01—Abstract
Summary
Summary of the 10-K filed February 28, 2020. Cited figures are marked; the original filing is the authoritative source.
Roper Technologies, Inc. (NYSE: ROP) reported net revenues of $5.37 billiona for 2019, up 3.4% from $5.19 billion in 2018, with organic growth of 2.8%.
Net earnings rose to $1.77 billionb ($16.82 diluted EPS) from $944.4 million ($9.05 diluted EPS in 2018), driven largely by a $920.7 million pretax gain on the disposal of the Imaging businesses and Gatan. Income from operations increased to $1.50 billion from $1.40 billion, and segment operating margin reached 31.1% versus 30.8%. The company describes itself as a diversified technology company operating software (license and SaaS) and engineered products businesses across four segments: Application Software, Network Software & Systems, Measurement & Analytical Solutions, and Process Technologies.
During 2019 Roper completed four acquisitions, including iPipeline and Foundry, for an aggregate purchase price of $2.39 billionc net of cash acquired, funded partly by $1.2 billion of senior notes. Cash provided by operating activities was $1.46 billion, and backlog grew 17.3% to $1.99 billion. Total debt excluding unamortized issuance costs was $5.3 billion at year-end, with $2.5 billion of undrawn revolver availability, and the company stated it was in compliance with all debt covenants.
Goodwill of $10.8 billiond represented 60% of total assets of $18.1 billion, which is a key concentration risk the filing highlights. The filing also notes a planned quarterly dividend increase to $0.5125 per share (from $0.4625), the twenty-seventh consecutive annual dividend increase, and an expected 2020 effective tax rate of 21% to 23%. The company's year-end 2019 goodwill impairment testing found no impairment, and the auditor, PricewaterhouseCoopers LLP, issued an unqualified opinion on both the financial statements and internal control over financial reporting.
02—Key points
Key Highlights
- Net revenues rose 3.4% to $5.37 billion in 2019, with organic growth of 2.8%, a 1.4% net effect from acquisitions and divestitures, and a 0.8% negative foreign exchange impact.
- Net earnings more than doubled to $1.77 billion ($16.82 diluted EPS), supported by a $920.7 million pretax gain on the sale of the Imaging businesses ($119.6 million) and Gatan ($801.1 million).
- Segment operating margin improved to 31.1% from 30.8%, and income from operations grew to $1.50 billion from $1.40 billion.
- Backlog increased 17.3% to $1.99 billion at December 31, 2019, led by Network Software & Systems, which rose to $848.5 million from $501.0 million.
- Four acquisitions in 2019 (including iPipeline and Foundry) had an aggregate purchase price of $2.39 billion, and debt totaled $5.3 billion with $2.5 billion of undrawn revolver capacity.
- Goodwill of $10.8 billion made up 60% of total assets, and the filing identifies goodwill and intangible write-offs as a principal risk factor.
- Quarterly dividend was increased to $0.5125 per share from $0.4625, the twenty-seventh consecutive year of dividend increases.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2019, Roper Technologies kept $0.37.
- Revenue$4.73B100.0%
- Cost of revenue−$1.59B33.6%
- Gross profit$3.14B66.4%
- Operating costs−$1.81B38.3%
- Operating income$1.33B28.1%
- Interest, other & tax$439.6M9.3%
- Net income$1.77B37.4%
04—Financials
Financial Highlights
Figures from 10-KFY2019filed February 28, 2020Financial Statements
FY2019 against FY2018
| Line item | FY2019FY2018 | Change |
|---|---|---|
| Revenue | $4.73B$5.19B | −8.9% |
| Cost of Revenue | $1.59B$1.91B | −17.0% |
| Gross Profit | $3.14B$3.28B | −4.3% |
| R&D Expenses | $379.70M$376.90M | +0.7% |
| SG&A Expenses | $1.81B$1.88B | −3.8% |
| Operating Income | $1.33B$1.40B | −4.9% |
| Interest Expense | $186.20M$182.10M | +2.3% |
| Net Income | $1.77B$944.40M | +87.2% |
| EPS (Basic) | $17.02$9.15 | +86.0% |
| EPS (Diluted) | $16.82$9.05 | +85.9% |
| Shares Outstanding (Basic) | 103.90M103.20M | +0.7% |
| Shares Outstanding (Diluted) | 105.10M104.40M | +0.7% |
05—Questions
Frequently Asked Questions
What drove the large jump in net earnings in 2019?
Net earnings rose to $1.77 billion from $944.4 million, primarily due to a $920.7 million pretax gain on disposal of businesses, which included $801.1 million from the sale of Gatan to AMETEK and $119.6 million from the sale of the Imaging businesses to Teledyne. The gains were partly offset by income taxes on the transactions, including about $200.0 million of taxes incurred on the Gatan gain.
How is Roper's debt position at the end of 2019?
Total debt excluding unamortized debt issuance costs was $5.3 billion at December 31, 2019, or 35.9% of total capital, compared with $5.0 billion (39.1%) a year earlier. The company had no outstanding revolver borrowings and $2.5 billion of undrawn availability under its credit facility. It stated it was in compliance with all debt covenants during 2019 and 2018.
Which segments drove growth in 2019?
Application Software net revenues increased 9% to $1.59 billion, and Network Software & Systems increased 14% to $1.53 billion, with organic growth of 5% in each. Measurement & Analytical Solutions declined 6% to $1.60 billion mainly because of the divestitures, and Process Technologies declined 5% to $0.65 billion on lower demand in upstream oil and gas markets.
What risks does the filing highlight for investors?
The filing highlights indebtedness limiting operating flexibility, foreign exchange exposure (16% of 2019 net revenues came from non-U.S. dollar functional currency operations), acquisition integration risk, and cybersecurity and data privacy. It also flags goodwill of $10.8 billion, which could lead to non-cash charges if business performance declines or interest rates rise, and LIBOR's planned phase-out by the end of 2021.
What is the company's outlook for taxes and cash obligations?
Roper expects its 2020 effective tax rate to be between 21% and 23%, compared with 20.6% in 2019. It expects to pay the approximately $200.0 million of taxes related to the Gatan gain in the second quarter of 2020. Total contractual cash obligations were $6.60 billion at December 31, 2019, including $843.4 million due in 2020, and the company anticipates reducing debt in 2020 based on its repayment schedule.
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