ROPER TECHNOLOGIES INC - Quarter Report: 2021 March (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
For the quarterly period ended March 31, 2021.
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
For the transition period from to .
Commission File Number 1-12273
ROPER TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 51-0263969 | ||||||||||
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||||||||
| 6901 Professional Pkwy., Suite 200 | |||||||||||
| Sarasota, | Florida | 34240 | |||||||||
| (Address of principal executive offices) | (Zip Code) | ||||||||||
(941) 556-2601
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
| Title of Each Class | Trading Symbol(s) | Name of Each Exchange On Which Registered | ||||||||||||
| Common Stock, $0.01 Par Value | ROP | New York Stock Exchange | ||||||||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| ☒ | Large accelerated filer | ☐ | Accelerated filer | ||||||||
| ☐ | Non-accelerated filer (Do not check if a smaller reporting company) | ☐ | Smaller reporting company | ||||||||
| ☐ | Emerging growth company | ||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
The number of shares outstanding of the registrant’s common stock as of April 30, 2021 was 105,239,028.
1
ROPER TECHNOLOGIES, INC.
REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2021
TABLE OF CONTENTS
| Page | ||||||||
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Roper Technologies, Inc. and Subsidiaries
Condensed Consolidated Statements of Earnings (unaudited)
(in millions, except per share data)
| Three months ended March 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| Net revenues | $ | 1,528.6 | $ | 1,350.7 | |||||||
| Cost of sales | 534.8 | 493.9 | |||||||||
| Gross profit | 993.8 | 856.8 | |||||||||
| Selling, general and administrative expenses | 593.3 | 507.6 | |||||||||
| Income from operations | 400.5 | 349.2 | |||||||||
| Interest expense, net | 60.6 | 45.4 | |||||||||
| Other income (expense), net | 27.0 | 0.8 | |||||||||
| Earnings before income taxes | 366.9 | 304.6 | |||||||||
| Income taxes | 77.9 | 64.3 | |||||||||
| Net earnings | $ | 289.0 | $ | 240.3 | |||||||
| Net earnings per share: | |||||||||||
| Basic | $ | 2.75 | $ | 2.30 | |||||||
| Diluted | $ | 2.73 | $ | 2.28 | |||||||
| Weighted average common shares outstanding: | |||||||||||
| Basic | 105.0 | 104.3 | |||||||||
| Diluted | 106.0 | 105.3 | |||||||||
See accompanying notes to Condensed Consolidated Financial Statements.
3
Roper Technologies, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income (unaudited)
(in millions)
| Three months ended March 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| Net earnings | $ | 289.0 | $ | 240.3 | |||||||
| Other comprehensive income, net of tax: | |||||||||||
| Foreign currency translation adjustments | 14.6 | (128.2) | |||||||||
| Total other comprehensive income (loss), net of tax | 14.6 | (128.2) | |||||||||
| Comprehensive income | $ | 303.6 | $ | 112.1 | |||||||
See accompanying notes to Condensed Consolidated Financial Statements.
4
Roper Technologies, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (unaudited)
(in millions)
| March 31, 2021 | December 31, 2020 | ||||||||||
| ASSETS: | |||||||||||
| Cash and cash equivalents | $ | 331.0 | $ | 308.3 | |||||||
| Accounts receivable, net | 792.0 | 863.0 | |||||||||
| Inventories, net | 206.0 | 198.4 | |||||||||
| Income taxes receivable | 13.2 | 21.9 | |||||||||
| Unbilled receivables | 268.0 | 241.7 | |||||||||
| Other current assets | 129.2 | 119.0 | |||||||||
| Total current assets | 1,739.4 | 1,752.3 | |||||||||
| Property, plant and equipment, net | 134.6 | 140.6 | |||||||||
| Goodwill | 14,405.3 | 14,395.2 | |||||||||
| Other intangible assets, net | 7,066.8 | 7,206.9 | |||||||||
| Deferred taxes | 102.3 | 104.0 | |||||||||
| Other assets | 422.7 | 425.8 | |||||||||
| Total assets | $ | 23,871.1 | $ | 24,024.8 | |||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY: | |||||||||||
| Accounts payable | $ | 190.9 | $ | 177.8 | |||||||
| Accrued compensation | 234.0 | 286.1 | |||||||||
| Deferred revenue | 1,023.4 | 994.6 | |||||||||
| Other accrued liabilities | 448.5 | 457.0 | |||||||||
| Income taxes payable | 64.0 | 26.9 | |||||||||
| Current portion of long-term debt, net | 502.1 | 502.0 | |||||||||
| Total current liabilities | 2,462.9 | 2,444.4 | |||||||||
| Long-term debt, net of current portion | 8,571.8 | 9,064.5 | |||||||||
| Deferred taxes | 1,571.6 | 1,562.5 | |||||||||
| Other liabilities | 499.1 | 473.6 | |||||||||
| Total liabilities | 13,105.4 | 13,545.0 | |||||||||
Commitments and contingencies (Note 8) | |||||||||||
| Common stock | 1.1 | 1.1 | |||||||||
| Additional paid-in capital | 2,138.9 | 2,097.5 | |||||||||
| Retained earnings | 8,776.0 | 8,546.2 | |||||||||
| Accumulated other comprehensive loss | (132.4) | (147.0) | |||||||||
| Treasury stock | (17.9) | (18.0) | |||||||||
| Total stockholders’ equity | 10,765.7 | 10,479.8 | |||||||||
| Total liabilities and stockholders’ equity | $ | 23,871.1 | $ | 24,024.8 | |||||||
See accompanying notes to Condensed Consolidated Financial Statements.
5
Roper Technologies, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (unaudited)
(in millions)
| Three months ended March 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net earnings | $ | 289.0 | $ | 240.3 | |||||||
| Adjustments to reconcile net earnings to cash flows from operating activities: | |||||||||||
| Depreciation and amortization of property, plant and equipment | 14.7 | 12.8 | |||||||||
| Amortization of intangible assets | 146.6 | 101.8 | |||||||||
| Amortization of deferred financing costs | 3.4 | 2.1 | |||||||||
| Non-cash stock compensation | 32.9 | 27.7 | |||||||||
| Gain on sale of assets, net of tax | (21.6) | — | |||||||||
| Income tax provision, excluding tax associated with gain on sale of assets | 72.4 | 64.3 | |||||||||
| Changes in operating assets and liabilities, net of acquired businesses: | |||||||||||
| Accounts receivable | 70.3 | 69.1 | |||||||||
| Unbilled receivables | (22.2) | (43.1) | |||||||||
| Inventories | (8.2) | (10.3) | |||||||||
| Accounts payable and accrued liabilities | (46.4) | (70.2) | |||||||||
| Deferred revenue | 60.5 | 3.6 | |||||||||
| Cash income taxes paid | (17.8) | (24.1) | |||||||||
| Other, net | (14.0) | (10.1) | |||||||||
| Cash provided by operating activities | 559.6 | 363.9 | |||||||||
| Cash flows from (used in) investing activities: | |||||||||||
| Acquisitions of businesses, net of cash acquired | — | (2.8) | |||||||||
| Capital expenditures | (9.1) | (7.9) | |||||||||
| Capitalized software expenditures | (7.2) | (2.6) | |||||||||
| Proceeds from (used in) disposal of businesses | (0.1) | (3.7) | |||||||||
| Proceeds from sale of assets | 27.1 | — | |||||||||
| Cash provided by (used in) investing activities | 10.7 | (17.0) | |||||||||
| Cash flows from (used in) financing activities: | |||||||||||
| Borrowings (payments) under revolving line of credit, net | (495.0) | — | |||||||||
| Cash dividends to stockholders | (58.8) | (53.1) | |||||||||
| Proceeds from stock-based compensation, net | 4.4 | 12.1 | |||||||||
| Treasury stock sales | 4.7 | 2.8 | |||||||||
| Other | (0.5) | (0.5) | |||||||||
| Cash flows used in financing activities | (545.2) | (38.7) | |||||||||
| Effect of foreign currency exchange rate changes on cash | (2.4) | (18.1) | |||||||||
| Net increase in cash and cash equivalents | 22.7 | 290.1 | |||||||||
| Cash and cash equivalents, beginning of period | 308.3 | 709.7 | |||||||||
| Cash and cash equivalents, end of period | $ | 331.0 | $ | 999.8 | |||||||
See accompanying notes to Condensed Consolidated Financial Statements.
6
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 December 31, 2020 | $ | 1.1 | $ | 2,097.5 | $ | 8,546.2 | $ | (147.0) | $ | (18.0) | $ | 10,479.8 | |||||||||||||||||||||||
| Net earnings | — | — | 289.0 | — | — | 289.0 | |||||||||||||||||||||||||||||
| Stock option exercises | — | 19.2 | — | — | — | 19.2 | |||||||||||||||||||||||||||||
| Treasury stock sold | — | 4.6 | — | — | 0.1 | 4.7 | |||||||||||||||||||||||||||||
| Currency translation adjustments | — | — | — | 14.6 | — | 14.6 | |||||||||||||||||||||||||||||
| Stock-based compensation | — | 32.4 | — | — | — | 32.4 | |||||||||||||||||||||||||||||
| Restricted stock activity | — | (14.8) | — | — | — | (14.8) | |||||||||||||||||||||||||||||
Dividends declared ($0.5625 per share) | — | — | (59.2) | — | — | (59.2) | |||||||||||||||||||||||||||||
| Balances at March 31, 2021 | $ | 1.1 | $ | 2,138.9 | $ | 8,776.0 | $ | (132.4) | $ | (17.9) | $ | 10,765.7 | |||||||||||||||||||||||
| Balances at December 31, 2019 | $ | 1.1 | $ | 1,903.9 | $ | 7,818.0 | $ | (212.8) | $ | (18.3) | $ | 9,491.9 | |||||||||||||||||||||||
| — | — | (1.7) | — | — | (1.7) | ||||||||||||||||||||||||||||||
| Net earnings | — | — | 240.3 | — | — | 240.3 | |||||||||||||||||||||||||||||
| Stock option exercises | — | 22.9 | — | — | — | 22.9 | |||||||||||||||||||||||||||||
| Treasury stock sold | — | 2.7 | — | — | 0.1 | 2.8 | |||||||||||||||||||||||||||||
| Currency translation adjustments | — | — | — | (128.2) | — | (128.2) | |||||||||||||||||||||||||||||
| Stock-based compensation | — | 27.6 | — | — | — | 27.6 | |||||||||||||||||||||||||||||
| Restricted stock activity | — | (10.8) | — | — | — | (10.8) | |||||||||||||||||||||||||||||
Dividends declared ($0.5125 per share) | — | — | (53.5) | — | — | (53.5) | |||||||||||||||||||||||||||||
| Balances at March 31, 2020 | $ | 1.1 | $ | 1,946.3 | $ | 8,003.1 | $ | (341.0) | $ | (18.2) | $ | 9,591.3 | |||||||||||||||||||||||
See accompanying notes to Condensed Consolidated Financial Statements.
7
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 months ended March 31, 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.
The results of operations for the three months ended March 31, 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.
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.
2. Recent Accounting Pronouncements
The Financial Accounting Standards Board FASB (“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 below 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.
8
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 March 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| Basic shares outstanding | 105.0 | 104.3 | |||||||||
| Effect of potential common stock: | |||||||||||
| Common stock awards | 1.0 | 1.0 | |||||||||
| Diluted shares outstanding | 106.0 | 105.3 | |||||||||
For the three months ended March 31, 2021, there were 0.647 outstanding stock options that were not included in the determination of diluted earnings per share because doing so would have been antidilutive, as compared to 1.318 outstanding stock options that would have been antidilutive in the respective 2020 period.
4. Stock Based Compensation
The Roper Technologies, Inc. 2016 Incentive Plan (“2016 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 following table provides information regarding the Company’s stock-based compensation expense:
| Three Months Ended March 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| Stock-based compensation | $ | 32.9 | $ | 27.7 | |||||||
| Tax effect recognized in net earnings | 6.9 | 5.8 | |||||||||
Stock Options - In the three months ended March 31, 2021, 0.498 options were granted with a weighted average fair value of $94.69 per option. During the same period in 2020, 0.725 options were granted with a weighted average fair value of $62.02 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 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:
| Three months ended March 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| Risk-free interest rate (%) | 0.94 | 0.83 | |||||||||
| Expected option life (years) | 5.61 | 5.64 | |||||||||
| Expected volatility (%) | 25.16 | 20.18 | |||||||||
| Expected dividend yield (%) | 0.56 | 0.62 | |||||||||
Cash received from option exercises for the three months ended March 31, 2021 and 2020 was $19.2 and $22.9, respectively.
Restricted Stock Grants - During the three months ended March 31, 2021, the Company granted 0.207 shares with a weighted average grant date fair value of $404.14 per restricted share. During the same period in 2020, the Company granted 0.179
9
shares with a weighted average grant date fair value of $340.92 per restricted share. All grants were issued at grant date fair value.
During the three months ended March 31, 2021, 0.116 restricted shares vested with a weighted average grant date fair value of $311.33 per restricted share and a weighted average vest date fair value of $394.23 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 three months ended March 31, 2021 and 2020, participants in the ESPP purchased 0.013 and 0.008 shares of Roper’s common stock for total consideration of $4.7 and $2.8, respectively. All shares were purchased from Roper’s treasury shares.
5. Inventories
The components of inventory were as follows:
| March 31, 2021 | December 31, 2020 | ||||||||||
| Raw materials and supplies | $ | 134.0 | $ | 128.4 | |||||||
| Work in process | 30.3 | 28.2 | |||||||||
| Finished products | 83.4 | 82.2 | |||||||||
| Inventory reserves | (41.7) | (40.4) | |||||||||
| Inventories, net | $ | 206.0 | $ | 198.4 | |||||||
6. 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 | $ | 4,083.1 | $ | 1,190.8 | $ | 319.0 | $ | 14,395.2 | |||||||||||||||||||
| Additions | — | — | — | — | — | ||||||||||||||||||||||||
| Other | (4.0) | 0.7 | — | — | (3.3) | ||||||||||||||||||||||||
| Currency translation adjustments | 3.5 | 10.4 | (0.7) | 0.2 | 13.4 | ||||||||||||||||||||||||
| Balances at March 31, 2021 | $ | 8,801.8 | $ | 4,094.2 | $ | 1,190.1 | $ | 319.2 | $ | 14,405.3 | |||||||||||||||||||
Other relates primarily to purchase accounting adjustments for acquisitions.
10
Other intangible assets were comprised of:
| Cost | Accumulated amortization | Net book value | |||||||||||||||
| Assets subject to amortization: | |||||||||||||||||
| Customer related intangibles | $ | 7,494.7 | $ | (1,703.8) | $ | 5,790.9 | |||||||||||
| Unpatented technology | 942.8 | (363.9) | 578.9 | ||||||||||||||
| Software | 172.4 | (127.4) | 45.0 | ||||||||||||||
| Patents and other protective rights | 13.0 | (6.7) | 6.3 | ||||||||||||||
| Trade names | 7.3 | (5.6) | 1.7 | ||||||||||||||
| Assets not subject to amortization: | |||||||||||||||||
| Trade names | 784.1 | — | 784.1 | ||||||||||||||
| Balances at December 31, 2020 | $ | 9,414.3 | $ | (2,207.4) | $ | 7,206.9 | |||||||||||
| Assets subject to amortization: | |||||||||||||||||
| Customer related intangibles | $ | 7,499.6 | $ | (1,817.2) | $ | 5,682.4 | |||||||||||
| Unpatented technology | 943.3 | (392.4) | 550.9 | ||||||||||||||
| Software | 172.5 | (131.3) | 41.2 | ||||||||||||||
| Patents and other protective rights | 13.3 | (6.9) | 6.4 | ||||||||||||||
| Trade names | 7.3 | (5.9) | 1.4 | ||||||||||||||
| Assets not subject to amortization: | |||||||||||||||||
| Trade names | 784.5 | — | 784.5 | ||||||||||||||
| Balances at March 31, 2021 | $ | 9,420.5 | $ | (2,353.7) | $ | 7,066.8 | |||||||||||
Amortization expense of other intangible assets was $145.4 and $100.7 during the three months ended March 31, 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.
7. Fair Value of Financial Instruments
Roper’s debt at March 31, 2021 included $8,000 of fixed-rate senior notes with the following fair values:
$500 2.800% senior notes due 2021 | 508 | ||||
$500 3.125% senior notes due 2022 | 518 | ||||
$300 0.450% senior notes due 2022 | 300 | ||||
$700 3.650% senior notes due 2023 | 750 | ||||
$500 2.350% senior notes due 2024 | 523 | ||||
$300 3.850% senior notes due 2025 | 332 | ||||
$700 1.000% senior notes due 2025 | 689 | ||||
$700 3.800% senior notes due 2026 | 778 | ||||
$700 1.400% senior notes due 2027 | 677 | ||||
$800 4.200% senior notes due 2028 | 902 | ||||
$700 2.950% senior notes due 2029 | 730 | ||||
$600 2.000% senior notes due 2030 | 574 | ||||
$1,000 1.750% senior notes due 2031 | 929 | ||||
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.
11
8. 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., has been 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). All three cases purport 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 cases each seek recovery under the Driver’s Privacy Protection Act, 18 U.S.C. § 2721. Vertafore is vigorously defending the matters. 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.
12
9. Business Segments
Net revenues and operating profit by segment are set forth in the following table:
| Three months ended March 31, | |||||||||||||||||
| 2021 | 2020 | Change % | |||||||||||||||
| Net revenues: | |||||||||||||||||
| Application Software | $ | 576.6 | $ | 405.1 | 42.3 | % | |||||||||||
| Network Software & Systems | 440.2 | 438.2 | 0.5 | % | |||||||||||||
| Measurement & Analytical Solutions | 381.0 | 365.2 | 4.3 | % | |||||||||||||
| Process Technologies | 130.8 | 142.2 | (8.0) | % | |||||||||||||
| Total | $ | 1,528.6 | $ | 1,350.7 | 13.2 | % | |||||||||||
| Gross profit: | |||||||||||||||||
| Application Software | $ | 398.7 | $ | 270.4 | 47.4 | % | |||||||||||
| Network Software & Systems | 299.4 | 293.2 | 2.1 | % | |||||||||||||
| Measurement & Analytical Solutions | 224.7 | 214.6 | 4.7 | % | |||||||||||||
| Process Technologies | 71.0 | 78.6 | (9.7) | % | |||||||||||||
| Total | $ | 993.8 | $ | 856.8 | 16.0 | % | |||||||||||
| Operating profit*: | |||||||||||||||||
| Application Software | $ | 153.7 | $ | 97.6 | 57.5 | % | |||||||||||
| Network Software & Systems | 135.5 | 138.7 | (2.3) | % | |||||||||||||
| Measurement & Analytical Solutions | 124.1 | 114.0 | 8.9 | % | |||||||||||||
| Process Technologies | 38.3 | 43.3 | (11.5) | % | |||||||||||||
| Total | $ | 451.6 | $ | 393.6 | 14.7 | % | |||||||||||
| Long-lived assets: | |||||||||||||||||
| Application Software | $ | 126.7 | $ | 85.1 | 48.9 | % | |||||||||||
| Network Software & Systems | 44.8 | 48.5 | (7.6) | % | |||||||||||||
| Measurement & Analytical Solutions | 35.4 | 39.1 | (9.5) | % | |||||||||||||
| Process Technologies | 19.5 | 21.0 | (7.1) | % | |||||||||||||
| Total | $ | 226.4 | $ | 193.7 | 16.9 | % | |||||||||||
*Segment operating profit is before unallocated corporate general and administrative expenses; these expenses were $51.1 and $44.4 for the three months ended March 31, 2021 and 2020, respectively.
10. 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 March 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| Software and related services | $ | 864.5 | $ | 668.5 | |||||||
| Engineered products and related services | 664.1 | 682.2 | |||||||||
| Net revenues | $ | 1,528.6 | $ | 1,350.7 | |||||||
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 March 31, 2021, the aggregate amount of the transaction price allocated to remaining performance obligations was $4,102.4. We expect to recognize revenue on
13
approximately 63% of our remaining performance obligations over the next 12 months (“Backlog”), with the remainder to be recognized thereafter.
Contract balances
| Balance Sheet Account | March 31, 2021 | December 31, 2020 | Change | ||||||||||||||
| Unbilled receivables | $ | 268.0 | $ | 241.7 | $ | 26.3 | |||||||||||
Contract liabilities - current (1) | (1,036.9) | (1,012.0) | (24.9) | ||||||||||||||
Deferred revenue - non-current (2) | (76.4) | (43.1) | (33.3) | ||||||||||||||
| Net contract assets/(liabilities) | $ | (845.3) | $ | (813.4) | $ | (31.9) | |||||||||||
(1) Consists of “Deferred revenue,” and billings in-excess of revenues (“BIE”). BIE is reported in “Other accrued liabilities” in our Condensed Consolidated Balance Sheets.
(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 March 31, 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 associated with timing of invoicing in our project-based businesses, most notably our Transcore business.
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 billing occurring after revenue recognition resulting in contract assets. 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 during the three months ended March 31, 2021 and 2020 that was included in the contract liability balance on December 31, 2020 and 2019 was $459.1 and $323.5, 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.
Impairment losses recognized on our accounts receivable and unbilled receivables were immaterial in the three months ended March 31, 2021.
14
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, 2020 (“Annual Report”) as filed on February 22, 2021 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 U.S. Securities and Exchange Commission (“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” or “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. Such risks and uncertainties include the effects of the COVID-19 pandemic on our business, operations, financial results and liquidity, including the duration and magnitude of such effects, which will depend on numerous evolving factors that we cannot accurately predict or assess, including: the duration and scope of the pandemic generally and in the geographical markets that we serve or in which we operate; the negative impact on global and regional markets, economies and economic activity; actions governments, businesses and individuals take in response to the pandemic; the effects of the pandemic, including all of the foregoing, on our employees, customers, suppliers, and business partners, and how quickly economies and demand for our products and services recover following the pandemic.
Additional 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 material 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;
•limitations on our business imposed by our indebtedness;
•unfavorable changes in foreign exchange rates;
•failure to effectively mitigate cybersecurity threats, including any litigation arising therefrom;
•failure to comply with new data privacy laws and regulations, including any litigation arising therefrom;
•difficulties associated with exports/imports and risks of changes to tariff rates;
•risks and costs associated with our international sales and operations;
•rising interest rates;
•product liability and insurance risks;
•increased warranty exposure;
•future competition;
•the cyclical nature of some of our markets;
•reduction of business with large customers;
•risks associated with government contracts;
•changes in the supply of, or price for, raw materials, parts and components;
•environmental compliance costs and liabilities;
•risks and costs associated with asbestos-related litigation;
•potential write-offs of our goodwill and other intangible assets;
•our ability to successfully develop new products;
•failure to protect our intellectual property;
•the effect of, or change in, government regulations (including tax);
15
•economic disruption caused by terrorist attacks, health crises (such as the COVID-19 pandemic) or other unforeseen geopolitical events; and
•the factors discussed in other reports filed with the SEC from time to time.
We believe these forward-looking statements are reasonable. However, 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 them in light of new information or future events.
Overview
Roper Technologies, Inc. (“Roper,” “we,” “us” or “our”) is a diversified technology company. We operate businesses that design and develop software (both license and SaaS) and engineered products and solutions for a variety of niche end markets.
We pursue consistent and sustainable growth in earnings and cash flow by emphasizing continuous improvement in the operating performance of our existing businesses and by acquiring other businesses that offer high value-added software, services, engineered products and solutions that we believe are capable of achieving growth and maintaining high margins. We compete in many niche markets and believe we are the market leader or a competitive alternative to the market leader in most of these markets.
Critical Accounting Policies
There were no material changes during the three months ended March 31, 2021 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.
Impact of COVID-19 on our Business
Our top priority during the coronavirus (COVID-19) pandemic is the health and safety of our employees, customers and vendors. The leadership teams at our businesses continue to be proactive in instituting safety measures that protect our employees, customers and vendors, while maintaining operational capabilities required to meet our customers’ needs. All our businesses with manufacturing facilities have been deemed essential businesses and remain operational, supplying our customers with critical products. Additionally, all of our businesses continue to be operational in their work-from-home environments with limited disruption.
The spread of COVID-19 has caused us to modify our business practices, and we may take further actions as required by governmental and other regulatory authorities or as we determine to protect the safety or best interests of our employees, customers, suppliers and business partners. Some changes in business practices include, but are not limited to: restricting employee travel, developing social distancing plans for our employees, expanding the number of our associates who work from home, and cancelling physical participation in meetings, events and conferences.
The extent to which the COVID-19 pandemic impacts our business, results of operations and financial condition will depend on future developments, which are highly uncertain and are difficult to predict, including, but not limited to, the duration and spread of the outbreak, its severity, the actions to contain the virus and its variants including distribution and administration of available vaccines, and how quickly and to what extent normal economic and operating conditions can resume. As COVID-19 and its variants spread, particularly in countries with low vaccination rates, certain countries may experience more severe and lasting impacts from the pandemic. To the extent we have operations and/or customers in these countries, we may experience adverse impacts on our businesses located in such countries. For example, India is currently experiencing a severe outbreak of COVID-19. While most of our employees located in India are currently able to continue to operate in work-from-home environments, to the extent the outbreak intensifies or persists indefinitely it is difficult to predict how such outbreak may ultimately impact our businesses with employees and/or operations located in India.
16
Results of Operations
All currency amounts are in millions, percentages are of net revenues
General
Percentages may not sum due to rounding.
The following table sets forth selected information for the periods indicated.
| Three months ended March 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| Net revenues: | |||||||||||
| Application Software | $ | 576.6 | $ | 405.1 | |||||||
| Network Software & Systems | 440.2 | 438.2 | |||||||||
| Measurement & Analytical Solutions | 381.0 | 365.2 | |||||||||
| Process Technologies | 130.8 | 142.2 | |||||||||
| Total | $ | 1,528.6 | $ | 1,350.7 | |||||||
| Gross margin: | |||||||||||
| Application Software | 69.1 | % | 66.7 | % | |||||||
| Network Software & Systems | 68.0 | 66.9 | |||||||||
| Measurement & Analytical Solutions | 59.0 | 58.8 | |||||||||
| Process Technologies | 54.3 | 55.3 | |||||||||
| Total | 65.0 | 63.4 | |||||||||
| Selling, general and administrative expenses: | |||||||||||
| Application Software | 42.5 | % | 42.7 | % | |||||||
| Network Software & Systems | 37.2 | 35.3 | |||||||||
| Measurement & Analytical Solutions | 26.4 | 27.5 | |||||||||
| Process Technologies | 25.0 | 24.8 | |||||||||
| Total | 35.5 | 34.3 | |||||||||
| Segment operating margin: | |||||||||||
| Application Software | 26.7 | % | 24.1 | % | |||||||
| Network Software & Systems | 30.8 | 31.7 | |||||||||
| Measurement & Analytical Solutions | 32.6 | 31.2 | |||||||||
| Process Technologies | 29.3 | 30.5 | |||||||||
| Total | 29.5 | 29.1 | |||||||||
| Corporate administrative expenses | (3.3) | (3.3) | |||||||||
| Income from operations | 26.2 | 25.9 | |||||||||
| Interest expense, net | (4.0) | (3.4) | |||||||||
| Other income (expense), net | 1.8 | 0.1 | |||||||||
| Earnings before income taxes | 24.0 | 22.6 | |||||||||
| Income taxes | (5.1) | (4.8) | |||||||||
| Net earnings | 18.9 | % | 17.8 | % | |||||||
Three months ended March 31, 2021 compared to three months ended March 31, 2020
Net revenues for the three months ended March 31, 2021 increased by 13% as compared to the three months ended March 31, 2020. The increase was the result of net acquisition/divestiture contribution of 12% and a foreign exchange benefit of 1%, partially offset by an organic decline of 1%.
17
In our Application Software segment, revenues were $576.6 in the first quarter of 2021 as compared to $405.1 in the first quarter of 2020, an increase of 42%. Acquisitions contributed 38%, organic revenues increased 2% and foreign exchange contributed 1% to growth in the segment. The increase in organic revenues was due primarily to our businesses serving the healthcare and government contracting markets, partially offset by declines in our businesses serving the education markets. Gross margin increased to 69.1% in the first quarter of 2021 as compared to 66.7% in the first quarter of 2020 due primarily to the acquisition of Vertafore and favorable revenue mix across the segment. Selling, general and administrative (“SG&A”) expenses as a percentage of revenues decreased to 42.5% in the first quarter of 2021 as compared to 42.7% in the first quarter of 2020 due primarily to operating leverage on organic revenue growth, partially offset by higher amortization of acquired intangibles from the Vertafore and EPSi acquisitions. The resulting operating margin was 26.7% in the first quarter of 2021 as compared to 24.1% in the first quarter of 2020.
In our Network Software & Systems segment, revenues were relatively flat at $440.2 in the first quarter of 2021 as compared to $438.2 in the first quarter of 2020. Organic revenues decreased 2%, offset by growth in the segment due to contributions from acquisitions of 2% and foreign exchange of 1%. The decrease in organic revenues was primarily due to project timing and lower toll tag volumes in our toll and traffic business, partially offset by subscription growth at our SaaS businesses. Gross margin increased to 68.0% in the first quarter of 2021 as compared to 66.9% in the first quarter of 2020 due primarily to revenue mix. SG&A expenses as a percentage of revenues increased to 37.2% in the first quarter of 2021 as compared to 35.3% in the first quarter of 2020 due primarily to revenue mix. As a result, operating margin was 30.8% in the first quarter of 2021 as compared to 31.7% in the first quarter of 2020.
Our Measurement & Analytical Solutions segment revenues increased by 4% to $381.0 in the first quarter of 2021 as compared to $365.2 in the first quarter of 2020. Organic revenues increased 2% and foreign exchange contributed 2% to growth in the segment. The growth in organic revenues was primarily due to our medical products businesses, partially offset by declines in our water meter technology business, due to restricted access to indoor meters located in the Northeast United States and Canada. Gross margin increased to 59.0% in the first quarter of 2021 as compared to 58.8% in the first quarter of 2020 due primarily to revenue mix. SG&A expenses as a percentage of revenues decreased to 26.4% in the first quarter of 2021 as compared to 27.5% in the first quarter of 2020 due primarily to higher operating leverage on organic revenue growth. The resulting operating margin was 32.6% in the first quarter of 2021 as compared to 31.2% in the first quarter of 2020.
Our Process Technologies segment revenues decreased by 8% to $130.8 in the first quarter of 2021 as compared to $142.2 in the first quarter of 2020. Organic revenues decreased 10%, partially offset by a foreign exchange contribution of 2%. Organic revenues decreased due to broad-based revenue declines across the segment led by lower demand at our businesses serving upstream oil and gas end markets. Gross margin decreased to 54.3% in the first quarter of 2021 as compared to 55.3% in the first quarter of 2020 due primarily to lower revenues across the businesses. SG&A expenses as a percentage of revenues increased to 25.0% in the first quarter of 2021 as compared to 24.8% in the first quarter of 2020 due primarily to lower operating leverage on organic revenue declines. As a result, operating margin was 29.3% in the first quarter of 2021 as compared to 30.5% in the first quarter of 2020.
Corporate expenses increased to $51.1, or 3.3% of revenues, in the first quarter of 2021 as compared to $44.4, or 3.3% of revenues, in the first quarter of 2020. The dollar increase was due primarily to higher compensation related expenses, partially offset by lower acquisition related expenses.
Net interest expense was $60.6 for the first quarter of 2021 as compared to $45.4 for the first quarter of 2020 due to higher weighted average debt balances, partially offset by lower weighted average interest rates.
Other income, net, of $27.0 for the first quarter of 2021 was composed primarily of a gain on sale of minority investment of $27.1. Other income, net, of $0.8 for the first quarter of 2020 was composed primarily of foreign exchange gains at our non-U.S. based subsidiaries
Income taxes as a percent of pretax earnings were relatively flat at 21.2% in the first quarter of 2021 as compared to 21.1% in the first quarter of 2020.
Backlog is equal to our remaining performance obligations expected to be recognized within the next 12 months as discussed in Note 10 of the Notes to Condensed Consolidated Financial Statements. Backlog increased 25% to $2,578.7 at March 31, 2021 as compared to $2,070.3 at March 31, 2020, organic growth was 3% and acquisitions contributed 22%.
18
| Backlog as of | |||||||||||
| March 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| Application Software | $ | 1,394.6 | $ | 838.6 | |||||||
| Network Software & Systems | 814.4 | 877.9 | |||||||||
| Measurement & Analytical Solutions | 252.8 | 236.3 | |||||||||
| Process Technologies | 116.9 | 117.5 | |||||||||
| Total | $ | 2,578.7 | $ | 2,070.3 | |||||||
Financial Condition, Liquidity and Capital Resources
All currency amounts are in millions
Selected cash flows for the three months ended March 31, 2021 and 2020 were as follows:
| Three months ended March 31, | |||||||||||
| Cash provided by/(used in): | 2021 | 2020 | |||||||||
| Operating activities | $ | 559.6 | $ | 363.9 | |||||||
| Investing activities | 10.7 | (17.0) | |||||||||
| Financing activities | (545.2) | (38.7) | |||||||||
Operating activities - Net cash provided by operating activities increased by 54% to $559.6 in the three months ended March 31, 2021 as compared to $363.9 in the three months ended March 31, 2020, due primarily to higher net income net of non-cash expenses and growth in our software businesses, which generated cash from working capital in the quarter. Additionally, wins at our UK-based laboratory software business generated approximately $36 of accelerated cash payments in the quarter.
Investing activities - Cash provided by investing activities during the three months ended March 31, 2021 is due primarily to the proceeds from the sale of a minority investment, partially offset by capital expenditures. Cash used in investing activities during the three months ended March 31, 2020 was primarily for capital expenditures.
Financing activities - Cash used in financing activities for the three months ended March 31, 2021 was primarily due to net repayments on our unsecured credit facility and dividend payments. Cash used in financing activities during the three months ended March 31, 2020 was primarily due to dividend payments, partially offset by net proceeds from stock-based compensation.
Effect of foreign currency exchange rate changes on cash - Cash and cash equivalents decreased during the three months ended March 31, 2021 by $2.4 due primarily to the strengthening of the U.S. dollar against the functional currencies of our European subsidiaries. Cash and cash equivalents decreased during the three months ended March 31, 2020 by $18.1 due primarily to the strengthening of the U.S. dollar against the functional currencies of our United Kingdom, European and Canadian subsidiaries.
19
Total debt at March 31, 2021 consisted of the following:
| $500 2.800% senior notes due 2021 | 500.0 | ||||
| $500 3.125% senior notes due 2022 | 500.0 | ||||
| $300 0.450% senior notes due 2022 | 300.0 | ||||
| $700 3.650% senior notes due 2023 | 700.0 | ||||
| $500 2.350% senior notes due 2024 | 500.0 | ||||
| $300 3.850% senior notes due 2025 | 300.0 | ||||
| $700 1.000% senior notes due 2025 | 700.0 | ||||
| $700 3.800% senior notes due 2026 | 700.0 | ||||
| $700 1.400% senior notes due 2027 | 700.0 | ||||
| $800 4.200% senior notes due 2028 | 800.0 | ||||
| $700 2.950% senior notes due 2029 | 700.0 | ||||
| $600 2.000% senior notes due 2030 | 600.0 | ||||
| $1,000 1.750% senior notes due 2031 | 1,000.0 | ||||
| Unsecured credit facility | 1,125.0 | ||||
| Deferred finance costs | (56.8) | ||||
| Other | 5.7 | ||||
| Total debt, net of deferred finance costs | 9,073.9 | ||||
| Less current portion | 502.1 | ||||
| Long-term debt, net of deferred finance costs | $ | 8,571.8 | |||
The interest rate on borrowings under our $3,000.0 unsecured credit facility is calculated based upon various recognized indices plus a margin as defined in the credit facility. At March 31, 2021, there were $1,125.0 outstanding borrowings under our unsecured credit facility. At March 31, 2021, we had $5.7 of other debt in the form of short term borrowings, finance leases and several smaller facilities that allow for borrowings in various foreign locations to support our non-U.S. businesses and $67.1 of outstanding letters of credit.
Cash at our foreign subsidiaries at March 31, 2021 increased to $296 as compared to $259 at December 31, 2020 due primarily to the cash generated at our foreign subsidiaries during the three months ended March 31, 2021, partially offset by the repatriation of $107 during the quarter. 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 three months ended March 31, 2021.
Net working capital (total current assets, excluding cash, less total current liabilities, excluding debt) was negative $552.4 at March 31, 2021 as compared to negative $498.4 at December 31, 2020, reflecting a decrease in working capital due primarily to a decrease in accounts receivable, net and an increase in income taxes payable, partially offset by a decrease in accrued compensation resulting from the timing of payments. Consistent negative net working capital demonstrates Roper’s continued evolution and focus on asset-light business models. Total debt was $9,073.9 at March 31, 2021 as compared to $9,566.5 at December 31, 2020, due primarily to the net repayments under our unsecured credit facility. Our leverage is shown in the following table:
20
| March 31, 2021 | December 31, 2020 | ||||||||||
| Total debt | $ | 9,073.9 | $ | 9,566.5 | |||||||
| Cash | (331.0) | (308.3) | |||||||||
| Net debt | 8,742.9 | 9,258.2 | |||||||||
| Stockholders’ equity | 10,765.7 | 10,479.8 | |||||||||
| Total net capital | $ | 19,508.6 | $ | 19,738.0 | |||||||
| Net debt / total net capital | 44.8 | % | 46.9 | % | |||||||
Capital expenditures were $9.1 for the three months ended March 31, 2021 as compared to $7.9 for the three months ended March 31, 2020. Capitalized software expenditures were $7.2 for the three months ended March 31, 2021 as compared to $2.6 for the three months ended March 31, 2020. We expect the aggregate of capital expenditures and capitalized software expenditures for the balance of the year to be comparable to prior years as a percentage of revenues.
Off-Balance Sheet Arrangements
At March 31, 2021, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
Outlook
Current geopolitical and economic uncertainties could adversely affect our business prospects. The COVID-19 pandemic has had, and may continue to have, an adverse impact on our business. A significant terrorist attack, other global conflict, 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.
Although we maintain an active acquisition program we are currently focused on reducing debt. 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 lines, 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 during 2021 (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 COVID-19 pandemic on our business prospects and the financial markets generally. None of these factors can be predicted with certainty.
21
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See “Item 7A. Quantitative and Qualitative Disclosures about Market Risk” in our Annual Report. There were no material changes during the three months ended March 31, 2021.
ITEM 4. CONTROLS AND PROCEDURES
As required by SEC rules, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q (“Evaluation Date”). This evaluation was carried out under the supervision and with the participation of our management, including our principal executive officer and principal financial officer. Based on this evaluation as of the Evaluation Date, these officers have concluded that the design and operation of our disclosure controls and procedures are effective.
Our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act are accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
There were no changes to our internal controls during the period covered by this Quarterly Report on Form 10-Q that materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
22
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Information pertaining to legal proceedings can be found in Note 8 of the Notes to Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q and is incorporated by reference herein.
ITEM 1A. RISK FACTORS
Information regarding risk factors can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Information About Forward-Looking Statements,” in Part 1 - Item 2 of this Form 10-Q and in Part 1 - Item 1A of our 2020 Annual Report on Form 10-K. There were no material changes during the quarter ended March 31, 2021 to the risk factors reported in the Company’s 2020 Annual Report on Form 10-K.
23
ITEM 6. EXHIBITS
| 31.1 | |||||||||||
| 31.2 | |||||||||||
| 32.1 | |||||||||||
| 101.INS | XBRL Instance Document. | ||||||||||
| 101.SCH | XBRL Taxonomy Extension Schema Document. | ||||||||||
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document. | ||||||||||
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document. | ||||||||||
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document. | ||||||||||
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document. | ||||||||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). | ||||||||||
24
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Roper Technologies, Inc.
| /S/ L. Neil Hunn | President and Chief Executive Officer | May 5, 2021 | |||||||||
| L. Neil Hunn | (Principal Executive Officer) | ||||||||||
| /S/ Robert C. Crisci | Executive Vice President and Chief Financial Officer | May 5, 2021 | |||||||||
| Robert C. Crisci | (Principal Financial Officer) | ||||||||||
| /S/ Jason Conley | Vice President and Chief Accounting Officer | May 5, 2021 | |||||||||
| Jason Conley | (Principal Accounting Officer) | ||||||||||
25