Good morning, everyone. Welcome to the Oppenheimer Technology Conference. Ken Wong here. I think most of you guys know me, software analyst. Happy to have with us the team from Roper. I have Jason Conley, EVP and CFO, Zack Moxcey, VP of Investor Relations. Good morning, guys. Welcome aboard. Good morning. Good to see you, Ken. Good morning. Great to see you guys also. For the audience, it is going to be a fireside chat presentation here. We do have the option to submit questions into the portal. I will pop those open periodically and take your questions. So kind of queue those up in your head, and feel free to jot those down and shoot them into the queue. With that, Jason, welcome aboard. Look, I think a lot of folks now, especially in the tech world, are generally very much aware of Roper. You guys have made a fantastic transformation from an industrial company to a software company. Even still, I think it would be great to provide the audience with a quick background on Roper, and then we can dive into the formal fireside. Sure. Love to. Roper is a vertical market software and technology company. We are focused on sustainably compounding free cash flow per share in the mid-teens over a long period of time. We are kind of an N of one in the software space because we have this sustainable M&A motion, so we have a lot of M&A optionality. With that, we own 29 businesses. They are leaders in their niche vertical markets. Typically, we choose fairly smaller TAMs. We think they are attractive because of their protective nature. With our market leadership, and especially with AI, this provides multiple paths to growth. Today, I think organically, we are sort of mid-single digit plus, and that converts a sort of high single-digit cash flow just because of the margin and the low CapEx and our working capital intensity is very low. We take that cash flow, and then we just use a little bit of investment-grade leverage, to acquire first call on capital as bolt-ons for our businesses because they just have such great returns or, of course, buying the next great vertical leader. With this, you get this sort of continuous growth flywheel. Then, obviously, in the last three quarters, we have been much more active on the share repurchase front, just given, we think, our really attractive valuations at Roper and I would say, I would call it a somewhat paralyzed private equity market for the last several years and increasingly over the last six months because of everything that has happened with the public market. So we have a proven track record of acquiring great businesses and for reasonable valuations, and we make them better over time. I think we are increasingly harnessing the collective learnings and value of those learnings and best practice methods across the portfolio. Anything from AI product acceleration to what we call the product operating model and deploying that to continuous improvement methods, and then even into commercial excellence. So I think we are still getting going on how we think we can increase the organic growth across the portfolio and also just capturing more value from M&A. That is sort of Roper in a nutshell. Fantastic. Actually, Jason, I would love to start on that last point you made, the increasing organic growth. I think when you guys went down this journey, you guys were buying more mature software companies. You guys were probably sitting, let us say, more like low mid-single digit organic growth software companies. Now you guys have leaned into perhaps earlier stage software companies. Perhaps just give us a sense of why that shift, kind of where we are on that journey. We would love to get an update on that particular pivot. Yeah, sure. Would love to. About three years ago, we decidedly said, it's an opportunity for us to look at businesses that were maybe think of first-term private equity that had sort of a faster current of growth that we could capture and help professionalize and mature that business under our ownership, build a bigger platform, right? Put on bolt-ons that make strategic sense for that business because we have a permanent ownership versus maybe buying later cycle where some bolt-ons were done, maybe they weren't great for the long term, and so you inherit that, and you sort of have to work through that. So finding businesses that have faster growth currents and that we can help them continue to grow and then capture margin opportunity as they scale, not cost takeout, but just kind of scaling as the business grows. The last couple of years, we've acquired CentralReach and Subsplash. We've done some interesting bolt-ons for our DAT business in a business called Convoy and also Outgo. We put together a much tighter governance structure around that. We have a value creation thesis when we're looking at a deal and then a value creation plan. I'm happy to report the platform deals of CentralReach and Subsplash have performed against our VTP in the first year. They're tracking against our forecast on revenue and EBITDA. It's just been great to have this tighter governance coupled with greater collaboration, with our management teams. We built on the lessons of some of the earlier deals that we did, especially with Procare Solutions, and so these are tracking quite well. The bolt-ons are continuing to be a motion for us. We've invested in a team here to go and help source our deals for our businesses and collaborate with our businesses to be much more proactive and do more reach outs. Some of the products of that is like our DAT business, where we've now acquired a technology called Convoy. We bought that. It was owned by a broker at some point, and then ultimately came into our hands. We're essentially automating the spot freight market. Instead of it being 10 calls between a broker and a carrier, we're trying to reduce that down to an automatic freight match ultimately. We're pleased with that. We've also bought a factoring technology business, and both of those are tracking well. It's going to take time. You're developing a new market, so it's a little bit of a wider range of outcomes in terms of timing. But we really like the dynamic work that the DAT business is doing to create demand generation, to build that network, and then be iterative on the tech. They're moving at pace. It's going to help our organic growth a little bit in the second half as that rolls organic. I'd just say broadly, the buying faster growth businesses is obviously good for organic growth, but also allows us to just capture more value for shareholders. Understood. Maybe shifting gears from the broader strategy to the more recent results. You guys recently delivered a very positive second quarter, improved your outlook for the year. I guess, as you look back on the first half, how would you say that progressed relative to your expectations at the start of the year? What were some of the underlying factors that drove that improved outlook? Yeah, sure. When we started the year, our initial guidance was $21.30 - $21.55, and now we're at $22.15 - $22.30. Obviously, the buyback was a component of that, so that plus better operating performance has enabled a 4% raise at the midpoint. I think operationally, we've been very pleased with the first half progression. Growth is particularly in our Neptune Technology Group business. We took a cautious approach given where that business was in its cycle relative to COVID demand and how that was churning through. But they've actually executed very well in the first half, so they helped drive some of the outperformance at our technology-enabled product segment. It's just been better than expected. This allowed us to raise our organic growth from 5%-6% to now 6%. I'd say software's performed well in line with expectations and a little bit better in our DAT business. We're finally starting to see improvement after a three to four-year freight recession. What you're seeing is spot freight rates are better. Carriers are now coming into the market, so we're steadily seeing truckers come back into the market, and of course, there are subscribers entering our network. So that's been good. Our Deltek business on the private sector side, if you think of architect, engineers, construction, that's been going well for the last several years. But our GovCon, the government contracting business, has been slow. I would say second quarter, we saw some signs of life with a large license deal that got through that we didn't have in our forecast but actually made it in. The pipeline for Deltek looks strong, but we're not really ready to call a recovery yet just because we're second and third order demand derivative in government contracting spend. Indications look good, pipelines, appropriations, and the like, but we're just going to take a wait and see approach on Deltek. But overall, feel good about how we finish the first half and then how we roll into the second half as well. Got it. In the back half, you have baked in an acceleration in organic growth. I guess, what are some of the factors that are driving that? How much of that is within your control? How much of that requires further execution to potentially hit those marks? Yeah, I would say mechanics play a key role in the second half acceleration. I mentioned CentralReach and Subsplash. CentralReach is in our application software segment that turns organic in the third quarter. Like I said, it is growing north of 20%. It is in line with our value creation plan. A lot of that is recurring, so feel good about the security of that. Our Subsplash business is in our network segment, and that turns organic in the fourth quarter and again, growing above the segment average. So that will add to organic. In our TEP segment, our product segment, we are forecasting that to grow high single digits in the second half, and it will be higher than that in the third quarter. Our Neptune business was challenged last year with some tariff and some copper headwinds that we are competing against. So feel good about the comp there, but also just some of the fundamentals that are happening in Neptune with a little bit more service work that is in backlog and just some of the mix of more static versus mechanical meters. So that is going well. I would say just lastly, kind of a little less mechanic, but also a little mechanic, which is our DAT first half performance should continue in the second half. So just think of like a June exit sort of rate, how that carries into the second half. Right now, we are not assuming carrier counts get much better, but just the natural June rate carrying in the second half helps us with that acceleration as well. Got it. Shifting gears again, I think as you guys are aware, I feel like everyone in the audience is aware, AI has been a, kind of for good or bad, a big topic within the software ecosystem. Would love to hear what Roper is seeing out there. What is Roper doing to address this ridiculously fast pace of innovation? Yeah. We will start there, and there is a few branches to- Yeah, of course. All those branches. Look, we really were thinking about AI as far as two years ago. We really took this as a real opportunity for Roper. It all started with the journeys of learning and sharing of best practices, which we've always done. Bringing in thought leadership and really just getting at the mindset was kind of the first part of this and the urgency, which I think Neil did a good job of cascading that through all constituents. Presidents to the board members, to all of us. That really got us the compounding of learning starting early. Part of that was that every business had to kind of reimagine what their markets and their business would look like in an AI world, and that was as far as a year and a half ago. We really got the, I'd say, the juices flowing on that and the experimentation going earlier than most. We got agreements across all the frontier models a year and a half ago. So we've been at that for a while in terms of experimentation. Then we really leaned in the third quarter of last year and hired some leaders to lead our AI function. That's been a real, I'd say, turbocharge to the learnings and also to the actual product development. So we're up to 20 people now. As we sit kind of halfway through the year, we plan to continue to add. It's just been very successful. The interesting part is the folks are attracted to Roper because there's not a lot of politics, there's not a lot of boundaries that we put up and blockers. So these folks are getting to ship products. They're addicted to shipping products, and they get to context switch, right? So they go from Vertafore to PowerPlan to these other just smaller businesses where they can make a real impact. So we've had a lot of success with that opportunity and to work with a really high-impact team. The chemistry, I think between the AI team and our businesses has been good. Obviously, you have bumps along the road because you're moving at such a faster pace. But I'd say overall, early days, the experiment that we've done there has worked incredibly well. Got it. Can you talk about which verticals you're starting to see some early successes as far as adoption? I realize everyone wants to put the monetization cart before the horse, but any color you can give as far as that particular journey and how we should think about that path to revenue. Well, I'll kind of break it up. One is we acquired CentralReach in the second quarter of last year, and they were in the really early, not I would say really early stages, but fairly early stage of bringing products to market. We had about, call it four or five months of actual revenue when we bought the business of AI revenue. What we observed there's a lot of learnings we observed there in terms of how you deploy products into the market, how you observe what the uptake is, how you sort of can do a freemium model that then cuts off and turns into something you can charge. That's been a nice learning across the portfolio in terms of how to think about it. They've been really successful in being able to charge in addition to the core enterprise health record, just because it's a demonstrable value in terms of what they do for therapists and what they're able to do in terms of claims accuracy. That's in a market where you think about the, we've talked about the dynamics. It's in the autism space where the demand is so much higher than the supply, and so you're trying to get therapists to be as productive as possible and also to actually enjoy their jobs. They're not doing a lot of administrative work because the turnover is really high. It's a really tough job at the frontline there. That's what our solutions do. When you have that sort of that real need and you're able to fit it into the workflow, you get immediate uptake. I'd say in other areas, like I mentioned, DAT, what we're doing is trying to automate the spot freight market. You think about a broker, there's an art in their mind in terms of how you negotiate different lanes for a load. There's always going to be a subsector of that or a subsection of those loads that are going to be much more homogeneous and those need to be automated. You have to go through the change management with those customers. There's a journey that goes along with that. Adoption is relatively lower there than, say, a CentralReach. Then there's all kinds of, you can paint a broad brush in between, depending on the use case and the industry that they're in and the urgency that's needed at the time. I'd say over time, the solutions that we are creating are going to make the competitive intensity higher in terms of productivity in those industries. Once you get some of the first users, then the other customers will say, "I got to do that, too, to remain competitive." We think it is going to happen. It's just, as you know, you're changing the entire way of working and that takes time. Part of the learning, too, is how you sort of redeploy some of your historical implementation folks to sit side by side with customers and help sort of increase that adoption. Understood. A common question I get from folks is, you guys run a decentralized portfolio. Do you find that to be an advantage? Is that an issue as far as kind of getting everybody on the same page? What processes have you guys put in place to make sure that all your 29 businesses view this as a strategic initiative? Yeah. I think it's more than an initiative. I'd say it's a strategic pivot in terms of and not pivoting from being a market leader and being intimate with the customer, but in terms of how you develop software like that is we've done a student body ride on full agentic coding. Now, it takes time to move that through the portfolio, but every single business is committed to doing that by the end of the year. That's not facilitated, but ensured through our group executives who make that commitment. Again, it's all about materiality, it's all about impact. So you don't have to boil the ocean all at once. We look at the opportunity and then the risk around AI, and then we can phase these things in. I actually think, because we see so many different use cases, we see so many failures that happen in various ways to develop software. This didn't work, but we learned from this. Don't do that. Actually, it's an advantage for us because part of our job is to harness, like I said when I started today, we're really focused on harnessing the learnings and best practices and methods, and we're much more intentional about proliferating that out to the portfolio in a very structured way. So I do think it's actually an advantage, especially when you're dealing with something so nascent as AI. I think it gives us an advantage. Got it. One more AI question here, and then I'll shift back to some other topics. The competitive landscape. I think there's, again, a lot of fear out in the market that software is being disrupted. I think there's a perception that you guys buy strong verticals, which should be a little insulated but a little more niche-y, so is it easier to attack? So we'd love to understand whether or not you've seen any shift in the competitive environment from AI-native startups. Where do you guys feel you may or may not need to fortify the walls, the moat, whatever, what have you? Yeah. We haven't seen anything of significant threat at all. We've got not just us, obviously, our businesses are keenly aware of this. Think about it. They're the leader in their markets. They're close to their customers. Their customers provide them feedback if they're seeing anything. We have had a couple of instances where point solutions have come in, not part of the full workflow, but something that our business didn't do. We were able to replicate that in a matter of weeks and shut out that competitor or that potential startup just because we're so embedded in the workflow. I think that's still holding true. The only area that we've one business that repackages public company information, and it's a data business, and it's part of one of our businesses. We have seen some AI-native startups there, but they're really nipping at the low end of the customers. They've always had that sort of risk even before AI. I think if you have a solution that is just pulling public information, you've got more risk there. But it's a super small part of our exposure. Yeah, we're not. I think the startups are going after obviously bigger TAMs now. We're working like heck to box that out. To me, I think the work we're doing on AI is as much defensive as offensive. If you think about what Vertafore's done in putting out several agents already, the customer may be going, "Okay, I'd rather stick with one vendor as long as you're delighting me and doing the things that the startup can do." We've got all of that proprietary data and the entropy, the uniqueness of each one of those customers. We can create solutions that are unique to their workflow, which I think is sort of hard to replicate. Understood. Makes ton of sense. Perhaps shifting over to sort of the other half of what you have to do besides making sure all these businesses are operating in a very strong fashion. There's the pipeline of acquisitions. You mentioned earlier that perhaps the market was paralyzed, but you also more recently have indicated kind of seeing a looser M&A environment. Would love to dig into that comment. What are you seeing out there? What gives you confidence that perhaps things are starting to pick up on the M&A side? Yeah. We've been wrong for three years, so with great humility that I'm not a good predictor of this, but I would just say that we have, obviously, a lot of contact with sponsors. It's the bespoke conversations and the tone of those conversations with sponsors directly that give us some indication that they're going there because they're sort of reckoning with the current realities, be it cost of capital is the first thing, and then sort of what's happening in the public markets for software. That's probably the strongest signal we get. I would say the investment bankers are also giving indications that their pipelines are filling up and processes are starting to kick off. The third I would just say is, the commercial diligence firms out there are quite sold out right now. Now, on those last two, the bankers and the firm, we saw that before. I think these conversations with sponsors, again, they're much more constructive. They're much more sort of, I don't want to say off the record, but just more like let's have a real conversation versus like let's they're trying to test things out and it's more like, "Okay, let's see if we can get something done." That's encouraging. Got it. Has sort of this AI landscape, has that changed how you guys go about sorting through which companies might make sense for you guys? Has that changed? Again, I'm not sure if there's a particular set of criteria that you guys are looking for, but would love to understand how that might have shifted the mindset of your potential targets. Yeah, we've always been, I think, pretty good risk managers in general. If there's some risk out there that's going to take the business to zero, we don't want to own it. This has just been, I think to us, just an extension of that. I'd say we're acutely focused on AI risk and opportunities in deals. On risk, we've developed a moat scorecard, that we sort of have initial hypotheses on deals, and then we confirm it through diligence through a variety of ways. Both on the commercial side and through technical methods. With our AI team now, we're able to really tease out some of the components of that. It's a blessing too, to have 21 software businesses where you can compare or contrast and poke through all the AI risk and opportunity in our businesses and use those as parallels to the things you're looking at out in the market. I think that's super helpful. It's not only the business, but like I said earlier about reimagining your market. We're keenly aware of how it will transform the way work gets done in the end markets they're in. A workflow that's there today may be something totally different in the future. You have to think through how agentic workflow will change that, for better or worse, and then how you assess if that's going to be a good long-term investment for you. Yeah, certainly. It's been part of the build-out of the AI team. We have these investment partners, and we've been really focused on going through our portfolio in a very detailed way, scoring those businesses and then using that same framework to then do diligence on businesses. Got it. As you touched on earlier, one of the better returns on your dollar right now has been to buy Roper stock. I guess, how are you thinking about the use of capital going forward? Does it shift back towards the M&A direction? Is Roper stock still attractive to you guys at these particular levels to be as aggressive as you have been? Well, look, I think it's an opportunity cost conversation. For all the reasons I've just described about the length of time that we haven't seen transactions, the cost of capital reality on the 2021, 2022 portfolios versus where it is today, what we've seen in the public markets. Those all point to signs that we think it's going to be a good, rational private equity market for us to buy things at reasonable valuations. This is really about keeping our options open. We still think at these levels, Roper is an attractive investment, but we also think the potential opportunity for M&A is going to be great. We are planning to do the pause on the share repurchase for now. But look, like I said, I'm a terrible forecaster, so if a year from now things aren't transacting and we're still in this AI valley of despair in terms of perception, we'll continue to lean into the buyback because we'll have a lot of capacity by then. Got it. Now shifting back to AI again. We touched on a lot of the competitive dynamic, the top-line dynamic, but I think the other piece of the equation has been how this may or may not impact your margins, right? So you can execute it fantastically and you drive a lot of AI revenue, but then there's sort of a flip side to it, which is the margins are always going to be a little lower than SaaS because of the inference cost. So what are you seeing as far as margins? How should we be thinking about that going forward? What kind of policy do you have in place to potentially prevent a lot of these token maxing headlines that we're seeing from some of your other tech software peers? Yeah. Well, I'll handle the gross margin first, then we can talk about the token maxing. Sure. I think what we've observed so far, so take it for, we're still early days, but I think when you develop AI agents, there are certain ways to codify certain rules and not have to use inferencing on every transaction. It depends on the thing that you're doing. So that actually can increase your gross margin. And then it really gets down to what exactly do you need to call a model for what specific kind of sub-task. And I guess our experience is, your gross margins may start off worse than SaaS, but you can work that down over time as you have more experience, and you have better methods or cheaper models. We don't use any of the frontier models for our products. We use them to develop them and to do exploratory work. But once it's into production, there's really no need to use that because we're not doing any This is task work. It's agentic task work. It's not rocket science. I think that's what we're observing. Based on the nature of the things that we do for our customers, I can't imagine us having to use a frontier model for some basic day-to-day tasks. I can't picture that. I do think at the lower end, as you know, the model costs are getting, the older generations are getting much cheaper. I'd say, even things like how you- The types of prompts you do, like caching or batching, you can get your costs down there too. So it's not just the types of models, but then the types of prompts you do. A lot of that goes into it. So long story short, I don't see it today as having a gross margin challenge with AI products. Now, as compute goes up and it gets more scarce, those are the conversations we're having about how do we think about broadly across the portfolio, do we need to think about buying ahead for compute? Those conversations are happening, so that we can make sure that we're servicing our customers. We don't want to get into this situation where we don't have the capacity, but that's just, kind of thinking ahead as electricity and the compute becomes more scarce. On the token maxing, I think we've gone up so just in terms of cost, we've gone up maybe 3X or so since January. It's certainly going to continue to go up by the end of the year. But the good news is we've got- I think the local ownership really helps balance both speed and control because every business is keenly aware of what their budgets are and then thinking about routing certain prompts to certain models. So we're pushing out a lot of best practices around that. Some businesses are doing that auto routing. Some are using spend management controls and dashboards. We have visibility to, or almost close to having visibility across the portfolio around that, so we can think about not to micromanage them, but really, again, to think about the future, how we think about compute across the portfolio. I'd say the hallmark of Roper is that local sort of obsession with local business activity, which actually is a strength for us. So we don't get into this runaway token maxing because there's just so much accountability across the portfolio. Got it. How are you guys driving efficiencies internally? Where are we on that journey? I think we've seen some of your peers are already starting to extract a fairly meaningful margin expansion. What about Roper? Is this something that you guys anticipate being able to squeeze out incremental margins going forward as you guys implement AI more across your organization? Yeah, we're certainly seeing, going back to agentic coding, agentic development. We've got three or four businesses that have completely moved to that. We want to continue to push that, like I said, by the end of the year. Every business is committed to doing that. We do think there's clearly a lot of productivity that we're seeing, orders of magnitude, at the developer level. Our goal, though, I would say this, we're not looking to expand margins dramatically as a result of that. We're looking to take that, put it back into the roadmap to continue to just have that flywheel of continuous innovation so that we can continue to inflect organic growth. There may be a point where the productivity outpaces that level of innovation, but I don't think we're anywhere near that in terms of the opportunity set that's in front of us. I'd say like most companies, it's primarily in our R&D right now, a little bit in sales and obviously customer support. But back to what I said earlier, two years ago, when the gun went off or whatever, we were really more focused on revenue because it's so much harder getting the efficiencies. Not easy by any means, but certainly a more commoditized skill to develop over time. Got it. The last piece on the AI side, and this is something I'm sure all software vendors are trying to figure out is the licensing piece. Because how are you guys thinking about licensing on your end? Are customers, I don't imagine customers are looking to necessarily change to consumption-based, but yeah. Basically, would love to understand how you guys are blending those particular models. Do you see a situation where down the line you will have to pivot to more of a usage token-based model? Yeah, certainly. With Vertafore, and some others, we're building a platform of agents, and it's going to be more of a credit model, so they can sort of as they're using the agents, there will be a drawdown on that. So think of it, Ken, as recurring revenue, but it has some form of consumption. If there's overages, there'll be a true-up after the period's over. Maybe it gets rolled into the next period. There's probably some flexibility around that. So that's one end of the spectrum. Then you have our SoftWriters business. This is pharmacy automation software for long-term care pharmacies. They have an agent that helps with taking orders from long-term care facilities and getting it into the system, which sounds somewhat mundane, but it's actually quite challenging. We've been able to sort of agentify that. That is more probably going to be transactional because a lot of that business actually has a lot of transactions already, so the customers are used to it. Take another example of our Deltek business, where we have said we are going end of support on our Costpoint solution in GovCon in the first quarter of 2028. We are trying to get customers into the cloud, which obviously has a 2 x- 2.5 x lift, and all the agentic features are going to be in that Costpoint solution in the cloud. Trying to get the price through that method. I say all this, then we get to CentralReach where the AI is based on per learner. That is a form of consumption, if you will. If you have a learner for six months, that is going to be the method of charging. We get a good sampler platter across Roper, and we are just trying to educate all the folks. I am actually creating a pricing agent from all of the different artifacts that we have to share that best practice out to the businesses and considerations and different modeling modalities that you can do based on what we have seen at other companies. I know it is a long-winded answer, but it is a little bit of everything. Got it. This last question of mine might be a long way to a little bit of everything as well, but now bringing it all back to, let us say, more the near-term operations. We have got the beaten rates from Q2. I guess, as we think about where things can go right, where things can go wrong as we enter the back half, we would love to get a sense for how we skew towards the upper end or the lower end of your guidance ranges. Yeah. I mentioned Deltek, right? I think we are taking a somewhat cautious approach, rightly so, because you could have a lot of perpetual there, and we do not know if it is going to land or not. We would love for it to not be. That is the other wild card is based on what I just said about Costpoint being into support. We could have more go to the cloud, so it will not impact the current year as much as it will next year. I would say that is still a wild card. I think if you go through DAT, I talked about I think that is in good shape. Could get a little bit better if carriers continue to enter the market, but we will see how that plays out. The good news is we do not have a lot of, right? The range of outcomes for Roper is not that great. As we sit here today, our most higher beta segment in terms of just growth is the tough segment if you talk about quarter-to-quarter, but we feel decent about the comps in the third quarter. Fourth quarter is going to be a little bit lower, probably. But they're not a high backlog business, so that can swing a little bit either way as we get through the quarter and get into the fourth. But that's sort of where I would look to in terms of variability relative to our forecast. Understood. I think with that, we're right up on time, and I am at the end of my question list, so- Okay You laid those out perfectly. You did great. I appreciate the conversation, Ken. Yeah, Jason, always happy to have you. Zack, I really appreciate all the help you always give us. Thanks a lot for supporting Oppenheimer. All right.