01—Abstract
Summary
Summary of the 10-K filed February 27, 2017. Cited figures are marked; the original filing is the authoritative source.
Roper Technologies, Inc. (NYSE: ROP) reported net sales of $3.79 billiona for 2016, up from $3.58 billion in 2015, with an increase of 5.8% attributed to acquisitions of 6.8%, negative organic growth of 0.3%, and a negative foreign exchange impact of 0.7%.
Net earnings were $658.6 millionb, down from $696.1 million in 2015, and diluted earnings per share were $6.43 compared with $6.85. Income from operations rose to $1.05 billion from $1.03 billion. Management attributed the 2016 results to a series of acquisitions, most notably Deltek Inc., acquired on December 27, 2016 in a $2.8 billion all-cash transaction.
Operating activities generated $964 millionc of cash, while investing activities used $3.75 billion, primarily for business acquisitions. The acquisition program substantially increased leverage. Total debt rose to $6.2 billion at December 31, 2016, or 51.8% of total capital, compared with $3.3 billion, or 38.3%, a year earlier.
Roper funded the buildout with $1.2 billiond of senior notes issued in December 2016 and a new $2.5 billion revolving credit facility, of which $1.93 billion was drawn at year-end. The company amended its leverage covenant to allow a maximum consolidated total leverage ratio of 4.25 to 1 through June 30, 2017 and 4.00 to 1 through December 31, 2017, up from a 3.5 to 1 limit. Total backlog grew 46.9% to $1.57 billion, driven largely by the RF Technology segment, where backlog increased 83.9%.
Segment performance was mixed. Medical & Scientific Imaging was the largest segment at $1.36 billion of net sales, with a 35.0% operating margin, and RF Technology grew to $1.21 billion with a 30.8% operating margin. Industrial Technology sales declined 5.2% to $707 million, and Energy Systems & Controls fell 13% to $510 million, reflecting weakness in oil and gas markets.
Goodwill totaled $8.6 billion, representing 60% of total assets of $14.3 billion, which the filing notes creates impairment risk if performance weakens. The Board raised the quarterly dividend to $0.35 per share from $0.30, effective with the January 23, 2017 payment.
02—Key points
Key Highlights
- Net sales increased 5.8% to $3.79 billion in 2016, with acquisitions contributing 6.8% and organic sales declining 0.3%.
- Net earnings declined to $658.6 million from $696.1 million, and diluted EPS fell to $6.43 from $6.85; the 2015 result included a $70.9 million pretax gain on the Abel Pumps divestiture.
- Total debt increased to $6.2 billion (51.8% of total capital) from $3.3 billion, driven by acquisitions including Deltek for $2.8 billion in cash.
- Backlog rose 46.9% to $1.57 billion, with RF Technology backlog up 83.9% to $991 million.
- Industrial Technology net sales fell 5.2% and Energy Systems & Controls net sales fell 13%, while Medical & Scientific Imaging grew 12% and RF Technology grew 17%.
- Goodwill of $8.6 billion represented 60% of total assets, and the filing states no impairment resulted from 2016 annual reviews.
- The quarterly dividend was increased to $0.35 per share from $0.30, and total cash dividends declared were $1.25 per share for 2016.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2016, Roper Technologies kept $0.17.
- Revenue$3.79B100.0%
- Cost of revenue−$1.46B38.5%
- Gross profit$2.33B61.5%
- Operating costs−$1.28B33.7%
- Operating income$1.05B27.8%
- Interest, other & tax−$396.0M10.4%
- Net income$658.6M17.4%
04—Financials
Financial Highlights
Figures from 10-KFY2016filed February 27, 2017Financial Statements
FY2016 against FY2015
| Line item | FY2016FY2015 | Change |
|---|---|---|
| Revenue | $3.79B$3.58B | +5.8% |
| Cost of Revenue | $1.46B$1.42B | +2.8% |
| Gross Profit | $2.33B$2.16B | +7.7% |
| R&D Expenses | $195.40M$164.20M | +19.0% |
| SG&A Expenses | $1.28B$1.14B | +12.4% |
| Operating Income | $1.05B$1.03B | +2.6% |
| Interest Expense | $111.60M$84.22M | +32.5% |
| Net Income | $658.60M$696.07M | −5.4% |
| EPS (Basic) | $6.50$6.92 | −6.1% |
| EPS (Diluted) | $6.43$6.85 | −6.1% |
| Shares Outstanding (Basic) | 101.30M100.62M | +0.7% |
| Shares Outstanding (Diluted) | 102.50M101.60M | +0.9% |
05—Questions
Frequently Asked Questions
How much did Roper spend on acquisitions in 2016 and how was it financed?
Cash used in investing activities was $3.75 billion in 2016, primarily for business acquisitions, with $3.72 billion of acquisitions net of cash acquired. The company funded this with $1.2 billion of senior notes issued in December 2016, including $500 million due 2021 and $700 million due 2026, and $1.75 billion of net revolver borrowings.
Is Roper's debt level a risk for investors?
The filing highlights indebtedness as a key risk. Total debt was $6.2 billion at year-end 2016 versus $3.3 billion a year earlier, and the leverage covenant was temporarily raised to 4.25 to 1 through June 30, 2017, with the 2016 Facility's most restrictive covenant otherwise limited to 3.5 to 1. The filing also states interest expense rose $27.3 million, or 32.5%, to $111.6 million net.
What drove the decline in net earnings in 2016?
Net earnings fell to $658.6 million from $696.1 million. The 2015 result included a $70.9 million pretax gain on the Abel Pumps divestiture, and 2016 interest expense increased due to higher average debt balances. Corporate expenses also rose $24.7 million to $127.5 million, mainly from equity compensation and acquisition-related costs.
Which business segments performed best and worst in 2016?
Medical & Scientific Imaging and RF Technology grew net sales by 12% and 17%, respectively, with RF Technology gross margin rising to 56.7%. Industrial Technology sales fell 5.2% and Energy Systems & Controls sales fell 13%, with the filing citing decreased sales in oil and gas products, including safety systems and valves.
What is the outlook for the company's cash generation and tax rate?
The company expects operating cash flows to permit debt reduction in accordance with its repayment schedule, though the pace in 2017 will depend on acquisition financing needs and existing company performance. It expects the 2017 effective tax rate to be approximately 30% and capital expenditures to be between 1.0% and 1.5% of annual net sales.
06—Continue