01—Abstract
Summary
Summary of the 10-K filed February 23, 2018. Cited figures are marked; the original filing is the authoritative source.
Roper Technologies, Inc. (ROP) reported net revenues of $4.61 billiona for 2017, up from $3.79 billion in 2016, an increase the filing attributes to acquisitions (16.3%) and organic growth (5.3%).
Net earnings rose to $971.8 millionb from $658.6 million, but the increase was boosted by a one-time net income tax benefit of $215.4 million from the Tax Cuts and Jobs Act of 2017, which lowered the effective tax rate to 6.1% from 30.0% in 2016. Income from operations grew to $1.21 billion from $1.05 billion, while the consolidated operating margin, as the filing reports segment and total operating margins, declined to 29.3% from 31.2%. The balance sheet remains heavily leveraged with goodwill and intangibles dominating assets.
Total debt was $5.2 billionc at December 31, 2017, down from $6.2 billion, following the repayment of $400 million of senior notes and a $660 million revolver pay-down. Goodwill of $8.8 billion exceeded stockholders' equity of $6.9 billion and represented 62% of total assets of $14.3 billion. Cash provided by operating activities rose to $1.23 billion from $964 million.
The company completed four acquisitions in 2017 for an aggregate purchase price of $152 milliond, and it expects its 2018 effective tax rate to be between 21% and 23%. The company also raised its quarterly dividend to $0.4125 per share from $0.35, an 18% increase, marking the twenty-fifth consecutive year of dividend increases. Management reports that the RF Technology segment, which generated $1.86 billion in revenue, drove much of the growth, while segment operating margin in RF Technology fell to 25.7% from 30.8% due to a higher mix of software businesses carrying higher SG&A.
02—Key points
Key Highlights
- Net revenues rose 21.6% to $4.61 billion, with acquisitions contributing 16.3 percentage points and organic growth 5.3%.
- Net earnings of $971.8 million included a one-time $215.4 million net income tax benefit from the Tax Cuts and Jobs Act; the effective tax rate fell to 6.1% from 30.0%.
- Total debt declined to $5.2 billion from $6.2 billion after a $660 million revolver pay-down and $400 million senior note repayment.
- Goodwill of $8.8 billion represented 62% of total assets of $14.3 billion and exceeded stockholders' equity of $6.9 billion.
- Cash provided by operating activities increased to $1.23 billion from $964 million in 2016.
- Backlog rose 6.4% to $1.67 billion at December 31, 2017, led by Medical & Scientific Imaging and Industrial Technology.
- The quarterly dividend was raised 18% to $0.4125 per share, the twenty-fifth consecutive annual increase.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2017, Roper Technologies kept $0.21.
- Revenue$4.61B100.0%
- Cost of revenue−$1.74B37.8%
- Gross profit$2.86B62.2%
- Operating costs−$1.65B35.9%
- Operating income$1.21B26.3%
- Interest, other & tax−$238.4M5.2%
- Net income$971.8M21.1%
04—Financials
Financial Highlights
Figures from 10-KFY2017filed February 23, 2018Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Revenue | $4.61B$3.79B | +21.6% |
| Cost of Revenue | $1.74B$1.46B | +19.6% |
| Gross Profit | $2.86B$2.33B | +22.8% |
| R&D Expenses | $281.10M$195.40M | +43.9% |
| SG&A Expenses | $1.65B$1.28B | +29.5% |
| Operating Income | $1.21B$1.05B | +14.8% |
| Interest Expense | $180.60M$111.60M | +61.8% |
| Net Income | $971.80M$658.60M | +47.6% |
| EPS (Basic) | $9.51$6.50 | +46.3% |
| EPS (Diluted) | $9.39$6.43 | +46.0% |
| Shares Outstanding (Basic) | 102.20M101.30M | +0.9% |
| Shares Outstanding (Diluted) | 103.50M102.50M | +1.0% |
05—Questions
Frequently Asked Questions
How did the Tax Cuts and Jobs Act affect Roper's 2017 results?
The filing states the Tax Act resulted in a one-time net income tax benefit of $215.4 million, which lowered the 2017 effective tax rate to 6.1% from 30.0% in 2016. The company also recorded one-time charges, including $110.7 million for the deemed mandatory repatriation tax and $28.7 million related to its change in indefinite reinvestment assertion on foreign earnings, and expects a 2018 effective tax rate between 21% and 23%.
How much of Roper's revenue growth came from acquisitions versus organic growth?
Net revenues increased 21.6% to $4.61 billion in 2017. The filing attributes 16.3 percentage points of the growth to acquisitions and 5.3% to organic growth, with no impact from foreign exchange.
How leveraged is Roper's balance sheet?
Total debt was $5.2 billion at December 31, 2017, or 43.0% of total capital, compared with $6.2 billion or 51.8% a year earlier. The filing notes the most restrictive covenant is a consolidated total leverage ratio limited to 3.5 to 1, temporarily increased to 4.00 to 1 through December 31, 2017, and that the company was in compliance with its debt covenants.
What risks does the goodwill balance pose for investors?
Goodwill totaled $8.8 billion, compared with $6.9 billion of stockholders' equity, and represented 62% of total assets. The filing states that any write-off of a significant portion of goodwill or intangible assets would negatively affect results. No impairment was recorded from the 2017 annual review, which covered 33 reporting units.
What drove the decline in segment operating margin for RF Technology?
RF Technology's operating margin fell to 25.7% in 2017 from 30.8% in 2016, due primarily to an increased percentage of revenues from software businesses, which have a higher SG&A structure including amortization of acquired intangibles, even though gross margin rose to 61.1% from 56.7%.
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