Roper Technologies Inc (ROP) 2017 Q3 法說會逐字稿

Good day, everyone, and welcome to the Roper Technologies Third Quarter 2017 Financial Results Conference Call.

Today's call is being recorded.

At this time, I would like to turn the conference over to Mr. Zack Moxcey, Vice President of Investor Relations.

Please go ahead, sir.

Thank you, Laurie, and thank you all for joining us this morning as we discuss the third quarter financial results for Roper Technologies.

Joining me on the call this morning are Brian Jellison, Chairman, President and Chief Executive Officer; Rob Crisci, Vice President and Chief Financial Officer; Neil Hunn, Executive Vice President; Jason Conley, Vice President and Controller; and Shannon O'Callaghan, Vice President of Finance.

Early this morning, we issued a press release announcing our financial results.

The press release also includes replay information for today's call.

We have prepared slides to accompany today's call, which are available through the webcast and are also available on our website.

Now if you'll please turn to Slide 2. We begin with our safe harbor statement.

During the course of today's call, we will make forward-looking statements which are subject to risks and uncertainties as described on this page and as further detailed in our SEC filings.

You should listen to today's call in the context of that information.

And now please turn to Slide 3. Today, we will discuss our results for the quarter primarily on an adjusted non-GAAP basis.

A full reconciliation between GAAP and adjusted measures is in our press release and also included as a part of this presentation on our website.

For the second quarter, the difference between our GAAP results and adjusted results consist of the following items on a pretax basis: a $12 million purchase accounting adjustment to acquire deferred revenue relating to software acquisitions; and $1 million of related commission expense.

This represents revenue and commissions that those companies would have recognized if not for our acquisition.

And lastly, a $73 million adjustment for amortization of acquisition-related intangible assets.

And now if you will please turn to Slide 4, I will hand the call over to Brian.

After his prepared remarks, we will take questions from our telephone participants.

Brian?

Thank you, Zack, and good morning, everyone.

I don't know how many of you were fortunate enough to stay up last night as I was to watch the second-best baseball game of all time.

Of course, the Reds and the Red Sox still are #1.

But what an incredible game.

And anyway, I made it in, so I'm very happy about that.

So if we look here, we've got the Q3 enterprise financial results, we'll start with, and then get into the segment detail and the outlook; talk a little bit about Q4 and raising guidance for 2017, and sort of an initial outlook about 2018; and then take your questions and answers.

So let's go to the next slide.

The Q3 enterprise highlights here.

Our summary, we had record third quarter results in about every category you can imagine, certainly sales and orders and gross margin, EBITDA, et cetera.

Very encouraged by the fact that it was very broad-based strength.

We really only had one situation within medical products that was sort of disappointing and one product portfolio business that we'll discuss when we get into there.

But notwithstanding that, we still had incredible results for the quarter.

Revenue was up 24% to $1.171 billion with a 5% organic growth rate.

The gross margin was 63 basis points -- 63%, up 170 basis points.

And what we're particularly encouraged by that is it demonstrates our ability, we think, to contain the cost push challenges that other people are complaining about with material and supply chain issues.

And instead of having a problem, we're up 170 basis points.

Our diluted earnings per share were up 20% to $2.36.

EBITDA was up 24% to $407 million and our margin expanded 20 basis points to 34.8%.

Year-to-date, our operating cash flow has been $866 million, which represents $0.25 of every sales dollar.

And that's allowed us to reduce our debt year-to-date by $880 million.

So that's very rapid deleveraging, bringing our EBITDA number down dramatically.

A great quarter, and certainly strengthening the balance sheet was really a little bit above plan.

Next slide.

If we look at the Q3 income statement, you can see our revenue in the quarter was up $224 million over the prior year.

EBITDA was up 24%.

Tax rate was -- on our adjusted numbers, we applied 35% tax rate.

And then on the rest of the business, it came out at about 28%.

So we had got a 29.7% tax rate and we had expected something around 30%.

And then you can see net earnings up $44 million to $245 million.

Next slide.

Here, we look at how effective our cash flow strategy continues to be and how well our field people execute.

So operating cash flow year-to-date is, as we said, $866 million, 25% of revenue.

Our year-to-date free cash flow is 24% of revenue.

One of the things we like to point out to people is there's not much CapEx here, so the difference between operating cash flow and free cash flow is only 1% of revenue.

If you look back 2 years ago, you can see that our operating cash flow year-to-date in 2015 was $660 million.

Last year, it went up by $71 million to $731 million.

This year, it's up by $135 million to $866 million.

So that's just in a 2-year period, up 31%.

Our cash conversion, which I hear some people stumbling around when I'm talking to folks, our cash conversion on a GAAP basis is 156% year-to-date.

It was higher than that in the third quarter actually, around 160%.

And our cash conversion on an adjusted net earnings number was up 118% year-to-date and up 124% in this quarter.

So I do occasionally hear people talking about cash earnings versus our adjusted earnings.

Our cash earnings are higher than the adjusted earnings that we report.

We reduced debt by $880 million, as I said.

And all of those things demonstrate our ability to compound cash.

Next slide.

If we look at the asset-light business model, that's certainly well and moving ahead.

I always like to look at how much progress we've made.

If you look back 5 years ago, our inventory was 7.2% of revenue and today it's 4.5%.

Receivables were 17.1%, today they're 16.4%.

Payables and accruals were the same in both periods, 12%.

Our deferred revenue back then, just 5 years ago, was 3.4% of sales.

Today it's 11.5%.

So 5 years ago, our total net number on working capital was 9% of revenue.

Today it's a negative number at 2.5%.

We now have over $0.5 billion of deferred revenue, $535 million as you can see at the bottom of the slide.

And the importance, of course, of the negative working capital is that we don't need to add working capital as we grow.

So we have this incredibly great model that as we grow, we actually get oftentimes paid in advance for the work.

And so it actually strengthens the cash and our balance sheet as we grow.

All of this reflects the enterprise transformation that we've overtaken for a long period of time with particular effectiveness in the last 5 years.

And it's all really driven by our cost return on investment principles and discipline that we always like to talk about.

Next slide.

Here, we're just getting ready to get into the specific detail of the segments and the outlook.

All of them performed very well.

Their EBITDA margins were between 30% and 45%.

Really, each one of them is sort of best-in-class for the platforms that it represents.

Next slide.

We thought we'd take a minute today to talk a little bit about the awards and milestones that have been accreting to the businesses because they're really quite spectacular.

And we tend to talk about events within the quarter rather than the long-term trajectory of what's going on here in these calls.

And so many good things are happening around the future, which I would just share a couple.

Gatan, which is in our scientific imaging segment but reported through medical, created a technology a few years ago that was instrumental in identifying the Zika virus.

And the technology that we have allows cryo-electron microscopy to see things that it wasn't previously able to see.

And as the cryo-electron microscopy business picks up, this will have a dramatic effect on our Gatan business since we really have preeminent technology there.

Deltek this quarter was recognized as Cloud-Based Professional Services Automation ERP Leader by IDC Marketplace.

They have sort of, as people know about the class, Magic Quadrant.

This is sort of a slightly different thing but still a very high honor to receive.

Sunquest was named the Clinical Diagnostic Laboratory IT Company of the Year by Frost & Sullivan.

And that really demonstrates our customer intimacy in that space.

Strata was named #1 by KLAS for Hospital Decision Support Software.

And that's a big payoff for all the enhanced investment that we put into Strata after we acquired it and the enhanced technology they're delivering for cost containment in the hospital sector.

Aderant Expert has become the #1 enterprise practice management system among the Am Law 200 firms.

This is really about us improving the channel to market for them and the knowledge that we're investing for their future, which is a much higher rate, of course, than what it had when it was inside private equity.

TransCore successfully converted the New York MTA Bridges & Tunnels.

Those of you in New York can give us applause for that.

Our ability to execute that was preeminent.

We delivered everything on time.

And really, TransCore can be quite proud of what it's been able to do and will do in the future as infrastructure spending starts to pick up.

All of this is sort of the culture of innovation we have in these niche markets.

We've got dramatically higher RD&E investments in all our businesses.

Next slide.

If we start with our largest sector, that's RF Technology and Software, it's now 42% of the entire company revenue, a little bit more than that on an EBITDA basis.

The third quarter represented nearly $0.5 billion of revenue on its own.

It was up 61% with organic up 4%.

We had a little bit of pull-in from the fourth quarter at Deltek that strengthened our Q3 results.

Deltek has really had a lot of GovCon wins.

We made an acquisition for them in Denmark, meaning non-U.

S. cash, of a company called WorkBook, which is going to enhance our professional services platform.

ConstructConnect also was able to drive considerable growth as their recurring revenue is increasing.

And we think there will be some bolt-ons in the ConstructConnect space in the near future.

When you look at the core business without the acquisitions, the operating margins in the quarter were up 280 basis points.

And EBITDA, you can see also performed very well.

We had mid-single-digit growth across the other software businesses.

Aderant continued to gain share.

We made an acquisition, a bolt-on for them, that we called Handshake, which is in Florida.

It adds knowledge management software for these same firms, so it's a common thing to add and sell within our existing distribution channel.

And our Freight Matching business continues to expand with net subscriber growth.

We got great execution from a margin viewpoint in our toll and traffic projects in the quarter, which is very encouraging because oftentimes, those projects have contingencies associated with them and performance dictates how much you really make at the end of one of the projects.

In the fourth quarter, our software businesses are expected to continue to grow with the same strong margins and cash performance that we've enjoyed in the third quarter.

We see continued momentum for both Deltek and ConstructConnect.

They really do have tailwinds behind those businesses.

We expect though we'll get low single-digit organic growth in the segment in Q4 solely because we had a difficult comp with the MTA startup in the fourth quarter of last year.

We see a lot of continuing opportunities for TransCore projects.

When we talk to our team there, they've actually added people for the bidding process because there's so much activity.

And they're likely to create even better opportunities in '18.

We used to think at the beginning of the year that '18 could be a challenge because it would be hard to replace the MTA project in New York.

But that's no longer a fear.

And in fact, we think we're going to grow beyond this year.

Next slide.

Here, if we look at Medical & Scientific Imaging, we had a great quarter but a little bit abnormal around organic growth.

You can see it was only up 1%.

It really should be mid-single digits, and in fact, many of the businesses were mid-single digits and above.

The margins in the quarter were essentially what we expected, so we're happy with the margins.

We did get mid-single-digit growth in the medical businesses if we exclude this one unusual transaction that happened in our Verathon business, which right at the end of the quarter fell short on its revenue projections in the U.S. And we don't expect that to continue for long at all.

Revenue grew across all 3 medical platforms and they do represent 85% of this segment.

In the products, we had terrific performance out of Northern Digital and IPA.

And that was offset a bit by what happened at Verathon, so we wind up with a net organic of 1% instead of 4% or 5%.

In our acute care solutions, we did exceptionally well in the middleware and international arena, a little bit softer in the U.S. but still net positive organic growth.

In the alternate site healthcare business, we continue to have good growth in the long-term care GPO and software businesses that are there and don't see really any headwinds for those at all.

In the scientific imaging business, we had said at the end of quarter 2 that we would have a light quarter in quarter 3 from a revenue viewpoint just because of the issues associated with getting all of the cryo-EM technology out with the cameras.

And in fact, that occurred, but that gives us kind of a bolstered opportunity in Q4.

If we look at how the fourth quarter is going to look, we think that the growth initiatives in RD&E and channel access for these 3 medical platforms will continue to be substantial for us.

We're spending about $14 million more this year than the prior year, all in the hopes of capturing forward growth that we've talked about earlier today and throughout the year.

Revenue growth should occur in all 3 platforms.

Imaging ought to be a little better on timing of shipments.

We expect to have better margin improvement sequentially from the third quarter to the fourth quarter.

And while we may get only 2 or 3 points of organic growth in this segment in Q4, we expect to have much better organic growth again in 2018 as we're back to a normal pace with mid-single-digit activity.

Next slide.

Here, if we look at Industrial Technology and Energy Systems, the Industrial Technology business was up 12% organically.

Neptune had another record quarter.

They had double-digit growth in earnings.

So those people that are complaining about copper might want to pay attention to what we're doing.

Fluid handling growth from continued share gains is doing really well with Roper Pump and with Cornell.

We improved the upstream oil and gas environment, it did, and it helped us quite a bit.

We think the fourth quarter is going to have the same kind of growth characteristics around it as the third quarter did.

And we expect to get leverage in these businesses above 40%.

If you look at energy, organic is up 6%.

The reason for that is we have double-digit growth in the oil and gas portion, which is about 2/3 of our segment.

But we had the expected sort of high single-digit decline that we thought we would have at CCC.

So the net effect wasn't a double-digit organic growth.

In the 1/3 of the business that reports in energy, it's really sensor technology and industrial markets, we were up sort of high mid-single digits there.

We see the fourth quarter being similar growth to the third quarter with leverage again above 40%.

If you look at the 2 segments together, they delivered $170 million -- $107 million of EBITDA on $335 million in sales or 32%.

So the businesses remain really outstanding.

Next slide.

So here, we get ready to talk about the guidance profile for Q4.

Next slide.

So we're raising our full year guidance, raised the midpoint by $0.09.

We had been $9.12 to $9.30.

We're raising that to $9.27 to $9.33.

The full year then will deliver about 22% revenue growth, of which 5% will be organic.

We expect to create more than $1,150,000,000 of operating cash flow.

And fourth quarter guidance, we came in at $2.56 to $2.62.

Remember, we did a little bit better in Q3 that took some of the fourth quarter out into the third quarter.

But on balance, we're raising the full year guidance.

I think tax rate in the fourth quarter is likely to be similar to what we just saw in the third quarter, maybe a little bit less, depending on how things go.

And of course, we're all waiting on what happens with the government.

If there actually was a change in business tax, Roper would be one of the biggest beneficiaries in the universe.

Next slide.

Here, we look at the summary of our activity for the third quarter.

As we said, we had a record third quarter, really strength throughout the company.

Very few headwinds have developed in 2017, and we really don't see many at all for 2018.

Revenue, as we say, is up 24% to $1.171 billion.

Gross margins at 63% are really pretty spectacular.

DEPS at $2.36 was considerably above most people's expectations, EBITDA at 24% up with $407 million.

Our year-to-date cash flow at 25% of revenue sort of speaks for itself.

We've already reduced debt by $880 million, rapidly deleveraging, which gives us a big reloading of the balance sheet, much more quickly than I think many people thought.

Our proven CRI principles and discipline really drive our ability to compound cash flow and acquire great businesses.

And you're going to see that activity accelerate in 2018.

We think over the next 4 years we'll put something above $6 billion to work in acquisitions, which is simply our normal glide path inside keeping our investment-grade rating and just leveraging our free cash flow towards these acquisitions.

So another big takeaway about how the quarter is, is we're just started with our 2018 to '20 planning process and meeting with people and seeing their initial submissions for '18.

And I have to say that the operating leaders are projecting more confidence for '18 than in a year in the last 5 that we've entered this process.

So we look forward to finishing those activities during the fourth quarter and being able to initiate guidance later around a record 2018 contribution.

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

(Operator Instructions) And we'll go to Scott Davis, Melius Research.

I'm gone for a few months, and I come back and look at some pretty darn good numbers, so looks like you're doing your jobs.

Anyways, this deferred revenue line item is just amazing.

I don't cover software companies, so maybe this is more common in that world.

But it's a big step-up.

I assume a large chunk of that is Deltek.

And can you just explain to me, like give us an example of kind of the contracts and how it works in that you're able to collect so much cash upfront?

Well, it's really kind of -- if it's license and maintenance, many times you get paid a year in advance for that activity.

If it's a SaaS and cloud-based, you may get paid a year, you might get paid 6 months, you might get 3 months.

But you're always ahead of the curve for prepayment for the technology that they're using routinely.

As they add seats, they've got to pay in advance for the seats that they add and so forth.

But I'll let Neil maybe give you a little more granular explanation about how the contracts work.

Yes, I would say, Scott, but we're very normal, very typical in the software space.

So we're not doing something that's abnormal in that regard.

As Brian mentioned on the recurring revenue streams, which would either be the SaaS piece or the maintenance piece, we bill those generally a year ahead on the contract cycle, right?

And so you get paid maybe 90 days, you're booking 270 days of net deferred cash on your balance sheet.

And then similarly, when you book on a license sale, oftentimes the payment terms on a license sale, you might get half the payment of the license on signing and half when you go live.

And you're normally always in a deferred revenue situation during that implementation period.

So it's a very common practice.

And we're well within sort of industry norms.

But it's a part of the core business model that's been created here at Roper over the last decade as we transformed the business.

Well, let me tell you that 5 years ago on September 30 of '12, our deferred revenue was $181 million.

So part of our acquisition strategy is purposely directed at these kind of opportunities, where as you grow, it doesn't draw down your cash.

Yes.

No, that's clear.

So since -- Neil, since you're on the line, I mean, can you just give us a little granularity on this kind of onetime Verathon weakness that you cited, just a sense of what that is?

Sure.

So just to start at the top, Brian mentioned it was really isolated to Verathon.

The rest of the platform performed at or above our expectations.

When you double-click down into Verathon, it was isolated to the U.S. and to our capital equipment sales to hospitals in the U.S. in the quarter.

The consumables piece, recurring piece was quite robust, the international piece was quite robust.

And then when we get into the root cause of what happened in the U.S., it was a combination of channel execution challenges that are being corrected as we speak, and then a little bit of timing between product cycles, new products we're developing and the timing of those releases.

And we may have frozen our sales force, we may have frozen the market a little bit.

But those are starting to release here in Q4 and through 2018.

So we expect it to be corrected here rather quickly; won't say it will be corrected in Q4, might be a little quick, might take a couple quarters to correct, and we should be back on track there.

The future for that business looks quite robust, given the product road map that we have and the team there is executing well against that.

Also a little (multiple speakers), the law of small numbers.

This miss from them on revenue was like $5 million or $6 million.

So (multiple speakers) but just happens to be different than what we expected in the quarter.

We'll go next to Christopher Glynn, Oppenheimer.

Just wanted to revisit the RF kind of EBITDA growth algorithm.

I think it's about 70% software now.

If you could just mark-to-market the normal price and functionality expansion expectation.

Sure, yes.

So you're right, the segment is now a majority software.

So you have the transport toll and traffic business, which is going to be more project-driven and is generally going to have lower margin than the software businesses.

The software businesses are very steady.

They've been mid-single-digit growth businesses here for quite a while.

And those leverage ratios generally come in at 35% or higher.

So I mean, I think that's very sustainable moving forward.

So I think you see less variability in this segment that maybe you would have seen 5 or 6 years ago when it was primarily the toll and traffic business.

Now it's really primarily the software business.

And of course, Deltek and ConstructConnect will both become organic in '18, which should further boost the organic a little bit because we said those were solid mid-single-digit growth businesses when we bought them.

Okay.

And then RF had very large core margin expansion, 280 basis points.

Could you just dive into what's going on there a little?

Was it just a good mix quarter?

Well, I think that one of the things is that the execution at TransCore continues to improve around their project management.

So that's a favorable variable.

And then the growth in the software businesses does help obviously because they're higher-margin businesses, so both those are important.

And I think some of the RF businesses are really product businesses.

And they've performed well in capturing leverage at pretty high levels on incremental revenue.

Yes, that's right.

Some of the smaller businesses we don't speak a lot about, like at RF IDeas, which we acquired a couple of years ago, had excellent growth and excellent leverage.

So it really is a mix of a number of businesses performing very well within that segment.

We'll go next to Deane Dray, RBC Capital Markets.

This is David Lu on for Deane Dray.

I wanted to ask about an update on the M&A pipeline.

So you're sizing over $6 billion of M&A over the next 4 years.

What's the environment looks like today, given that multiples are a little bit extended?

And what are the sizes of the deals you're looking at?

Well, if our choice was we did 1 $1.5 billion deal in 2018, that would be good.

And our next choice would be 1 $1 billion and 1 $500 million.

And our next choice would be 3 $500 million.

So what happens now is that we do get some bolt-on opportunities.

So already this year, we put over $50 million to work on bolt-ons, one for Aderant and one for Deltek.

I would expect you'd see some bolt-on activity in our ConstructConnect business because there's a lot of attractive things.

What's unique and sort of different for us with those businesses is they have assimilated small units previously.

And so they're sort of geared up for that activity, whereas we wouldn't have acquired a small company that just wouldn't have the scale to be successful.

So we will be able to have a mix of some smaller deals out of that $6-plus billion over the 4 years.

But the lion's share of the money will go to large platform expansion opportunities for the company.

Great.

And then just one follow-up.

As we approach the winter, we are anniversary-ing Deltek's acquisition.

So you mentioned mid-single-digit organic growth.

What's the demand environment been like?

There hasn't really been the kind of this infrastructure stimulus you're looking at.

But it looks like underlying demand is still very strong.

So give us an update on Deltek if you could.

Well, I think you just did.

We'd agree with that.

It's mid-single-digit growth, maybe a little bit better from time to time.

Certainly, if you get an infrastructure package ever, that's only good news for them.

Getting a budget passed is good news for them.

So that's a big deal for the customers.

Deltek has to know the government's got a budget and that's already done and behind us.

So we did see a little pull-in from Q4 into Q3 at Deltek, probably not because of that, but you never know.

So we might have a little more better performance in '18 than we have in '17.

And then they're going to make substantial contributions from a cash basis.

And the acquisitions that we just have already announced, a lot of synergies inside them that will benefit Deltek.

And we'll take our next question from Joe Ritchie, Goldman Sachs.

Can we just go back to this Verathon for one second?

I know that you guys did your product refresh at the end of last year.

And I'm just trying to get a sense for how much of it was like channel challenges versus having the right products.

And then again, going back to that comment around it will take maybe a little bit more than a quarter -- couple quarters to correct itself, I guess, maybe talk a little bit about the confidence you have in it just reversing as we get through 2018.

So we have a lot of confidence.

I want to correct you on -- the product refresh was around our GlideScope products with a lot of new technology that's been launched.

And that was very successful and drove outside organic growth for the last 2 years inside Verathon.

We have another major project launch around what we call the BladderScan line of products.

We also have big changes that we haven't announced, but the sales force knows about them, to enhance some additional products and how they're used.

So if you were a sales guy and you already had been briefed on all the product technology, occasionally that can get in the way of people making their decision about what they're buying this quarter.

We also are adding substantial sales resources because we think that with the additional new products that are happening, we're going to get much stronger demand, particularly in the second half of 2018, than we've enjoyed throughout 2017.

To capture that, we've got to have a lot more resources.

It takes time for those people to get trained and those products to get accepted.

But we're actually very excited about Verathon for 2018.

What disappointed us about Verathon in the third quarter was not so much that they missed by $5 million or $6 million of revenue, but it happened in the last 2 weeks of the quarter and it wasn't foreseen.

And so that was a disappointment.

We wouldn't expect to be off-forecast like that.

That's not a Roper trait.

And that's one that we know Verathon is embarrassed by and is working rapidly to get that problem solved.

Got it.

That's helpful color, Brian.

And maybe my follow-up here on ConstructConnect, we've had some companies across the space talking about labor constraints across the commercial construction space.

First, I'm just curious how that potentially impacts the ConstructConnect business.

And then secondly, you mentioned bolt-ons earlier around this business.

Would that be adding to different verticals, different geographies?

I'm just trying to curate -- I'm trying to get a sense for what bolt-ons would mean for ConstructConnect.

I wouldn't say geographic things.

I mean, it could be; there are some regional variances around small niche players.

It's more expanding the number of things.

Let's say, they're very strong in certain activities, weak in plumbing.

So we -- the first acquisition we made in the space was On Center and that was all about drywall.

There, a lot of what ConstructConnect does is terrific around a wide variety of things.

They're very strong in HVAC, takeoffs from architects but weak on windows or whatever.

So there are certain kinds of businesses that we can add to that, that make the suite larger than it currently is and keep us in a preeminent spot.

And those are the kind of things we think will occur.

Got it.

And on the labor constraint side of the question?

I don't see any relevancy to that at all.

It's really -- you've got to think about where this is.

It's preconstruction activity.

It's architectural stuff.

The amount of labor could only affect them if it became a constraint on being able to put projects in place.

And that won't affect the number of users we have or the number of seats that are using our software.

So the software is frequently used in the bidding process for people so that they have a sense of just how much material has to go into the project.

That's what you get out of a ConstructConnect analytic and algorithm.

So I really don't think labor would have much of an effect.

We'll go to Richard Eastman, Robert W. Baird.

Brian, could you kind of speak a little bit to the -- in Deltek, I think there's this Handshake and we also bumped into an Onvia, the 2 acquisitions.

And maybe just -- they're probably small but just curious if you could just speak to those a little bit as tuck-ins or bolt-ons to Deltek.

So Onvia is not closed, so we really can't talk about that.

It's a tiny public company.

It's a natural fit with Deltek.

It's something that Deltek was -- had paid attention to in the past and something that's very synergistic to Deltek.

The company is really subscale.

It hasn't made much money at all on its own because it just doesn't have the channel access.

So I think you'll see our situation around that, if we can ever get that deal closed, which we expect would happen here within the fourth quarter, will help Deltek.

And Deltek will make Onvia much more effective.

On Handshake, let me ask Neil to talk about this because it's an exciting bolt-on for Aderant.

Yes.

So it is a bolt-on for Aderant.

It's about -- around firm -- legal firm knowledge management.

If you look inside, if you're running a law firm, you basically have to have a practice management system, which is core Aderant.

You need to have a document management system and you need to have a knowledge management system.

So this firmly (inaudible) into knowledge management space.

It was sort of the recognized leader in that.

And we just have very large cross-selling opportunities into our base to take this capability into; a nice, little bolt-on.

I would also say it fits all of the Roper acquisition criteria, (inaudible) good management team, negative CRI, et cetera.

Okay.

All right, very good.

And then can I just ask a quick question about OCF and then also free cash flow being essentially flat year-over-year in the third quarter?

Was there anything in there from a tax payment standpoint or -- just a little bit curious there.

Yes, sure.

So yes, a little bit higher in terms of tax payment.

I think as we look into Q4, we would expect quite a bit of growth in Q4.

As we mentioned, $1,150 million or greater for the full year means that we'll have nice growth in the fourth quarter.

I think from a working capital standpoint, performance was okay in the third quarter.

We expect it to be much better in the fourth quarter just around timing of some receivables.

And so we feel great about the fourth quarter, but I think we're in line with where we said we'd be at this point.

We will go next to Joseph Giordano, Cowen and Company.

Can you just explain to me what knowledge management actually is?

I feel like that sounds like something we can all use a little of, but I'm not really sure what that means.

Sure.

So if you're a -- let's say you call your attorney and you ask if there's an expert on a particular topic in the firm and that firm has 1,000 attorneys, how do they answer that question?

Well, they go to Handshake Software.

They do a query, it would look across all the various systems inside that law firm and give you an answer, for instance.

(multiple speakers) for a net about firm knowledge and who has it inside the various -- inside a law firm.

Okay, that makes sense.

Just want to drill down a little bit on some of the comps.

For things like the imaging business, we talked about the backlog and the outlook for cryo-EM looking really strong.

I know it's been a drag for a while, it was down again here.

When does that start to like -- it's a longer cycle business, I understand that.

So when does that start to loosen up for you and you start comping off something that looks kind of on the easier side?

And same with CCC.

I think with imaging, it will do a little better in the fourth quarter.

But it's really -- 2018 is when they'll have easier comps.

And remember, we keep pruning imaging.

We're investing a lot in the technology at Gatan and Lumenera.

But we generally are pruning those businesses to try to have less unique one-off camera things for scientists.

So it's wonderful to win the Nobel Prize.

But generally speaking, there's only one camera required.

So we'd like to have more applications.

And it's a business probably shouldn't really be reported in that segment.

It's really a precision technology business, more fitting with a Struers or something like that.

So we like the business.

We particularly like what it's contributing from a social viewpoint.

You can be really proud about discovering the Zika virus.

But it's not an overly material business for Roper Technologies.

What was the other question?

Well, yes, on CCC, that is a business that it still doesn't have any sort of big, new construction projects going on in the space.

It's going to be a little bit later in the rebound before we get revenue from those type of projects that really aren't happening yet.

So it is down, not down a lot.

We'll see when we get -- when we do guidance for '18.

We wouldn't expect it to go down much more.

It's kind of bouncing around at sort of the bottom.

But they've done a really nice job executing, their field service business has been improving.

I think the management team has done a great job in a difficult environment.

Great margin still, and I think that business will do well here whenever there is a little bit of uptick in that part of the market.

And then maybe last for me on Neptune.

Brian, you talked about copper.

I think I know the answer to this.

But like given record quarter here, what's the order intake kind of been looking like and just your view on the underlying markets there?

And I guess, we've had a couple one-off data points that people got freaked about.

But it seems like -- it looks like pretty green light there.

I know the Neptune guys are smiling when they're listening to other people's calls, I can tell you that.

So a lot of people badmouthing the activity.

We don't see it.

It will be a record year for us.

It was a record quarter.

We're up double digits.

Look, one of the great investment houses has said copper will be $2.45 at the end of the year.

It's $3.15, they missed it by a mile.

But our people -- we're absolutely vertically integrated.

We have our own foundry.

We make lead-free products.

We're just incredibly efficient.

So we just aren't feeling the difficulties that other people are.

There's certainly enough activity for bids.

We have the biggest installed base.

It's really valuable to have an installed base when you're looking at it.

And we believe we have the best distribution in the U.S. So that helps.

And then periodically, we'll get a little bit of international business that could help.

And we see some of those opportunities that might emerge in 2018.

So it's a very resilient, extremely nimble place.

We'll go next to Jeff Sprague, Vertical Research Partners.

Just a few loose ends maybe for me to clean up.

I guess, first, can you give us some idea of how big this MTA comp is?

Brian expressed confidence in kind of getting over that hurdle.

But what are we talking about there as we look into 2018?

Yes.

On the MTA, we still have a strong fourth quarter, but it will be against the startup from last year.

So if we look at '18 strictly on MTA, it's probably $15 million to $20 million -- well, it could be as much as kind of a $30 million -- or, I'm sorry, $20 million headwind.

But as Brian mentioned, there are a number of projects that we're bidding on.

So it's really too early to tell.

We might not be able to replace that or even more.

But just on that particular project, around $20 million.

I think another way that we've gotten our people to look at it is how much you have to -- kind of like net new business in software -- how much net new business do you need out of TransCore to make up for projects that are rolling off.

And that number is probably something around $50 million a year of projects.

And the opportunity against which we're bidding is substantially larger than that $50 million hurdle for new business each year.

So I think people feel pretty good about that.

And I think the organization increasingly gets more effective.

I think they've gotten substantially better about the administrative side and what you have to do to bid in those arenas.

I think they've gotten better at ratio management.

We have a relatively new CFO of that business, who is certainly helping to make a contribution.

And then Tracy Marks, who runs it, is really the domain expert in North America and around the world for these things.

So people come to TransCore to brainstorm and it just gives them a massive leg up.

And then in some of the other arenas where they're doing back-office work, a number of other people have had big failures that are embarrassing.

And so TransCore's Transsuite software and TransCore's administrative routines around the Infinity Lane technology we have really give us a substantial advantage to the competition here.

Great.

And then just two more quick ones.

Just first on tax, you're making some good progress on tax in advance of tax reform.

I wonder if you could elaborate on what's driving that.

And I did just want to clarify on Verathon also.

I think at the beginning of the call, it was characterized as 4 or 5 points of growth, which is more like $15 million, not $5 million.

Can you just kind of clarify that?

And the SEC...

I didn't hear anything like that, maybe -- what I said was around $5 million or $6 million.

So it might have been that inside the medical business, maybe somebody is thinking about we had 1% organic growth.

It clearly would have been more like 4% organic growth (multiple speakers) you have that.

So maybe that's what you heard.

Yes, the miss versus our internal model on medical was high single digits.

It was like $8-or-so million of revenue versus our model $8 million or $9 million.

And $6 million of that was Verathon and the majority of the rest was around the camera businesses and just kind of noise.

Okay.

And then on tax?

Tax, yes, we were north of 29% in the third quarter.

That was a benefit a little bit from a favorable resolution of some audit activity.

And we have been working with the tax department on a number of things to try to lower the rate certainly as much as we can prior to hopefully tax reform that would lower it in a big way.

But we've been in this sort of similar tax range here for the last couple of years.

And I think we expected about 30% and it came in at 29.7%, so it wasn't really a material variance on tax.

I think we might do a little bit better in the fourth quarter than we did in the third, I hope so.

But the big benefit would be when you got probably close to 2/3 or 70% of the incomes in the U.S. and you're paying 35%-plus, if that goes to 20%, you can kind of do the math on that.

And that's a huge deal for us.

And we'll go to Alex Blanton, Clear Harbor Asset Management.

I just wanted to check something that you said.

You missed the revenue from Verathon by $5 million to $6 million in the last 2 weeks.

Does that come out to about $0.02 a share?

Oh, I don't know; didn't help.

It would be depending on the incremental...

If you had $6 million and it was incrementally at 40%.

And maybe $2.4 million and take 1/3 of it away for tax, it would be $1.5 million.

So it might round to $0.02, it's probably more likely $0.01 or $0.015.

Yes, right, okay.

And the problem there was that you introduced some new products, so the customers decided to wait and buy the new product instead of the existing one.

Is that what happened?

I don't think it was.

It was more about our sales force than our customers.

So if you're having a good year and you've been having a good year for a while and you know you've got a lot of new stuff that's coming into the bag sometimes you can get behavior there that's not perfect.

And so the products are, generally speaking, the best in the industry, but they're going to be even better.

So how much of it is that?

I don't know.

I think it's also that we're adding quite a few salespeople.

So I think there's just some noise that occurs as you're changing territories and moving things around that's frictional.

But in a quarter where we did $1.171 billion and delivered $400 million of -- $407 million of EBITDA, there's too much focus and worry about a $5 million revenue variance in 1 business out of 50.

Okay.

And one final question, and that is about the prospective reduction in corporate tax rate.

My feeling is that for most companies, a lot of that benefit will eventually be competed away because every industry has sort of a normal rate of return.

And if you suddenly get a big increase in the rate of return because of the tax cut reduction -- tax reduction, then it opens the door for competition to compete that benefit away back to the normal rate of return.

I mean, think about each industry, why is the return where it is?

Because that's the normal return.

But in your case, since you dominate so many industries and have so little competition in many cases, it would seem to me that, that effect would be less, that you would keep perhaps more of the potential corporate tax reduction than the average company.

Would you agree with that?

Yes.

That concludes the Roper Technologies question-and-answer session.

We will now return to Zack Moxcey for closing remarks.

Thank you, everyone, for joining us today, and we look forward to speaking with you during our next earnings call.

Again, that does conclude today's conference.

Thank you for your participation.