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

Excellent. Thank you all for joining us. My name is Keith Weiss. I run the software equity research franchise here in the U.S. for Morgan Stanley. And very pleased to have with us from Roper Technologies, both President and CEO, Neil Hunn; and Jason Conley, EVP and CFO. So gentlemen, thank you for joining us.

Our pleasure. Thank you for having us.

So Roper Technologies may be a relatively new name for some of the people in the audience. And it's not the typical software story, if you will. So I thought a good starting point, if you could give us maybe a little bit of a 101 on Roper. What is the story really all about?

Yes, Happy to do it. And again, thanks for your opportunity. It's great seeing you again. So Roper is unique from a lot of the companies that are at the conference, right? So we're a combination of -- we're dual threat offense, a combination of durable organic growth vertical software businesses. But then uniquely, we have a capital deployment methodology capability that matches that. For us, we're a software compounder, right? And if you think about the elements of compounding, it's two things. How do you have durable, sustainable cash flow generation? And then how do you take that cash flow generation and deploy it in a proprietary disciplined and process-oriented way. And so on the cash flow generation side, the durability. So we have 28 businesses. They're all vertical market oriented, 75% of which are software. What we do in every case is a system of record, so mission-critical software. We do it in very small markets, which we like. We like small markets because they're widely protected from competitive entrants. But more so, we compete on this notion of customer intimacy. So we're super dialed in across all 28 of our businesses. The most important things our customers are dealing with and struggling with and how we can help them. So that gives rise to high recurring levels of revenue, high gross retention, and the sort of circa in the 95% range. And so that yields this durable cash flow. Of note, we're also very cautious about how we use our equity. Only about 2% of our company, 2% of revenue is stock comp. It gets allocated to the people in our organization to make the resource allocation. So the cash flow yields this durability. But that's only half the equation. The other half of the equation is the way we deploy it. So we have the 28 businesses and the cash flow in and of themselves, they would have -- they would struggle like a lot of start-up companies do deploying the capital productively in their end markets. So we essentially have a team. Jason and I are part of the team. It's in our job description as executives of the company to deploy that capital, about 1/4 of which to 1/3 is going to be on bolt-ons into our portfolio to extend the organic growth of those businesses and enhance it. And the other 2/3 or so is going to be on new platforms that are, again, small leaders in vertical markets that have durable cash flow. Taken together, it's been sort of high teens, 18% TSR for a better part of 20 years, as that formula.

Yes. It's been an incredibly successful formula. And maybe start out with on the strategic perspective. One of the things that's always I see is very attractive within the Roper story is that vertical focus. You're going into customers solving deep domain problems for those customers. You know those business processes really well. You're able to accumulate an important set of data for those customers about how they run their business. And it has created a lot of stickiness for your solution, a lot of potential to sell additional solutions into those same customers. The question in that is when I think about generative AI, and I think about the value of these generative AI solutions. The rubric I've had in my head is that the value of generative AI solutions are going to be directly related to the breadth of the workflows being automated and the depth of the data that's going to be able to be used in those models. And to me, it seems like Roper, in your portfolio companies and the types of problems you solve, should have a really strong opportunity within GenAI. So how do you guys think about that equation? How do you think you guys -- how do you think about opportunity to utilize generative AI across that portfolio?

I think you characterized the question in a very similar vein that we do. So we believe that vertical market software businesses are advantaged. It doesn't grant us absolute victory, but it gives us an advantage relative to horizontal players and start-ups for the reasons you described, but in addition to the data and the intimacy and all that. But it's not just the data, it's how to very specifically apply it, and what very specific nuanced questions of which you need to apply it to. And that's where vertical market businesses, I think, really are advantaged. Horizontal players, in our opinion, are disadvantaged because by definition, they're going to apply things sort of unspecifically and in a shallow way, where a vertical market can apply in a very detailed and specific way. And so we see our businesses sort of the power of this starting to really manifest itself in road maps, in new idea generation in terms of how we can either disrupt -- or disrupt labor spend in some of our markets that we participate in and capture that through technology, which is happening, or how we can just extend more broadly the value proposition of what we already do. So we like what we're doing. We got to keep grinding away at it. That's where we're -- fundamentally we're just grinders and we're going to keep our nose to the grindstone, but we like the position we're in because of the domain at which we are.

Got it. One of the hallmarks of the Roper story is the consistency, right? The consistency in terms of organic growth, consistency in terms of the operating profiles. One of the elements that investors talk a lot about within generative AI is, one, kind of the pace of change, but the potential for change in business models and how we monetize on a go-forward basis. And not to say that you guys will be against change, but how do you guys think about that in the context of a model that's so predicated on durability? Is there a risk that comes with, potentially, these pricing model changes and these business models?

I think they're certainly -- you can't say there's not risk, but I think there's as much more opportunity because again, it depends on our business. We have -- without getting into a ton of details. We have some businesses that are automating what are extraordinarily manual labor-intensive processes. So we're trying to do that using the generative tools, which are super, super complex to figure this out. If we can do that, you can then basically sell as a service or on a consumption basis, what is a fixed -- very high and quasi and productive fixed costs in our customers' hands and make them more efficient, and we win as a result. Other parts of our business where we're just enhancing, we have a legal software business that is the largest law firms run on our software, and an age-old challenge of that business is the customers asked us to do is how can you basically automate a compliant time entry where we get paid the first time for work that we do. Without generative AI, you cannot answer that question. It is uniquely solved by generative AI, and that's a task that our Aderant business is attempting to solve at the moment. When we solve that, then we'll be able to capture the value from that, right? We're going to disrupt -- we'll disrupt sort of the own sort of way that we do time entry today, and we'll do it in a better way that's more monetizable. And the list goes on through the portfolio. Another one small one is we have a freight matching business that is the place where the North American spot freight market goes to connect between a broker and a carrier. And a year ago, everybody was talking about freight fraud. That was the only -- that was 1, 2 and 3 worry list. We've delivered -- developed and delivered tools to basically prevent that. We've gotten the head of the bad guys using the generative and computational AI. So now there is still a murmur of fraud, but it's not the first, second, and third issue because we solved that issue. Now we get on to more productive tasks.

Got it. Got it. I want to switch gears a little bit and kind of dig down into kind of execution against that strategy. It sounds like the company is coming off another solid year. It was 14% revenue growth, $7 billion overall run rate now, 6% organic growth in line kind of with your historical average, 13% EBITDA growth, 16% free cash flow growth. And this is all done in a spending backdrop that, I would say, it's mixed at best, particularly on a more global scale. What is it about the Roper portfolio that enables you to produce sort of the consistency of results almost, I would say, despite the underlying kind of macro environment that we're dealing with?

Yes, I think it's part of the portfolio we've built over time, right? It's going to have a narrow range of favorable outcomes, but it's -- in any sort of economic environment, we're still going to be mission-critical. The customers are still going to use us to run their business. And if we're delighting the customer, we'll continue to realize increased value capture through that or increase cross-selling. So I think as 2024 played out, it was a little subdued in the first half and then just continue to pick up second quarter, third quarter, fourth quarter. So we knew the pipelines are really strong for 2-plus years and it finally started delivering. And again, I think it's just because of what we do for our customers is critical. And so that's why you own Roper. Again, back to what Neil said, it's this the ability to be stable and continue to -- hopefully continue to get better on organic growth, which we've got a lot of confidence around over a long arc of time, but then redeploying that cash flow and buying the next great vertical software business. That's what you buy with Roper.

And just one -- just to amplify one thing you said and amplify one thing Jason said, just let's not skip past the fact that we grew our cash flow 16% last year. I mean that's what we do. As we grow our cash flow in the mid-teens. And it's a combination of organic, durable, consistent and improving organic growth rate. But again, in the 6%, 7%, 8% range, and then the capital deployment engine that we have. And then it creates this flywheel effect where it's mid-teens cash flow compounding. That's what we've done and we'll continue to do. And then the durability piece, again, the compounder has got to be durable cash flow. I'll keep coming back to that. And the durability is for the reason Jason said, mission-critical, but it's also because of the end markets we serve, right? We serve health care, insurance, legal, government contracting, education, large education presence. So the end markets themselves aren't whipping generally with the cyclicality. And the final thing is our pricing models are generally not consumption-based. And so we have end markets that are generally not cyclical. We're mission-critical, which shields us. And then we're subscription-based for the most part, not consumption based. So there's layers that buffer any end market cyclicality that we'll ultimately see in our revenue stream. It doesn't make us immune, but it buffers us.

And I want to sort of pick on you a little bit in terms of areas where you're not immune. Because this year, there were two parts of the business that I would say underperformed a little bit. One was the Freight Matching business, DAT. You saw some low single-digit declines in that business. Foundry, it seems like there's some impact there from strikes and sort of the pause that took place in the industry. So two questions like, one, how do you guys deal with sort of that fluctuations within your portfolio? And two, what gives you the confidence to -- you're going to bounce back from that, that we're going to see that 6% to 7% organic growth in the forward year?

Yes, sure. So with our Freight Matching businesses, so we have a business DAT in the U.S. and Loadlink in Canada. Those businesses essentially doubled during the supply chain sort of boom that happened post-COVID, right? So just unprecedented growth in carriers, just as kind of a tidal wave came into the market. And we had been attriting out those carriers for the better part of 2 to 3 years, right? And so 2024 was truly a comp issue. We have bottomed out on the number of carriers, just call it, second quarter of last year, and we've been bouncing on the bottom, but we had to deal with the comps in that. So -- but structurally in that business, we feel really good about our position and we feel really good about -- I mean, we've owned the business for 20 years. This is really the only year that has ever been down. So it will tend to go -- it's always up and to the right, but it will go up in the markets and down, but it's always sort of still positive. We just had to -- again, it doubled and then we attrited out some of the carriers. So we feel good structurally about where that business is. When the -- and we expect the business to grow high single digit this year without an improvement in carrier count through some of the value capture that we've been able to do with both sides of the network. And then when you talk about Foundry, it's a wonderful business. It is -- in any large-scale production in Hollywood or on streaming, we are the post production technology there. And so we had a once in a 40-year situation with the strikes. It has taken longer for that -- for production to go to post production. There was labor issues. People went out and got other jobs, since come back in. And so the gestation period on that has been longer than we would have expected in '24. So we feel like we're going to exit in a good place on an ARR with Foundry this year. How we get to that spot is kind of a question. So we still think it's going to be a little bit of a drag this year, but we feel good about our position and where the business is going post '25.

Got it. And it's an interesting sort of topic to delve into because it also kind of highlights the strength of Roper in terms of -- you guys are managing a portfolio of companies, right? And there's a lot of diversity in it. So when you see situations like what happened with Foundry, and there's definitely some external factors that are very explanatory, but it also brings up the question of like, is there a fundamental change going on in the industry with how we're doing content creation, where generative AI comes through. So when you have sort of situations like this, does this spark off like a deep dive of like we got to understand what's going on with this company right now and make sure that it's cyclical, not secular, like, what's the process?

Yes. Absolutely. I mean we've been -- we ask these questions all the time. And so just to give you a framework on our strategic plan cadence, it's typically every 3 years for each business. And it's -- to your point, it's a deep dive. It's a -- the business does a lot of work to that. But then our review is a 6-hour sort of let's unpack every part of this. When a business has more dynamism, like DAT or Foundry, we're going to do that more frequently. And so we've had periodic check-ins in these sort of things that have happened in the market. And Foundry is a good example. We had our review with them in the fourth quarter, generally speaking on GenAI, just inherently, it's probably the highest like sort of risk of being disintermediated. And we got -- and Neil can speak to the detail, we got more comfortable with sort of how the IP works within Hollywood that we've got a long time to continue to innovate within our four walls and then just being displaced in that market is going to be very difficult, we think, for some period of time because again, the customers are very protective of their IP. And so for that to leak out, even between movies is challenging even within the same company.

But just to take it up a click on that. So again, going back to the durable cash flow and the assets we select in the portfolio, we are always scanning the horizon for existential risk. And so now we have to consider existential risk attached to generative AI or computational AI. There's always scanning. But if we can see a 0 on the Monte Carlo, we are not deploying capital, we're out. We're not making bets is it's going to be a huge winner, and we'll have to -- we have to get five of those right. And if we get five wrong, it's okay. No, everything has to work for us. It's steady, consistent and moderately improving organic growth is what the formula calls for. And so we have to consider the existential threat. But when you're in markets, when you're in small markets where there's two or three competitors, we're the largest one, gross retention is 95%. You compete on intimacy, they're very protective and steady, consistent. So we're having this conversation about volatility in the portfolio of 28 companies, we can pick two companies, DAT and Foundry that we got to talk about. So the core is very, very stable in that regard. But again, if we got to look for the existential risks, final asterisk on Foundry on this media entertainment, if we're totally wrong, it's 1% of Roper, right? And so I don't think we're totally wrong, but if we're totally wrong, I don't want people to sort of have a thematic that there's an issue here with the enterprise. It's 1% of Roper.

Got it. I want to take kind of the same conversation and shift it into a different focal point, which is the M&A that you guys do on a go-forward basis. And it's almost a similar skill set, right? We're talking about due diligence, understanding these market intimately will and choosing the right assets to bring into the portfolio. And maybe you could talk to us about that within some of the more recent acquisitions you did. You deployed $3.6 billion in capital over the past year. Two of the big acquisitions, Procare Solutions, in early childhood education, Transact Campus, which is like it brings together education and health care. What makes those kind of like -- maybe you can walk us through a little bit of the process of what made those interesting assets for the portfolio?

So first, just -- so capital deployment for us is a core repeatable capability, right? It's -- so we understand that for a lot of investors, M&A is risky and like what makes you unique and special. We spent the better part of 25 years sort of honing the process and capability. And from a first principle's point of view, we -- capital deployment is done at the center by a very small number of people. It's done by Jason, myself, as we talked about. We have a Head of Corporate Development and three people that she's hired that are former buy siders. So we very much view ourselves as investors, not M&A people. M&A people want to do deals in our opinion, investors want to own the right businesses forever. And so at the core of what we do is we're totally dispassionate about what we own. Like we're not trying to build the biggest fill in the blank, transportation software business where you can lose your objectivity and you got to own this one because it's a scarce asset. We have systematic protections to not sort of lose our discipline in that regard. We're also remarkably patient investors. Everything has to work for us. We can't have anything that ever goes backwards. As a compounder, everything has to go forward. And so while we were bullish about this year and the opportunity, if ultimately, the right deals don't present themselves, then we'll be patient. So to your specific question about Procare and Transact, look, we're business model pickers. So look at the businesses, at the attributes of the business and the portfolio, and we've talked about some of them, small market leaders. So Procare and Transact are both small market leaders, limited competitive intensity. In Procare's case, there's one principal competitor and Transact's case, there's one principal competitor. Businesses that are -- compete on intimacy and capture their fair share of value. So high gross margins in both businesses, right? That's about the value equation you have with your product that you deliver to the customer base. High recurring levels of revenue. They're monetized differently. In both of these businesses, they have a payments to attribute to them, but at high levels of recurring or reoccurring revenue. The ability to reinvest in themselves to continue to extend the growth rate. These are attributes of all the businesses in the portfolio and these two stack up in that regard. In Procare's case, this is a platform business, the 28th business. What also set it apart was its growth rate. It's one of the first businesses we've acquired where the SAM and TAM haven't converged. So the market growth rates that sort of circa 10% and that being the market share leader and have the relative market share advantage, they're outgrowing the market by 1.5x plus or minus. So we like the growth profile of the asset and the scaling of the cost structure as they grow. With Transact, this is a large bolt-on. So we had a business called CBORD and we integrated Transact into CBORD. And so there is a fair amount of cost synergy. We're public on the amount?

Yes.

$20 million of cost synergy that was taken out very quickly from duplicative overlap. So return profile looks very good from a capital plan point of view. But more importantly, for higher education, where the number of students is expected to decline this over the long arc of time, this particular product set is what universities are doing to combat that very issue. So in a macro, you're like, oh, boy, why is Roper investing in higher education, the thematics don't feel great. But this microthematic is super great because it enhances the campus experience for the students, right? So it's when you go on campus tours, every campus store is going to talk about how you can buy Chick-fil-A or take a lift to go to Main Street or whatever using your campus ID, and that's what this company does. So it enhances the experience of the student.

Neil knows. He's done like 15 campus tours in the last...

19 in the last year. Yes, if I can tell you about it. First-hand experience.

Okay. Excellent. So if we think about on the go forward, heading into 2025, I think you guys have talked about $5 billion in firepower for that M&A side of the equation. What does the pipeline look like in terms of -- what do you see in terms of multiples out there? What are you seeing in terms of willingness of companies to sell? Like how does the market look to you?

Jason and I will tag team this one. So at least on the -- you want to start on the environment?

Yes. I mean I think the environment, if you -- we sat here a year ago and said it was very robust, and there's still pressure on the GPs to return capital back to the LPs, the DPI pressure. And so that didn't manifest like we thought it would. We still deployed $3.6 billion last year. So we still feel like we got -- got to work in a tough environment. But I think that pressure is just, as time goes on, that continues to be applied. And so just from the activity, we see both NDA signed, the amount of sort of longer lead time management meetings were having pre-process like 6 to 9 months ahead of time. Neil has been on the road all week talking to founders and CEOs of companies. What we're hearing from the bankers and what we're seeing and just in our immediate pipeline is all better than it was last year. And so we'll see if things get done, but I certainly think it's more favorable than it was 12 months ago.

Yes. On the valuation point, it's -- time will tell on that. We have a couple -- I'd call it two tailwinds and one headwind, and we'll see how they juxtapose with each other. On the benefit side, you definitely have a ton of supply coming for reasons Jason just described. And I think it will be hard for ultimately the demand to sort of be there for it. So there's a human resource constraint. There may not be a pool of capital constraint, but a human resource constraint. So processes instead of having 10 sponsors in and 4 at the finish line, there might be start with 6 and go to 2. So there'll be -- we expect it to be a thinner just from a human resource allocation perspective, if no other, so that should be beneficial. And higher for longer interest rates. So sponsors were not willing to accept that premise a year ago and now they've accepted it. The final -- I guess maybe a third thing in this regard actually is there is a bit of a capitulation happening that the 2019 to 2022 vintages are not going to be 3x returning vintages. And so they're willing to just psychologically accept that, which should help. The headwind is that 10 years ago, there were -- that not a lot of people investing in vertical market software. Now there's a lot of people investing in vertical market software. So we'll have to see how that all sort of comes together, but we're cautiously optimistic.

But that risk has been in place for -- I mean we've still been operating effectively under those conditions.

Importantly, for our compounding math, and this is a very important point, is as we look to underwrite the way we deploy the $5 billion in the next -- and this number grows by about $750 million a year in the compounding math, and so in 7 years, it's $10 billion. We have our hands on the steering wheel in terms of the returns to our shareholders. So if valuations do stay relatively elevated, we have the levers available to us by the synergies that are driving it across with the bolt-ons or the higher-growth businesses where we're scaling a cost structure underneath. We can achieve the returns we need to achieve to deliver the compounding math, even at elevated valuation levels in the market. And so we feel confident about our ability there, which is just different than 5 years ago.

Got it. And Jason, maybe just to dig in on that point that you made, the increased competition from kind of private equity firms isn't new. Where -- these things tend to go in cycles, right? Where do you think we are in that cycle? Have we kind of peaked out? Is it continue to rise? Like how do you guys think about that dynamic?

I think it has. It's peaked out. I mean, I think because capital -- cost of capital has gone up tremendously, you're starting to kind of weed out some of the folks that got in on the fringe and there. I think that's sort of settling out more. I do think, too, just in general, like a higher cost of capital, while it might be a little bit more dilutive for us in the near term, it's a structural advantage for us over the long term. So as much as we don't like the higher cost of capital, I think vis-a-vis our competitors, it's an advantage for us.

Our cost of capital advantage is always there for sponsors, but it's more so in a higher rate environment.

Got it. Got it. On a go-forward basis, do you foresee any change in the nature of like the mix of what you're acquiring? I think historically, you've talked about bolt-ons being about 10% of the business. Does that change at all on a go-forward basis? Or sort of the stage of companies that you're willing to take a look at, is that evolving?

So I'll start this and have Jason sort of add to it. So no, this is a declared change in our capital deployment strategy. So at the enterprise layer, there's -- if we're a mid-teens -- we are a mid-teens cash flow compounded today. We aspire to be a high teens. We're not there today. That's our aspiration. That's what we go to work every day to improve. There's two levers we're pulling and only two to achieve that, improve the structural organic growth rate of today's fleet by 100, 150 basis points, and improve the value that we're capturing from our capital deployment. So having better returns, year 5 returns, year 3 and year 5 returns from the capital we deploy. So those are the two levers. To your question specifically, we're leaning into two archetypes. One more bolt-ons and the second is higher growth businesses that have a more returning cost structure attached to them or margin structure attached to them. So historically, it was 10% bolt-ons. We model it 1/4 to 1/3. Historically, the last couple of years have been substantially more than that because we've done two very large bolt-ons in Syntellis and Transact. I think that's probably more of the exception. It's probably been 2/3 of our capital deployment, something like that?

40% to 50%.

50% of our capital deployment has been bolt on. It'd be great if we could do that. We don't think the market will bear that because the deals are probably going to be smaller than larger. And -- but yes, there's a lot -- the bolt-ons are the best deals we can do for two reasons. One, we only want to do a bolt-on, if it's going to be accretive to the organic growth rate of the business we're bolting it on to. So it answers the organic growth rate question or opportunity. And second, they are great value captures because minimally, there's back office G&A synergies, minimally, if not channel synergies, R&D synergies. And so they're great returning deals way earlier in their life cycle.

Got it. I mean one of the things I've noticed from following this industry for a while is the M&A becomes -- an effective M&A becomes kind of muscle memory, particularly the ability to do integrations well and define that. I'd assume part of this sort of changing capital strategy, are you guys feeling more comfortable about that muscle memory, being able to execute to those efficiencies within the acquired bolt-on companies?

So I think -- so yes, but this is how I describe that. So yes, because we went to work on -- the muscle memory was built, if you will, going to work on the existing portfolio. So this portfolio that's -- that this year is a 6% to 7% organic growth business. This portfolio was like 5-ish percent 5, 6 years ago. So we want to work on our portfolio, build a lot of pattern recognition on what good looks like relative to these smaller vertical market software businesses. The but though, is we're always continuing to get -- to strive to be better and better. And so we're instrumenting sort of a continuous improvement program inside of our corporate office to help to derisk the early ownership period of these bolt-ons, these new platforms that are higher growth. And so we'll continue to get -- extend what we do, extend the learnings and get better.

I want to take the opportunity to see if there's any questions from the audience?

So implicit in the guide is a couple of your key businesses are going to be existing the year, growing faster than they are starting the year, tough comps, et cetera. I know there's some mechanical dynamics there. When you talk about that mid-teens growth algo, and you guys start to approach a higher end of that, Procare rolls in, presumably helps that equation. Are we able to think about some of that dropping to the bottom line more in terms of that getting closer to the high teens into those out years? Or is that not the way we should think about it because there's a lot of reinvesting that has to still happen as well?

I mean we have not, in our model, baked in a ton of margin expansion for the core businesses. For the businesses that we're acquiring, and you've seen this in Procare and Transact. The expectation is you're going to see pretty meaningful margin expansion just because we're starting at a lower base. They're growing faster and the like. And so then you're starting to see us outline core margin versus total. So you all can see that. But I think to your point, though, as we continue to incorporate G&A tools into our cost structure and those things -- those mature. Right now, it's about getting it right back into go-to-market and specifically product road maps. But at some point, I think naturally, you'll start to see more margin expansion. Again, we're not baking -- we're not considering that in our model, but I intuitively think that owning these business a long time and how they -- what their operating leverage looks like, that we could see margin expansion.

And the incentives that we provide our field operations teams and our leadership teams is for organic EBITDA growth. And the way they're going to maximize their growth -- their consent of opportunity is to inflect the organic growth rate. You can only work margin for so long. So their incentive is to essentially hold margins consistent and grow the top line. But if we fail on that, then we'll see margins go up a little bit. We don't anticipate failing, but there's a default lever there if we need to.

Actually, you just, I think, got to my question, which is the leaders of each of the 28 businesses, they are compensated on what exactly?

Organic EBITDA growth.

Okay. And then are the targets or thresholds, are they stationary, year-to-year? Do they flex like Foundry, for instance, last year, you see their target flex downward because there was a strike or not?

Yes. So the goalpost is a very important question and very important for our culture. So we, unlike most companies, you'll meet, we pay based on organic EBITDA growth. So those growth targets, X percent to Y percent, and there's overdrives of Z percent. Every company's goalposts are static. They're not going to change. And so to the extent the company is able to inflect its growth rate and change it from in between X and Y to be north of Y, then they'll be in the big time compensation forever. We're not going to move the goalpost on them. For existential things like Foundry, we will be creative about how to keep that management team incented to grow and invest in the business. But that is extraordinarily the exception. But there's very few -- like the rules that are rules for compensation, we're not going to make a lot of accommodations, but in Foundry's case, there is a combination that was -- we want them to invest. In fact, during this time of demand and revenue challenge, they increased their R&D to get after some of the GenAI opportunity, which is a unique element of sort of the portfolio effect of the company.

Last question is how many of the leaders that you're acquiring stay with Roper for at least 5, for a long period of time?

Yes. So we have -- it's an evolving answer to that question. The answer to that question used to be almost all because one of the conditions precedent for us to want to deploy capital is we can underwrite to the management team. We've evolved that as we've meaningfully upgraded our field leadership, meaningfully. As we've asked from organic growth, we had to get leaders that were qualified and excited by organic growth. And over 28 businesses, something like 18-ish are new in the last 3 or 4 years, more like 4 years because we needed a profile that's more growth-oriented, competitive, continuous learner, that can think long term and act short term and is geeked up about building the underlying enduring capabilities of the business. So we know how to hire the profile of a leader that we need to be successful in our culture. And if the acquired CEO meet those attributes, we'd love to underwrite he or she. If they don't, they don't want to have a leader that does that for ourselves that has those attributes that we're confident in.

But fair to say the more recent deals, the expectation is the leadership of those companies will stay for a long period of time?

Again, we prefer it. That's our aspiration. But if they don't have the behavioral attributes that we aspire, then it's going to be a mismatch, and we'll have a transitionary period of time with the leader.

[indiscernible]

We can't hear you and they [indiscernible]. Exactly on the webcast.

Okay. So I want to be very careful. Obviously, we don't want to talk about any rumors, et cetera. But there's one flying around, I'm sure you guys have like been poked and prodded about it. But to the extent we can at least think about a framework for at least some aspects of the network business because it's not necessarily software or pure software, right? Have you guys helped kind of investors think about, is that a margin-accretive core margin or sub dilutive type of business? We know the growth rate, et cetera. But to the extent you given any details on Neptune, et cetera, can you help us kind of frame how that sits in the core business versus like the rest of the software assets at least?

Yes. So first, I'll comment on any rumors since we're always in the business of buying companies, we can never comment on any rumor because if we comment on a rumor then by not commenting on the next one, we're commenting. So we have to be careful. So we just can't comment on that. The product businesses, in aggregate, which we're talking about, the technology-enabled products business, I mean, they're terrific businesses. They're very growthy and they generate a ton of cash flow, right? So when we did the portfolio work, a couple 3 years ago, the guiding principle of that was how do we beat the cyclicality out of the business. And so we divested our industrial businesses and our tolling and transportation business because they were quite cyclical in their end markets. The businesses we have in the TEP segment do not exhibit cyclicality. So they play an important role in aggregate in the portfolio.

Outstanding. Any closing thoughts?

Yes. No, we're out of time. It's delightful to be here. I would just say we're a business that is focused on, as we talked about throughout consistent and improving cash flow compounding. We have sort of very durable businesses that generate the cash flow, a proven process-driven capital deployment, mid-teens cash flow compounding, aspire to be high teens. Our view is that top quartile to top decile returns over a long arc of time. And we adjudicate everything through what's better for us 7 years from now about that compounding model. So really appreciate the opportunity.

Excellent. Fascinating business model. Thank you, guys, both for joining us and walking us through the update. Thank you.

Thank you, Keith.