the Notes.

Outlook

Current geopolitical and economic uncertainties, including the current inflationary environment, supply chain disruptions, and labor shortages, could adversely affect our business prospects. An armed conflict (such as the ongoing war in Ukraine, as well as the conflict in the Middle East), significant terrorist attack, other global conflict, widespread cybersecurity event or information technology failure, or public health crisis could cause changes in world economies that would adversely affect us. It is impossible to isolate each of these potential factor’s future effects on current economic conditions or any of our businesses. It is also impossible to predict with any reasonable degree of certainty what or when any additional events may occur that also would similarly disrupt the economy and have an adverse impact on our businesses.

We maintain an active acquisition program; however, future acquisitions will be dependent on numerous factors and it is not feasible to reasonably estimate if or when any such acquisitions will occur and what the impact will be on our business, financial condition, and results of operations. Such acquisitions may be financed by the use of existing credit agreements, future cash flows from operations, future divestitures, the proceeds from the issuance of new debt or equity securities, or any combination of these methods, the terms and availability of which will be subject to market and economic conditions generally.

We anticipate that our businesses will generate positive cash flows from operating activities, and that these cash flows will permit the reduction of currently outstanding debt in accordance with the repayment schedule. However, the rate at which we can reduce our debt (and reduce the associated interest expense) will be affected by, among other things, the financing and operating requirements of any new acquisitions, the financial performance of our existing companies, and the impact of the aforementioned geopolitical and economic uncertainties and the financial markets generally. None of these factors can be predicted with certainty.