Roper Technologies, Inc. (ROP) Earnings Call Transcript & Summary

All right. I think we are ready to get going. So good morning, everybody. For those of you that don't know me, my name is Joe Ritchie. I cover the multi-industry sector and head up our Industrials and Materials business unit. Really excited to be at Communacopia with you all today and excited to have Roper Technologies here with us. We have Neil Hunn, President and CEO; as well as Jason Conley the CFO. And Neil is going to start with a few opening comments because I recognize that for a lot of investors, Roper Technology is still relatively new to the tech community. But Neil, why don't you kick us off and we'll get into Q&A afterwards.

Thanks for having us. Glad to be here. Just for , for those who don't know Roper, think Roper as we're plus or minus $6 billion of revenue. We have about 40% EBITDA margins, a little bit over 30% free cash flow margins. We grow our cash flow in the mid-teens ZIP code. We do this by running sort of a dual threat offense. The first is on an organic basis. We operate a portfolio of 27 companies. While the end markets are very different, the business model of each of the 27 are remarkably similar. They're all leaders in very small markets. And so we like small markets because they're protected from competition. We like it even more so because the basis of competition is based on customer intimacy. And so we're the leaders in these small markets and everything, all of our 27 businesses do are deeply verticalized or application specific. So when you -- and because of that, this customer intimacy, we operate a very, very decentralized operating structure, high trust automa-structure, which I'm sure we'll come on to later during our conversation. The second part of the offense of the dual-threat offense, if you will, is we run an M&A motion, a very systemic, programmatic repeatable M&A motion, where we take all the excess free cash flow from the enterprise and then centrally deploy it to the very best highest use. When we put those 2 together, we've had about a 20-year run of compounding our TSR in the high teens range. And so the model, both organic and inorganic come together to do something that's elite levels of performance.

Great. So Neil, maybe let's try to unpack some of those things, right? So let's talk about these like niche market-leading businesses that you have? You mentioned 27 platforms. When I first started covering Roper 10 years ago, it was a very different company than it is today. So talk a little bit about what makes these businesses market-leading niche defensible and then maybe also talk about the evolution of the portfolio over time?

Sure. So the evolution, I'll start maybe with the second part, the evolution of portfolio. I mean, I've been in the company 12 years, Jason 17 years, so when I started, we were 80% products and 20% or even less, software. And today, we're 75% software and 25% products. So the nature of the portfolio has changed. The quality of the portfolio has changed in terms of the organic growth rate, the recurring revenue profile, the margin profile and the asset lightness or lack of asset intensity, but all the quality dimensions, the recurring revenue has improved as well. But the nature of what the companies did from our old days to our new days is remarkably similar. Again, leaders in small markets that compete on this MSC with a vertical or application specific solution. And we just find time and time again when you solve a very hard problem for a very specific persona in a small industry, then you have a right to win. And so we don't just do ERP, for instance, ERP software. We do it for project-based businesses and subspecialty, for instance, is legal. So we're the leader, the clear leader for a large law software. We're the leader for government contracting software, architect -- that architects use, et cetera. So it's very, very hyper-specific and functional-based or function-based. And so that's why we need to have this portfolio tends to be quite durable through cycle and protected.

He started talking through some of those examples, right? And so maybe just try to elaborate. I know you mentioned Aderant, right? I think at the Investor Day, there were a few others including Deltek that you mentioned. But maybe step through a couple of more examples so that people get a better understanding for the types of businesses that sit within the portfolio and how those businesses have evolved?

Sure. So we report in 3 public -- in 3 segments, although we run the business as the unit of the business of 27. We rolled them into 3 segments: application software, network software and then tech-enabled products. So I'll give you an example from the first couple of software. So an application software we use Vertafore. So Vertafore is our largest acquisition in the summer or early fall of 2020. Vertafore is the leader in software that property and casualty insurance agencies use to run their business. So if you think about the -- what you have to do as an agent, you're interfacing with all the carriers. You are obviously acquiring customers. So it has all the CRM functionality, the policy, administration functionality, the compensation functionality. And we -- it's a market that is a duopoly. It's us and one other player. It's been -- we basically share the market equally, have done that way since the formation of the industry 20-some years ago. And it's a wonderful business. It's a mid-single-digit plus organic growth business that's near 50% EBITDA margins in that case. In the network -- so it's very much application-specific running the Workhorse chassis that the customers use. Network software is, as you would suggest, it's network-enabled software. I'll use one in media entertainment. We have a business called Foundry. So in the media entertainment world, you have live action, production and computer-generated graphics. We need to put those on the same screen. So think Game of Thrones, the Dragons and the people, those you have to put those on the same screen and our software is used in post production almost solely. It's exclusively used on high-end productions anything in movie theaters or in any high-end sort of streaming service, will use Foundry software. There's a network effect because it has an enormous ecosystem of people that are trained in college and then user groups and forums about how to best use foundry software. And so it's another example of what we do.

So you basically just said property casualty insurance software and Game of Thrones almost in like the same sentence, is that right? So why do those businesses belong together? And talk a little bit about CRI and how you think about creating value by having these disparate businesses within your portfolio?

So CRI, cash return on investment is our north star has been our north star for 20-plus years in terms of what to optimize from a financial point of view. It's essentially how much -- what's your cash flow margin divided by your asset intensity. . And it's our view analytically that the highest cash-returning businesses, shareholders attribute the highest value too. So think of railroads versus the best software company, you can imagine, you're going to have 1 multiple for a railroad, another one for a software company and CRI paints all the shades of gray in between. And so starting as an industrial business, our journey was not to ultimately become a software company, it's become a more asset-light business, and we happen to end up in software. We've been in software for 18 years in some form or fashion. So it's been a slow evolution to get to this point. These businesses, the 27 business, I said at the beginning, the end markets don't -- there's no overlap end market, and there's no end market synergy or go-to-market opportunities across any of our companies. But the business models are remarkably similar, as I mentioned before, small markets, compete on intimacy, highly verticalized and what we've become somewhat proficient at across the company, both in the Roper enterprise at the center location and then across the companies is how do you take and how do you coach these relatively small businesses, right? 27 businesses, $6 billion of revenue, like the median is a $220 million or $230 million business, right, inside of Roper. So these are small businesses. So how do you help these small businesses become authentically great businesses that grow over the long arc of time, and we can get into that to the extent you want. But that's what we -- our business model is tuned to do around how these businesses think about strategy right, how they execute strategy, how they run a talent offense and put all that together in pursuit of improved levels of sustained organic growth.

So yes, I think that that's probably the best next segue. Maybe we bring Jason in here as well. We'll talk about the M&A flywheel in a little bit. But talk -- Jason, maybe just talk through the process that you undergo to try to make these businesses better once they become part of the Roper portfolio?

Yes, sure. Happy to. Well, I would say the first thing -- well, these are great businesses and they've typically been owned by private equity, maybe 1 or 2 turns. So there's a different objective in private equity where, obviously, they're making the business better, but it's not with the forever lens. And so the first thing we do, it starts really in diligence as we look at sort of the market map, sort of where they sit, where their opportunities are, where the investments need to be made that are going to drive not just growth in the year 4 or 5, but forever. And so a lot of times, we'll just look at what the company has been focused on the last few years and how we can get them even more focused because what we've found is management teams are spread thin, and typically, they get diluted down. Maybe they're pursuing some adjacencies that they didn't -- in private equity that really is distracting management and not really getting the growth that they need. And so our pattern of recognition is more focus and more sort of a coherence around what the company is trying to accomplish drives better outcomes for us. So that's one thing. The other is just sort of getting into more of the rigor of the quarterly operating reviews that we do, where we look at a variety of metrics in a very consistent manner. And so that's another thing that we do. And I would say our group executives are a key enabler to this in our organization, right? Think of them as operating partners in a private equity firm, but with again, a forever horizon. So we're not trying to optimize for an exit, but optimize for that long-term growth. And so they have, again, a lot of pattern of recognition across the portfolio along with their deep experience being Presidents or COOs of other businesses. So that's a key enabler for us and also helps us scale as we bring on new companies, each group executive can handle 7 to 8 businesses. So they really help the presidents be the best they can be for their organizations.

I think clarity of purpose as well, when these companies that we buy are -- have been previously owned by private equity, oftentimes their purpose will change owner to owner, right? So they invest under one strategy and then they have to harvest that and invest on a different strategy you have to harvest that. Once they become -- a company becomes part of Roper the purpose -- the clarity of the singular purpose is super powerful, which is how do you improve the organic growth outlook on a sustained basis for ever, right? It's singular and it has a forever holding period. When you have that and a performance expectation and all the coaching and everything Jason just said, we see, as we talked about on our Investor Day a number of months ago, improvement, right? We see businesses that grew low singles when we bought it, now it's high double or low double digits. So Deltek was mid, now it's mid plus, maybe high. Vertafore was mid, but maybe it's mid plus at 3 years in ownership. So we pursue increasing levels of organic growth through a singularity of focus.

First Investor Day in 30-plus years as a company. For those that haven't read it, it's a worthwhile read.

Which you did yesterday.

I know I did, I reread it. Yes, exactly, totally prepared for this conversation. So -- but let's talk about that, that clarity of purpose, like talk about the metrics that you -- how do you think about long-term value creation then? Because it seems like all of these group executives and business unit presidents are all driving towards the same goal. And then secondly, you talked about the singular purpose of organic growth over time and being a better grower or faster grower over time. How do you think about investment associated with that piece of it?

So I should put a huge caveat as far as -- Jason hasn't already kicked me. It's like it's not growth at all costs. It's growth at a better -- at better cash returns, right? So it's not growth at all costs. We've seen so many examples where you grow on an undisciplined way and actually destroy value in pursuit of sort of that strategy. So this is about systemic good growth is the goal, cash -- with higher cash returns associated with it. Repeat your question for me, if you don't mind. .

Yes. So I was thinking about -- how do you then think about the from an investment perspective -- how do you -- like how do you think about allocation of capital?

Every business -- so we have 27 of everything. So when I say we're highly decentralized, we're highly decentralized. There's 6,000 -- 18,000 or so people in the company, 80 in the corporate office. And so we're very much an inverted pyramid to help the businesses. So there's 27 Presidents, 27 ERPs, 27 strategies. And so there's not a one-size-fits-all strategy. How Foundry, the media entertainment business is thinking about growing, they're very much in a cloud migration, customer acquisition phase of their strategy compared to like a Vertafore who is -- the customers in Vertafore, this is a property and casualty insurance business, their customers are consolidating. So how do they deliver Vertafore to a much, much larger customer, which they haven't had to do historically, is very different. And so we don't try to paint a broad brush across the 27 companies. Each company then has this long-range strategy. And then every year is like what's 1 good year progress look like relative to execution against that 5-year strategy or 5- to 7-year strategy. And then when they do need to invest more. We first will say, okay, what does -- as Jason was eluding to, what can you stop? So many companies are like, "I'm going to do everything I'm doing, and then some". Well, no, the focus is strategy tells you what you're going to do and what you're not going to do. So let's talk about what you're not going to do and stop there. So can you fund some of the things you need that do with that? Second is, can you drive productivity? Generative AI is going to be a great productivity boost for all companies, us included, so can we fund some of the needed investment through productivity? And then very rarely do those 2 buckets satisfy the need. So then we're always looking for what we can do incrementally to fund the investment, whether it's go-to-market or R&D. Fortunately, we're blessed with just wonderful business model, economic business models that underlie all 27 of our businesses where we have very high gross margins, which is an indication of how we can capture value through pricing with the value we create. And as I mentioned, 40% EBITDA margins and great incremental margins from there. So our long-range model says that we're going to have 45% operating leverage as a general matter with hopefully pushing towards high single-digit organic growth. And we think that model fully funds what we need to do from an investment point of view and the yields result for our shareholders. Anything you want to add to that?

Yes. And just to remind our asset-light business, there's no really CapEx -- any additional CapEx to that flows nicely the free cash flow margin.

CapEx for us is 1% of revenue. Equity comps, what, 2% of revenue or something like that. So it's very clean sort of from a P&L capital intensity point of view.

And what you first started discussing in that answer was your decentralized model, right? But you have a centralized function ostensibly for M&A. So maybe, Jason, turning over to the M&A portion of the discussion, which I know for a lot of tech investors is probably very different from what you're used to seeing. Talk through your M&A business model, how it works?

Yes, happy to. As Neil said, we have kind of a dual threat in terms of growth opportunities. So with the free cash flow that we generate organically. And the fact that we are not a vertical software company purely in a specific vertical, we have a lot of optionality for M&A. And we've had a proven process over the last 20 years in doing M&A from understanding all the opportunities that are out there in the space, developing relationships with private equity firms, understanding different sectors to a certain extent and then being able to really -- we have a proven and consistent process to due diligence through our team centrally. We have some outside advisers that help us, really an extension of our team. And so we just -- because we're -- I think we're small and more nimble, we're able to act very opportunistically when opportunities come our way in the market as well as going out and looking for opportunities on our own, so doing sourcing. So it's just a -- it's a well-honed process. It's very systematic. We do a lot of sort of learnings from the deals that we closed, and the ones we didn't do and sort of cycle them back into the process. We treat it almost like a go-to-market team, right? We've got a CRM that tracks everything and we keep all our notes. And so it's a -- it's very much a part of what we do. It's a very big part of the time that we spend as the executive team. Again, because we're so decentralized, our job is to make sure we have the best leaders in the field. And once they're doing that, we're helping to coach them and our time to spent on deploying the capital. And so that's sort of how we've evolved over the years. We love when businesses provide opportunities to do bolt-ons, but we're going to do the diligence. We're going to make that -- it's going to have to pass our litmus test because, again, we're just trying to find the best opportunities to deploy capital across the company.

Jason, I was surprised to -- I thought the number was staggering, right? You guys looked at 1,200 deals last year. And so step us through how you whittle down from 1,200 deals to 6 acquired targets?

Well, I think it starts -- Neil talked about CRI as our north star. So we really have to look at the quality -- the financial fundamentals of the business first, and that screens off a lot of targets. And then from there, it's just all the things that Neil talked about, what kind of market is it in? What's the competitive intensity? Do we like all the fundamentals? Do we like the end market? I mean we say we are end market agnostic, but -- there are some areas like automotive. We looked at some great automotive software companies. And I don't know if we could go there just because we don't know where the puck is going. So that's another factor for us. So it's just these -- again, we've had this process for 20 years. We know the areas we need to check and we can filter very quickly.

So one of the pieces of feedback I get from new investors that are looking at your business model and track record over time, is the fact that you do buy from private equity, and obviously, private equity is looking to earn a return -- a good return on their investment as well. And so help people kind of square that away and why it's still value creative to buy from private equity over time because you have developed those relationships.

Sure. I could start and Neil certainly will add to it. But I think when we look at platform opportunities, our sort of -- when we're competing, there is a process. When we're looking at it, we're willing to pay $1 more than the LBO model. So it's a larger deal where private equity isn't going to be able to buy down the multiple with add-ons down the road because that's how they're thinking about it. It's like I can pay a lot for the platform, but then I'm going to buy down with tuck-ins. If they can't do that, then we're a good home. If there's not some edge that they have that's going to -- they're going to take a bunch of costs out or something like that. So we're willing to pay that dollar more than private equity because we've got -- our capital structure is in better shape. And I think for us, again, we have that forever lens. So we're kind of -- our thesis is what is not what it's going to look like in 5 years, but 10 years from now, what's the return is going to look like for the business, and that also funds the next deal. When it comes to bolt-ons, and we've just closed 2 significant ones this year in our Strata's combination with Syntellis and then we acquired Replicon for Deltek. Those are just great deals for us, and those are where we will look at what are the opportunities to capture synergies both on the cost side and even -- we won't underwrite it, but we'll look at the revenue synergies as well. And so that to us were we've been much more active, I would say, on that front over the last year, and that's what got some of these deals done over the last 12 months.

So I'm going to open up to questions from the audience in a minute or 2, but just maybe just following up on that last one. So you have also talked about maybe trying to be like half a click earlier, right, in terms of your timing. Maybe just talk a little bit more about that and then also what's the environment like right now for your M&A pipeline?

Okay. So we talked about on our Investor Day that Roper strategy has called for 2 essentially further levers of value creation for our shareholders. First is we've talked about extensively today, a little bit more organic growth. So this portfolio started at 5.5% or somewhere in the 7%, 7.5% area now and hopefully gets to be the 8% or 9%. We're not there yet, no guidance or anything like that, but that's our ambition. It also tends to be quite defensible and noncyclical. So it should be quite steady performance through cycle and across economic environments. And then the second additional value leverage, how do we buy things -- how do we capture a little bit more value through our capital deployment. Our view of that is buying things just a touch earlier. Structurally, fundamentally, nothing changes, still a small market, still leaders, clear -- clear and understandable competitive forces. We're not going to pick winners, to the automotive point, I mean there's some great companies, software companies in automotive, but you just don't know how electrification autonomy is going to change the landscape of dealers and OEM relationship with the end customer. And so it's like you ultimately are picking a winner for things you have no control. So we're going to just sit and watch that for a while. So we're talking about the same profile company, but just buying it 1 click earlier in its ownership cycle where we can capture some of that value creation for our shareholders. An example is Vertafore, it was owned by 2 private equity firms prior to us buying it, Same exact company, same growth rate, same competitive position, just 8 points lower margin. And that -- so we think having done that work in our portfolio for the last -- our own companies for the last 5 or 6 years, we have the institutional know how to do that. And so that's where we're talking about buying things a little bit earlier, also likely leaning in and doing a little bit more bolt-on activity. So historically about 10% of our portfolio -- or capital deployment has been bolt-on. There's no budget or target, but maybe that's 20% or 30% because economically, bolt-ons are the best deals we can do because they help enhance the organic growth rate of our existing company and there's normally even as just G&A, some synergy, cost synergy in the deal, which we otherwise would not get in a platform. All that being said, one of the things just to tie this back to the question prior around our M&A approach, it is -- as Jason said, it's systematized, it's disciplined. It's got telemetry and all that. But I think the overriding is we're wildly dispassionate, right? So if we -- we were excited to get Syntellis done for Strata, but if that deal traded to a point where it didn't make economic sense, that's fine. We only have to deploy $3 billion or $4 billion a year. It's not that much in the grand scheme of what we look at in any given year. And so we're just going to -- the dispassion gives us and our Board the discipline to be patient, waiting for the exact best opportunity we can find. And so it's the most liberating part of Jason and I's job relative to capital deployment is that we're not trying to be the best fill-in-the-blank company. Transportation software company where you might go do something and lose -- it's strategic, which means it -- but you can't make the math work. So we won't fall prey to this strategic deal because we're dispassionate on the capital deployment.

One more for me and then I'll go turn to the audience. The $3 billion to $4 billion that you just referenced, how do you think that, that kind of evolves over time? And is that something that -- do you think that, that is bankable for investors in the medium term?

I think it is quite bankable in the -- but not on a per quarter or per year basis per se. It's just -- if you just run the model, $6 billion of revenue and 30-plus percent free cash flow with investment-grade leverage and you just put some organic growth rate on it and run 3.5x leverage or whatever your model says, you're going to see it spits out $3 billion or $4 billion a year now and like $4 billion or $5 billion, 7 years from now. It's just easy math to do. So we're going to get that whatever that is $20 plus or minus billion deployed over this period of time. Now is it going to be $1 billion a quarter for the next 28 quarters? Probably not.

Makes sense. Any questions from the audience? Right upfront.

How does the current capital environment, just in terms of your own internal threshold on equity and the financing environment even turn of leverage affect the way of thinking about capital deployment in the current market?

Yes. So the current environment -- I'm sorry, I skipped over that question. So thanks for holding us honest there. The current environment, there's just not a lot to do. I mean it's sellers' expectations are not matched to buyers' willingness to pay all around a cost to capital. It's been very, very thin in terms of the last 12-ish months maybe 12 to 18 months. It will turn, so either 1 of 2 things has to happen Cost of capital has got to come down to come in line with seller expectations or seller expectations have to come down to come in line with cost of capital. Really, it's going to be a little bit of both. And it probably happens -- and this is my personal looking into a very hazy crystal ball, probably that log jam sort of meets and expectations meet as soon as the Fed starts easing. So you do tell - whether it's a year from now, whatever that is, 18 months from now. Or maybe it's not easing, stops tightening, maybe that's it as well, just understanding what the future direction of the cost of capital looks. So it's...

It's definitely a loaded spring right now. There's a lot sitting on the sidelines. I would say relative to cost of capital, I mean, you've seen we've done 2 deals this year. We've said it's going to be 15x next year EBITDA. A lot of that -- typically, a lot of that's funded with our own cash. And you look -- so I think we're mindful of that, of course. And we're really excited about the 2 deals we did not just for next year, but sort of into the future, when you think about the combination of Strata and Syntellis and what they can do for their hospital customers, there's long-term sort of ARR growth that we're excited about.

The other thing, unlike our private equity competition who are project financing everything and at spot rates, we have a very long duration capital structure. So obviously, the next increment, but we sort of look at over a blended cost of capital. I mean we've got bonds that basically spread out for each of the next 9 years. So a small little -- we're not going to be super aggressive in this market. But if we had to do a slightly higher priced financing, it's going to modestly move our total cost of capital, right?

Any other questions? Back row.

When you look at doing transactions in today's environment and your cost of debt is obviously gone up, have you adjusted sort of the return on equity that you require in evaluating a deal versus your cost of capital as well?

In an indirect way, yes. So we're -- the way we think about valuation is not as classic as you just described. It's our cash return on investment methodology. It's the LBO model, then it's looking at year 5 -- we look at year 5 multiple, but at the end that tax effect is basically year 5 ROIC. So if you do all of that, and our hurdle rate for year 5 has gotten a little bit higher is effectively the back end of what you're saying.

Earlier, when you referenced Deltek and Vertafore and improving organic growth rates by several hundred basis points. Could you just describe how you're actually doing that and why you think that's sort of a repeatable process when you acquire new companies, -- how much is pricing? How much is bolt-ons?

So we screen for this in our diligence. So I can't say that it's available on every deal, right? But we're certainly understanding is their opportunity to grow a little bit faster, not a lot of it faster because a lot of it faster means you're going to invite tons of competition or there's going to be some uncertainty in the market formation. But what we do is it's really kind of just blocking and tackling. And so the example of the company that I said went from low single to low double digits. This is a company that had 2 products. It's a health care business that -- and had a go-to-market capability and like a franchise on it's 2 products that were like unparalleled, but an R&D engine that was putting out 1 new product every 4 years versus now it's 5 or 6 products a year, right? And so this is about how do you just get more product - relevant products to and where we have a right to win over what the customer call points already have. We have a third product category that was released 3 years ago, and this year will become a leading market share in North America for that product, for instance. In Deltek's case, the software business for government contractors, it's really a combination of 2 things. It's both product and go-to-market. In the product case, it was tech -- really SaaS-ifying -- they're not -- both the government contracting and the professional services part of the book, which enabled them to go down market and attack SMB where they weren't product-enabled before and then having a go-to-market capability that could equally sort of go down market in SMB. So in the past, Deltek was just enterprise class, the biggest government contractors, the biggest architecture firms, the biggest engineering firms, the biggest marketing services firms in our world run on Deltek. Now Vantage Point, which is the professional services, project management, nongovernment contracting part where we do quite well in the medium and SMB part of that market. The point is that it's company by company, right? So we start with strategy. And one of the -- not the wax 2 sort of theoretical. But I think most companies make a mistake strategically that they think -- they go after large shiny growing gigantic markets. Statistically, you're -- that's not the best thing to do. You don't have -- you don't increase your odds of success doing that. Your best odds for success is where you have the right to win, right, which might be in a smaller market, but you have a clear right to win, whether it's a customer relationship or you're following your customer you're following a product. And so we're optimizing strategic decisions on right to win versus like gigantic TAMs. Again, gigantic TAMs is like tons of competition and tons of competition generally is -- warrants sort of headwinds relative to pricing or value capture. And so when you have that north star of what you're trying to optimize strategically, it makes a difference.

Any other questions? You talked about forever businesses in your portfolio, but the portfolio has evolved a lot, right? And you've made a lot of changes to the portfolio. We haven't talked about the 25% of your business that's medical and water products. So how do you think about the addition by subtraction today?

Well, just to bring everybody current. So we are a forever home, but we divested 40% of our 2018 revenue. So those are sort of at odds with one another. The concept and the 40% that we divested were all very cyclical or project-based businesses. And it was our analysis and our Board discussion that felt the enterprise valuation and values being held back by the cyclical portion of our enterprise. And so the strategic decision we made in the fall of 2019 was to reposition the portfolio to be noncyclical. And so it wasn't the reposition of the portfolio to be software only. It was a position of software being noncyclical because that's analytically where we felt the sweet spot was relative to the valuation of the enterprise. So that's the portfolio we have today. The product businesses that we kept, the water meter business, a couple RF product businesses and a handful of medical product businesses generally don't experience or exhibit cyclical demand patterns. And so this is the portfolio that we have and are going to operate for the foreseeable future. If ultimately, the decision was wrong and we feel like many, many years down the road that the valuation of the enterprise is being held back or were not achieving full shareholder value recognition, then we'll obviously look at the portfolio in whatever construct that makes the most sense for our shareholders. Again, it goes through this dispassionate thing. We're not trying to be the biggest thing. We're trying to create the best value-creating enterprise we can.

One last question for me. You touched on it in the last response to the audience question, but let's talk about moat for a second because sometimes I get the question from why wouldn't a horizontal software provider come in and encroach on your markets and what gives you the right to win?

I love this question. The -- first, I think the shareholders that cover the space sort of vote with their dollars and the vertical cohort has -- is generally valued equal or sometimes greater than the higher-growth horizontal cohort, right? And so the vertical nature, they're wildly protective. Generally it's because you're solving a problem out of the box with your software. You have all the domain expertise that can talk expert to expert. And total cost of ownership is just flat lower, right? You don't have to customize software, I mean the more customized software, the harder to live an upgrade cycle. It's just a vertical software actually wins in the long run versus horizontal in these small markets. I don't want to call out any names, but like these we don't -- our customers aren't big enterprises. They can't afford an XYZ company administrator, right? Just to administrate the software. And so they buy all that as part of the package with us. And it's a huge value opportunity for us. I would also say that almost all vertical software companies that we own, all but maybe one, were sort of born out of the nooks and crannies of what the horizontal software could not do, right? So from the very birth of their companies, they had to create incremental value above what horizontal could do.

Anything else you want to leave this new group of investors with regarding Roper?

I would just say, I mean, we're excited to engage with the newer software investor. I would just tell you that 20 years of high teens of TSR on the backs of mid- to slightly higher mid-teens cash flow growth. There's durability to what we do. I know there's a little bit of trust around this M&A motion because it's new, but it is systematic and has proven the test of time.

Great. Neil, Jason, thank you both for being here.

Thank you.