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

All right. Good afternoon, everyone. Welcome to the 2025 Oppenheimer Virtual Tech Conference. I'm Ken Wong, software analyst. Very happy to have with us Jason Conley, EVP and CFO of Roper; also Zack Moxcey, VP of IR at Roper. Welcome, guys. Thanks for joining.

Thanks, Ken. Thanks for having us.

Jason, Zack, maybe first off, while I think some are familiar with Roper, there probably is a fresh set of eyes, especially from our tech software audience. Perhaps just give a quick overview of kind of what Roper does, and then we can move on from there.

Sure. I'll try to make it brief. But -- so Roper is a vertical market software and technology compounder and what I mean by that is we compound cash flow in the mid-teens, sustainably over a long period of time. So we're kind of end of 1 in the software space, we sometimes get compared to Constellation, but they have a completely different motion in terms of their decentralized capital deployment and lower organic growth. And so speaking of that, we get to growth in 2 ways. One is through organic growth of our existing portfolio. So we own 29 businesses today that are leaders in their niche vertical markets. We choose small towns because of their protective nature. And with market leadership, that provides like multiple paths to grow and a high rate to win in terms of new solutions that we can cross-sell to our customers. So today, we're sort of in the 6% to 7% range. We think our normal range or kind of if you adjust for some of the items this year, we're sort of in the 7% to 7.5% organic growth, and that converts to around high single-digit cash flow. And really, the second part of that is we take all that cash through and we invest into acquisitions. Same sort of profile that we just talked about leaders in their niches. And we fund that with -- like I said, with our cash flow and a little bit of investment-grade leverage, and we've decided to buy the next vertical leaders. So you get this continuous growth flywheel from there. And then I think it's just a unique opportunity for investors to own businesses that they couldn't otherwise own in the public markets, right? These are sort of great businesses that were in private equity, and we create value based on our long-term investment horizon. And so we have this proven track record of making businesses, buying at a reasonable price and then making them better over a long arc of time. And I think the punchline today that we want to talk about today is we think we can do even better. We're in the early innings of improving our organic growth of the portfolio and capturing more value out of M&A.

Got it. Perfect. And Jason, I want to maybe touch on 2 of the things that you called out. So focus on vertical software. I guess, one, why did you choose that particular pocket of software? There's obviously a lot of great opportunities in the software ecosystem, something like 200-plus public companies and 1,000 privates. And then what's Roper's special sauce to managing this portfolio? Why do you feel you guys can extract this excess value that perhaps wasn't being recognized either in a private setting or in PE?

Yes, yes. Thanks. I mean the reality is Roper has been focused on niche markets and kind of verticalize specialized solutions way back 20, 25 years ago. We got -- but we got into vertical market software back in 2004 with our DAT acquisition. So I mean, what we love about is that we stay close to our customer. We have customer intimacy. So we're really sticky long-term relationships that gives you the high gross retention. And then obviously, just really great business fundamentals that you can -- the go-to-market is a little bit lower because you're sort of -- a lot of it's cross-sell that you continue to invest in product innovation today, like our Application Software businesses are in the sort of mid-teens as a percent of revenue. So you're still investing back in the business, you can still continue to grow. They have wonderful cash flow characteristics. So we love that a lot of our businesses pay annually in advance, so that helps perpetuate the growth flywheel. So I think it's just that we -- and there's a longer reason we got into software that has to do with just buying businesses that were better than what we own, but we sort of got into it that long ago, but it's helped us give pattern recognition on what defines a niche market, how it can't be disintermediated and disrupted and just how protected it is. So we love all the things about vertical market software because of that. I mean I think the secret sauce, it's like a little hokey, but I think it's a lot about structure and culture. And on structure, it's -- we have these decentralized -- the decentralized operations, we think, helps us like our speed co-efficiency is very -- is a competitive advantage. We're typically competing with other small companies. So being able to be nimble and having that high accountability at the business unit level, we think really is powerful. And then when you complement that with the resources we bring to bear with the businesses and sort of this, we're here to support you. We pay you based on growth as there's no like -- there's no shenanigans in terms of them doing things that are sort of incentive based. And so we have the sort of culture of high trust and mutual respect. So I know that sounds hokey, but it really does work. And then like I said, we bring a lot of resources to bear. We're continuing to bring new resources around generative AI. We're doing a lot around that to help our businesses win in that area. We help them with strategy. Just best practice sharing around pricing, our continuous improvement of product velocity. So this has been -- and this has been like a real pivot for us, probably a little above 3, 4, 5 years ago, it really started with getting better talent in place in our businesses and then enabling that talent to succeed as presidents and then as their direct reports. So -- and then I think the other thing is that like it's just all harnessed through our group executive role. So these are seasoned operators that maybe they would go be an operating partner in a private equity firm, but they don't want to sit there and just try to optimize for the exit. They don't want to just be the -- put the hammer down on their presidents on OpEx spend and just grind on them. They really want to think. We're going to own this thing forever. I want to create value. How can I help my presidents and their direct reports, that would be the best that they can be. So that's sort of the punchline, I think, on our culture and secrete sauce.

Got it. So it does sound like it's still enabling maybe a start-up culture as if maybe too aggressively worded, but it allow them to still be what made them successful, but just with the resources of a large corporation such as Roper.

Yes. And I think our maturing leader businesses that we've acquired, we bring a ton of sort of maturity and again, doing it not in a sort of standard way, but just like what are the areas where that's gotten to this point, but it can make them successful in going from like -- going from 50 to 100 is different than going from 100 to 200. So bringing just some disciplines around that where it makes sense. I think it's like really powerful.

Got it. Got it. And earlier, you touched on this transition from your current organic growth rate, say, mid-singles plus to something more aspirational. Can you give us a sense of kind of where you hope organic growth can settle? What are some changes, both operationally and just how you go about your acquisition strategy that you think will help facilitate this move?

Yes. So I mean -- and just to ground anybody on why we're doing this. I think historically, Roper was able to -- they basically get 400 or 500 basis points of TSR through multiple rerate and we're not -- we clearly think the current environment we're maybe undervalued there, but we're not kind of bank as a strategy that we're going to compound through multiple appreciation. So as we looked at how we're going to accomplish and just through cash flow growth, sort of mid- to high teens free cash flow compounding, we said, really -- we never really even asked our businesses to be ambitious. And these are very successful businesses, but we said, just don't go backwards, send us your cash and we'll keep the flywheel going. So that was really the reason. And then like as I mentioned before, it really started with just improving the talent. So around selection, engagement and development, we've been really focused on that for half a decade now. We also aligned compensation. We've always been paid based on growth, but we now have -- we now have instruments that allow the business if they grow above and beyond their kind of normal run rate. And that -- and you have to do that over a 3-year period to basically have a 3-year CAGR of organic EBITDA above and beyond their normal growth rate. They can have significant equity grants. We granted day 1 and then they vest in the third year. And so that gets us like -- that could be like private equity-type returns for these folks. And now really, it's about like how do we make. So now they've got -- we've got the right people, we've got the right incentives, how do we make them successful? And so that's where you'll start to see we have resources at the center now to help with continuous improvement. So we have a Roper Enablement System that we're building out. One of our leaders at our Verathon business is now leading that function, we've hired a couple of people. And we're really trying to be like super pragmatic about which businesses, are they ready for it? Do they need it? Are there other competing priorities? We don't want to like get in their way too much. So we've got like 2 or 3 businesses that are going really deep on everything and continuous improvement. I've mentioned before, we're doing a lot around pricing. So we've got a couple of businesses that are going through an engagement around pricing that we ultimately want to harness and expose that across the portfolio, seeing a lot of just really interesting opportunities there. We just finished 1 with Deltek and it's super encouraging in terms of what that could mean for their forward growth algorithm. And then just I think that -- so that's kind of where we're at in this. And so the point is like when we buy a company, we're trying to sustain -- build sustainable processes and capabilities that compound over time. This isn't like PE where it's just like a onetime surge. And so having our home -- forever home ownership as a competitive advantage is how we think about that. And that ultimately will be going from 7% to 7.5%. We think there's a an opportunity to go to high single digits -- the higher end to high single digits with the portfolio prior to 2023. And then of course, we're buying businesses that are growing a bit faster. So that will just be additive to that.

Got it. And getting to that high single digits, I guess, is there a way to think about how far you can get to that goal with the existing portfolio versus how much will have to be supplemented by things that you guys bring on to the platform?

Yes. I mean I think that's what we really are aspiring to have the sort of pre-2023 -- 2023 and before portfolio, get to that high single digits and then the Procare, there's the Subsplash, Transact, CentralReach, those would all be additive to that number.

Got it. Got it. Okay. That's very impressive. So now you touched on CentralReach, Subsplash. We'd just love some kind of initial feedback, what drew you to those businesses? What have you seen so far in the early days of having those under your wing?

Yes. And just -- I mean, I think our observation over the last 10 years is -- we got the question from investors. And I think it was a very astute question is why aren't you buying some of these businesses that are private equity firms. And I think we just -- we had this sort of -- we were in this period of buying stable businesses, but with -- the math doesn't pencil out that you're not buying as much cash flow if you don't take a little bit of a sort of measured risk and these businesses all have great gross retention just like the other businesses we own, they're just a little early in their life cycle. So it's like first turn in PE is not fully optimized from a variety of aspects. And so we just think it's an opportunity for investors to realize more organic growth and really outstanding conversion to cash as we drive that higher margin and higher EBITDA. We think it's going to be 30% or more versus like the 2018 to 2022 era. That's what we've underwritten and that's how we're sort of tracking. And then just like on CentralReach, it kind of clicks all those -- checks all those things off. In addition to being a great vertical market software business that we have had in recognition around that. It's just a little bit earlier, but we understood the competitive landscape and sort of how it's being formed and how their position was in that. So it's just a great business that has a lot of market tailwinds. So just good level set, it's leader in the autism services space. So it enables workflow and administration of what they call ABA therapy. So we've got 200,000 professionals already using the solution and it provides the care to individuals with -- on the spectrum or related disabilities. And so just from a market perspective, there's a lot of tailwinds there. There's a persistent gap in care between the demand and the supply side. And so we see that being playing out for at least the next 5 to 10 years. The ABA is a standard of care across the autism space. So that's super helpful. There's reimbursement coverage has been established, reimbursement coverage across states and on the commercial side for some period of time. Not a lot -- by the way, not a lot of impact on the OBBB in terms of what that does. Medicaid more -- it addresses more adults than children and obviously, children of the biggest learner population is that's where you can have the most impact on individuals. And then I think just lastly, what we've seen, and it's been phenomenal as the clinics get bigger and get more successful, they end up coming on to our solutions. That's 1 way. And then also if our customers are buying others, then we're tending to win with the winners. So just a great business, and I can continue to go on about that. Subsplash too, it's just -- I think it's another example of buying first-term private equity. We've had a relationship with K1 now for probably 2 years and they're definitely mid-market and they go and they buy from founders. So we are able to by this business, that's an emerging leader but certainly a proven leader within the church management software space, sort of leading with digital and giving and then pulling the church management software through with that. And -- so today, they're serving 20,000 faith-based organizations. There's a ton of tailwinds in terms of how engagement and giving our more value drivers within that space, higher growing than other parts of the space. This is again another example of where we established good relationships with K1, but more importantly, really won the heart over of Tim Turner, who's the founder there. And so he's staying on with the business, and that was certainly helpful to get that process through. We did that on a proprietary basis, feel really good about what they're doing there, and then they have an AI, it's kind of first strategy that will permeate through all of their solutions too. They bought a company called Pulpit AI about a year ago, and they're using that and then Cascade to the rest of their portfolio.

Perfect. Maybe circling back on the organic growth, the acceleration. I think 1 of the biggest questions we get would be with this change in strategy, kind of what are the downside risks? I think recently you guys called out maybe some early execution dynamics of Procare, which you have quickly course corrected. But would love to kind of hear from you guys, maybe what are some of the potential hiccups? What are you guys maybe changing or adapting to make sure that you guys minimize those risks?

Yes. Yes. Thanks for the question. I'll kind of start with what we're doing and then we can touch on Procare. I think, yes, as I mentioned a little earlier, what -- the diligence around the market, how the market behaves, I think, is largely the same. We have pattern recognition around the niche in the vertical and the size of the market, whether it's going to be interesting enough for a major player to come in and spend the capital to get in there to develop product and get distribution. So I think that's pretty much all the same. The only thing I would say is, we're a lot better on market diligence now because we have these investment partners we brought in who came from the buy side, and they really just helped challenge our outside advisers. They're very highly complementary and I would just say, have made us a lot smarter on thinking about markets. And then I'd say also what we've gathered more is the forecasting just much more sophisticated around tying our forecast to a value creation thesis that's going to have multiple levers to realize the growth potential. So we're not like single-threaded on 1 thing. And we do a lot of stress testing on these levers and we bounce it against what we have to believe if 1 of these doesn't work, what else has to index to offset that to mitigate that risk. So it's not complete risk mitigation, but it certainly limits the range of outcomes a lot more. And I would just say, lastly, we're much more aggressive now on people and process. Sometimes it's hard in diligence to get in there, but we're really making a point to get in and have -- we have some diagnostics. Again, we have pattern recognition around just how management is responding to certain questions or how we perceive some of their systems and processes, how quickly they can get information back to us to know that, "Hey, when we kind of risk score that and we have countermeasures like on day 1 so that we can help supplement those resources where there may be some gaps. And so that's on diligence. I think on execution, we built up functional expertise over the last year across PMO. I talked about that Roper Enablement System. There's PMO capabilities in there. We've added some really strong folks on finance and accounting and cyber. So really, the goal is to do like a full court press in the first 100 days to assure the teams are focused on the most important value drivers, and we provide the resources where needed. And I'd say just on Procare, we did not get into the people and process fast enough. I mean you have to remember, this is our first maturing leader. And so I think we got the strategy -- we got it right 100%, like we feel -- I feel better about that business today than I did a year ago in terms of like their right to win in that market is really strong. There's like 1 competitor that's -- it's okay, but they've had -- they've actually had 1/3 of their workforce laid off. So they tried to do this like just crazy go-to-market motion, but they've had a lot of folks turn out because the product just isn't as good. So I think just in that time, too, we were like straddling the old and new way of governance around being differential to our company's CEO, and she was a little unwilling to help, and that put us behind a little bit. So I think the good news is we've applied those processes now that we have for Transact and CentralReach and now Subsplash. And so they're all tracking Transact and CentralReach, obviously, CentralReach is early, but they're off to a great start. We feel good about their performance and trajectory.

Got it. Okay. Perfect. And took -- it probably took me longer to get here than expected. But 1 common question across every company that's presented today is obviously macro. You guys are both extremely diverse. So arguably more resilient, but then also all sorts of potential macro risks that could surface across 29 businesses. So would love to just hear what you're seeing macro-wise in terms of impacts on your businesses, things that may be are a little more urgent that you're focusing on? And maybe where maybe things are overblown?

Yes. I mean, I think we've tried to highlight on our calls, like the big sort of lagging from an end market perspective has been our Deltek government contracting space. Having said that in the last call, I think we're really excited about what OBBB can do for the business because, first of all, we've had 2 years of somewhat malaise. So we know there's some pent-up demand in the second. The mix -- both the volume that OBBB provides and then the mix of where it's going to go, plays right into the strengths of Deltek.com because it's more cost-plus contracts, is going to defense. We're like tracking project accounting is like super important. It gets audited. It's not just for profitability tracking. It's for actual compliance reasons. So just feel good about that. It's just been like -- the question is on when that's going to free up, but we know it's there. We know it's going to happen. DAT, the freight market, it's been a very, very long freight recession. And obviously, we're not one-to-one with that business, but it's -- and we're still -- we're tracking sort of mid-singles right now, but that business is a double-digit grower. So that's just been -- we're waiting -- we've been bouncing on the bottom from a carrier perspective. Brokers have been fine too. So we've been kind of realizing more on price to get us to that mid-singles. We think that we'll exit the year a little bit higher than that. And then if we get any cooperation from that market in terms of freight, then that will do better. And then our Foundry business is starting to rebound from an exceptional situation with the writers and actors strike. So that's been just challenged but certainly trending in the right direction. We think it's going to have positive growth in the second half. And so that will be good. And then I think just like health care generally has been strong. Our solutions are kind of on the right side of the equation, especially when you think about Strata, managing costs in the hospital, super important. Insurance has been great. So that's a very fair insensitive business to the macro overall, both at Vertafore pipeline. I'd say education has been pretty -- it's been very good on the higher ed side. I think K-12 has been a little softer with some of the -- just the noise going on where the money is going to actually ultimately transfer from the DOE to other avenues. But those -- yes. So those are probably the 2 areas, Deltek.com, little bit of K-12 and then nothing worse at DAT, just nothing great right now.

Got it. And I guess on the freight market, it looks like you guys at least are somewhat validating comfort there. I saw a recent acquisition of Convoy, not sure to what extent you can comment on that, but love any early feedback in terms of the -- maybe the intent, what you guys see as a synergistic there?

Yes. I mean we're really excited about DAT. We talked about this a couple of years ago in terms of like that's a great platform for us to do more value-added acquisitions. We haven't done -- we've only done 1 in the first 20 years of ownership. And so we bought Trucker Tools about whatever it is, 9 months ago, and then we acquired Alco last quarter, first quarter, and now Convoy. So it's basically taking DAT that used to be a hitching post, a craigslist, literally like no transactions. It's just a way for parties to get together and figure out what they're going to do off the load board, right? It's just a way for them to -- it's information sharing. They pay a subscription. It's a super great business, but how do we essentially turn this into a marketplace where transactions can happen, a carrier can get its financing that it needs for a load throughout go. It can -- brokers can now track carriers in the marketplace via the Trucker Tools solution. And now brokers, because -- I mean, this is like a really good time for us to do this Convoy acquisition because the brokers are really trying to figure out how to save -- cut costs. And so you can do that through certain loads or they can automatically match them for more simplistic loads, and that's -- Convoy brings that capability to a broker that they didn't have before. And just for background, Convoy was owned -- it was -- its own brokerage and that failed because you need neutrality in that. If they're -- how could they sell brokerage solutions to another broker like that doesn't work and DAT is the ultimate Switzerland. So we just -- we're really excited about what this is going to mean for the business long term. There's obviously quite a bit of integration work that's going to go on and -- but this just leaves us forward a lot. And it doesn't come at the expense of the load board. There's always going to be a need for both of those solutions within the spot marketplace.

Got it. Okay. Perfect. Sounds super exciting. More to look forward to there. And then on the topic of M&A, you guys have consistently called out the $5 billion of capacity. Maybe just refresh us on kind of how ambitious you guys are looking to approach the market, kind of why you feel comfortable with the pipeline? Obviously, lots of puts and takes in the markets right now, but would love your view on how attractive the environment is.

Yes. I mean it's been just -- it's kind of a weird environment for the last couple of years, as you know. And so I think it's been interesting for us because we've had the opportunity to have proprietary looks in portfolios that other PE sponsors wouldn't have. And the reason for that is that we -- we're not really -- like if we end up taking a peak of a deal and doing a few weeks of work and then saying, no, it's not looked at as a failed process. Whereas if another sponsor does that, it kind of gets out into the market and then that can kind of like junk -- it makes the -- it sour -- it make the asset sour in the minds of. So then it's like they can never sell it. So for us, it's like -- there's quite a bit of abundance. There's been a log jam for 3 years. It's -- we think it's going to emerge at the end of this year and maybe early next year. But right now, it's really interesting for us because we're getting some unique looks. We have a couple of big ones right now that could -- it might happen or might not. But it comes down to price, too, of course, just being super disciplined around valuation and paying relative on a sliding scale of growth. That's always an important part of this. We also think that some interesting deals where great business, but the AI opportunity is actually not as interesting. So it's not necessarily they're going to go out of -- there's 1 business we look at is super, super sticky. And I don't see them getting displaced by AI, but we also know that they don't have rights to -- any rights at all to even use the customers' data to even improve the product because the nature of the end market is so risk averse. And so we said, well, that's not interesting at all. So like that's not going to be a growth catalyst, so we walked away from it. So it's just an interesting time as we look at deals where certainly our AI lens on both the opportunity and the risk is much higher than it used to be.

Would you say that, that AI lens has intensified over the last year, 1.5 years, or that could arguably be a deal breaker in some of these transactions out?

Yes. I mean it's intensified. I think we've always been looking for ways that a business can be disintermediated. And I think we've been obviously in the AI -- gen AI flow of -- in knowledge flow and where it's going for the last 1.5 years. So I wouldn't say it's intensified. Candidly, there -- as you know, there hasn't been many assets that we've transacted. So it's like we quickly can understand that maybe something is not going to be as attractive and sort of -- because everybody puts gen AI in their sales slides now, and then you've got to click down, you got to pierce through like what the real substance of that is. But yes, I'd say it's been on our radar for 1.5 years to 2 years. I wouldn't say it's intensified, but we're probably getting smarter, if anything, yes.

Got it. Understood. And another question that comes up a lot on this particular topic, and it's obviously a very fluid market, but is a open IPO window closed IPO window, I mean, should we view that as good, bad for Roper?

I'd say just sort of indifferent because most of what we're acquiring probably is too small to go public. I mean, especially if it's owned by PE, I mean, we've seen how that doesn't really work out too well. They don't -- they have that overhang and it's kind of dead money. I saw MeridianLink finally got bought today. So that was a ton of Bravo business had been out sort of languishing for a couple of years in the public market. So I just don't think it's especially in the sponsor world like doing an IPO is very attractive, especially for the types of things that we would be interested in.

Got it. Okay. Perfect. And this is kind of building on that prior topic. But I guess what is your kind of the Roper view on AI? How are you guys rolling that out across your various business units? And then obviously, from your seat, any thoughts on internal use cases? Like, how does that potentially translate to leverage for some of these businesses that you guys are looking at?

Yes. I mean, I know it's like every company says this. Everybody goes, yes, I don't believe you, but, we're all going to be winners, right? So -- and then certainly, obviously, across our portfolio, there are some that are more at risk, we've talked about Foundry than others that have a tremendous opportunity like Deltek. Luckily Foundry's orders of magnitude smaller than Deltek, so we feel good about that. But we do think -- I mean, we have all of our businesses right now going and looking through their value chain and how the value chain is going to change over time. And really, it just points to this like massive TAM expander for us if we can replace or augment labor with agents. So I think we're excited about -- the pace of innovation is picking up. The pace of learning is picking up across the organization. AI mindset shift is happening. I mean, we're quite decentralized in our operations, and I talked about all these resources. But on this one, Neil is definitely leaning in much more. And I don't think the presidents are getting annoyed with it. Like he's setting stuff every Monday, I'm like, here's some thought leadership. Here's how you have to think about things. So we're not being prescriptive, but we're certainly providing a wealth of information that we get the benefit of sitting in our seat, we're spending a lot of time with venture capital like we went out to meet with Andreessen Horowitz a few weeks ago, we have constant dialogue with them. We've had an MIT learning day for all of our presidents who went out to MIT and did a whole day through that. So we're just -- I think it's -- we see a lot of opportunity of selling products separately, be it like a CentralReach said that today, Aderant has their own solutions that are separate. ConstructConnect has its own takeoff solutions separate or like this halo effect modernization and other places like -- now we'll put all -- the only AI features in the Deltek cloud. So these stubborn government contractors are going to have to finally get off the on-prem solution and get to the cloud. So we'll have sort of like an accelerant a blip there or even Hatteras being able to cross-sell things that are AI today but are going to be AI faster. So they're sort of tracking that. So -- and then internally, I think when we're doing more of these like learning 7 hours, but Deltek -- the CTO of Deltek did 1 a few weeks ago on productivity and some specific use cases using Quadcode and like they're going to have a product, they were going to release in 1.5 years that now looks like it's going to be first half next year just because they've been able to get the MVP out, iterate on it, like just continue to use the modern kind of code development. I think the 1 area that we're still -- we really are trying to figure out is how to refactor code and rewrite it, like we've been using quite a few experience with quite a few solutions out there. And I think we're positive that it's going to happen, but that's taking more time than we would like. So that would be -- that's a real important part is getting everything into a modern code base and refactored. But yes, we think -- I mean, the way we're thinking about it right now, I think it's probably going to be a little bit half and half how this plays out, but Neil's instruction in the business like take those productivity gains and develop right back into the roadmap or wherever you think the investment needs to be to help accelerate growth. I think realistically, we'll probably see a little bit of margin expansion as well because it will be hard to do that all at once. But that's certainly what we're telling our businesses is to the extent you are seeing productivity like get after that roadmap faster than you normally would be able to.

Got it. And I realize I was negligent on seeing if there's questions from the audience. If anyone has a question, feel free to send it through the portal or shoot me an e-mail, [email protected]. And I'm not sure if there is a raise hand function, but if there is, feel free to go up that route as well. And then while that gets sorted, I guess 1 more thing I'll kind of ask you guys more on a near-term basis as you kind of forge our path towards accelerating organic growth, and you talked about seeing an -- projecting an uptick in the second half. What are some of the factors that are going into that math? How much of that is mechanical? How much of that is execution on your end?

Yes. I'd say most of it is mechanical. We have a little bit setup -- a better setup for a comp in both our TEP segment to a lesser extent and our network segment and the networks more for the second half, Q3 more for TEP. So I'd say it's mostly mechanical. We had good second quarter bookings that help support, I'd say, our second half versus anything else just when you take the first half in general and our first half bookings that supports the second half. So yes, it's mostly mechanical. I mean, DAT and Foundry will continue to get better. Some of that's mechanical. Some of it's just getting like better growth, too.

Got it. Perfect. And just do have 1 quick question that popped into the clarification. I guess as you think about growth coming in to the extent that you end up on kind of above expectations, is there a situation where that upside trickles down to margins? Or is that something better suited for reinvestment?

Well, I would say it's -- if we end up having higher growth, our standard sort of framework on incrementals is 45%, it's probably going to be more like 40% to 45%. I say that sort of in a pre-AI lens. With AI, it could be back to 45%. I'm not a perfect forecaster for 29 businesses, but that's sort of -- I think that's how we thematically think about it.

Got it. One other question here, you guys typically have -- again, you talk about it in forever home terms. But again, lots of unknowns with AI. I guess, to the extent you guys determine something might be a little more at risk than maybe initially anticipated? I guess what -- any thoughts on -- is there going to be a quicker hook for? Do you guys approach it with divestitures in mind? Like how do you think you go about troubleshooting 1 of those types of scenarios?

Yes. I mean it's a good question. I think we -- because when we get to this, is there even a market for more kind of dilemma. The only thing I could say is that our businesses in these niches can be really creative on ways to continue to capture value and not have like something go out overnight. And I'll give you just a -- this is like a prior portfolio example, but we used to own a business called TransCore's in the tolling traffic space. And they -- the cost of an RFID tag was going down with ASICs like Moore's Law was definitely taking over that space. And we were able to sort of manage that cost decrease in a way that we still were able to eke out sort of low- to mid-single organic just on pricing, packaging, optimization, contract negotiations. So I -- and then we did that for 12 years. And so I think it's like you can be industrious around this. You can continue to innovate in other ways, I think, like a Foundry has got multiple products, like a Foundry just comes to mind, but like we're still going to be indispensable for a long period of time. So my preference would probably be this is so small, would be to ride that out and optimize value versus trying to do some sort of exit in. Obviously, it's decretive growth, but it's the right sort of -- I think about it just from a peer MPV standpoint at that point.

Got it. Perfect. And then last question for me. Look, I think the -- maybe the biggest concern for constant kind of free cash flow compounders is maybe you kind of run out of runway in terms of stuff to buy. I guess what's your view on that opportunity set? I think 1 of your -- you mentioned Constellation earlier, granted they were talking about from a longer-term time frame, but maybe that they were kind of exhausting some of the opportunity on the software side out there. Yes, I would love just your quick view on how that could play out.

Yes. Well, 1 thing that's true is that the market of opportunities is never constant. Like, there's always new things coming in. I mean, there was a business that just got acquired a couple of weeks ago that we looked at, a public company acquired it. And we never -- I mean, this thing got to $100 million of EBITDA, and we didn't even know about it until by 6 months ago. So it was a founder-run business and everything. So I always see this thing as being as long as there's entrepreneurs out there and there's capitalism that we'll continue to see new deals, I just don't think -- it's never -- that has never been -- I've never lost a minute of sleep over that in the last, say, the last 10 years. There was a point in time where I was a little -- I was a little concerned about it because our -- some of this was like our filter was so narrow like management had to convey and all these other things, but we've opened the TAM up but also open the opportunity up. So I just see -- we just have more opportunities than we can ever execute on.

Got it. Perfect. And with that, I think we're right up on time, Jason. Again, thank you for participating. Zack, really appreciate you taking the time out of your day as well. Hopefully, you guys have another kind of set of meetings that will keep you busy. But best of luck to you and appreciate the audience for dialing in.

Yes. Thanks, everyone, and thank you.

Thank you.

Bye guys.

Bye-bye.