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

All right. Well, good morning, everybody. My name is Joe Ritchie. I co-run our industrials and materials research. I know odd to have me at the tech conference, but I do happen to cover a company that is mostly a software company called Roper. So we're excited to have Roper here today. With me today on stage, we have President and CEO, Neil Hunn. We also have the CFO, Jason Conley. Guys, thanks so much for being here today.

Thanks for having us.

So why don't we kick it off, Neil. There's still probably some folks in the room that are still getting to know who Roper is. So why don't we start with the story? What are the basic tenets of the Roper business model? And how do you compound cash over time?

Sure. And thanks for having us. It's great to be here for all these years. So Roper, $8 billion business, principally vertical market software. We consider ourselves a software compounder. So we run a sort of dual threat offense. The dual threat offense is a sustainable and increasingly -- or always increasingly improving organic growth rate. I'll come back to that in a second. And then we run a very structured M&A motion. So dual threat about cash flow generation on the organic side and capital deployment on the M&A side. On the cash flow generation side, it's, as I mentioned, $8 billion business. It's 29 P&Ls. So 29 businesses. That's a very decentralized org structure because we need each one of our businesses who are the leaders in their vertical market to compete and win in that market. It's a high-trust autonomous structure. We have 29 of everything, 29 leadership teams, 29 strategies, 29 ERP systems. They're organized around speed and the speed coefficient and accountability. And that generates the cash flow a little bit north of 30% free cash flow margins in the enterprise. And then we have a very centralized capital deployment structure to go find the next best business to put into the portfolio or the next best tuck-in or bolt-on acquisition to integrate into one of our existing businesses. When you put it all together, we're a mid-teens cash flow compounder. We have aspirations to become a high-teens cash flow compounder or take our rate of double from every 5 years to every 4 years, plus or minus. So I know you're going to ask a lot of detailed double-click questions from there but...

Yes, let's double click. So look, that's great compounded growth over time. Just talk about why this has been the right strategy for your company, how the strategy has evolved. And then we'll get into -- like there's been a lot of -- there's been plenty of success stories, but maybe just give some examples so there's some tangibility to why this has worked.

So our history, I mean, we grew up as an industrial compounder, as you know...

That's why I'm here.

And we closed that chapter of the transformation in November of 2022 when we essentially divested 40% of our business in a series of transactions to become a -- principally a vertical market software business. But what's been consistent across Roper over the arc of the portfolio transformation is a decentralized structure, having businesses that are leaders in small markets, having durable sort of organic growth, having -- continuing to invest in the talent and the people and the skills and the capability to drive enhanced organic growth in the top line that leverages to the bottom line. Also what has been consistent throughout is a very centralized capital deployment structure. So what's changed is the nature of the portfolio over time, not a lot of the underlying sort of capabilities but as we became definitively more growthy 4 or 5 -- 5 or 6 years ago is we built capabilities at the center to promulgate best practices around talent and team, how do you do strategy really well, how do you run a structured operating environment, increasingly, how you think about using principles of continuous improvement. Now obviously, a lot around artificial intelligence. It's sort of the, if you will, the pattern recognition that we have at the center and then we promulgate those throughout. I'll ask Jason to add a couple -- some success stories. It's really about each business getting a little bit better. So we have a business in the legal vertical, the business of law. That Aderant has gone from sort of a mid-singles to a low double-digit organic growth business. Gross -- net retention has gone from the 103, 104 to the low 110s over time. We have a business in the energy utility space, PowerPlan, very sort of esoteric accounting tax sort of software for a very complicated customer base. We underwrote that business when we bought it 7 or 8 years ago, -6 or 7 years ago -- 5 or 6 years ago, I should say, in the mid-single digits, it's very much a high single-digit organic growth business. Our freight matching business, DAT has been in the portfolio for almost 20 years. It was sort of a market -- a transportation market growth business. Now it's very much a high single, if not low double digits organic growth business. So it's about just slow, methodical, systematic improvements to market position, product capabilities, go-to-market capabilities that drive that result.

Yes. I think the other thing that's evolved, just to your earlier question, is on the M&A motion. And so we've invested in significant capabilities at the center to do a lot more sort of deeper dive market research. So we brought on some folks from the buy side. And that's just enhanced our capability to get more proactive, both on the platform side, but importantly, on the bolt-on part of our acquisition strategy. So historically, where 10% of our M&A was towards bolt-ons. We just see a tremendous opportunity now that we have -- Neil talked about talent as one of the things that we've spent a lot of time investing in our field leadership. Now that we have the right talent, we have an inorganic strategy for all of our businesses. So most of them are now turned on for bolt-ons. So we would love for that to be 1/4 to 1/3 of our M&A going forward. It's only constrained by the ability of management, but we think there's a ton of opportunity to increase the organic growth of the platform. That's super important. So we're not just doing a buy and build, our multiple arbitrage strategy is to sustainably have a higher growth set of platforms. And you're obviously going to get some synergies, back-office synergies from those deals, too. So they are our best-returning deals. So that's the other part that, I think, has been a significant shift over the last 5 years.

We're going to get to the bolt-on piece of the story in a minute. I do want to ask you like maybe in light of the Procare of the past year. When things potentially go sideways, what do you guys do? What's the governance process to course correct? What are some of the actions that you guys typically take?

Maybe I'll sort of set the table and let Jason sort of add some -- a lot of details and color. So as we deploy capital, we very much are slope investors, right? We spend a lot of our diligence sort of understanding market structure, competitive intensity and the slope of the growth rate. If there is a mistake that we make from time to time is we might get the intercept wrong, right? So in the first year, we might undershoot our model for revenue by a little bit. The good news is we also probably overshoot sort of spending, so margins come in a little bit higher, so cash flow is closer to being on plan. So we spent a lot of time trying to get the root cause about why that's there. But rarely do we have a slope problem where if we underwrote 12% growth business, it's 7%. And so in Procare's case, this is a short-term sort of intercept, if you will, operational challenge that we talked about in the last quarter. The slope, we underwrote to mid-teens growth, and we very much believe it's a mid-teens growth business. But why don't you get into some of the intercept problem?

Yes. I think -- so obviously, Procare was the first deal, and it's a tremendous business. They've -- one of the things we talked about when we first bought is we had to make some changes on the go-to-market leadership because part of the some of this was going down market and competing there, and we are now having success there. We had our best bookings in their company's history in the second quarter, but it took a while to ramp that team. So that was sort of one factor. The other is just we have -- now we have a value creation team as myself, Janet Glazer who heads up M&A; Shannon O'Callaghan. So we are super focused on whether management is going to be able to hit the expectations. So we're having just much more tighter governance around that. And that really starts with diligence. So just our signals are there, and we do countermeasures, probably much more rapidly than we did before. And so since then, Transact, our CentralReach business, Subsplash, we're just -- our process is super refined now. And so we feel really good about where we're headed with that.

Yes. And so maybe just digging a little bit deeper into the governance process. I know that you have business-specific EBITDA growth metrics. Talk a little bit about how you ensure that you're hitting those metrics. And again, we talked a little bit about course correcting at times, but you've had a good repeatable process and good track record over the last 2 decades. So just -- maybe just for the benefit of...

I think governance is a -- a lot of people like, what is government. There's like this ethereal, what is it? So I'll try to put the subcomponents to it. First is, I think very important to our governance structure are the leadership -- the innate leadership attributes of the people we have running our businesses. And so we select people that are hypercompetitive, that are insatiable, curious learners that think super long term and can bring that into the urgent today and then are just totally geeked out to build things, right? So we -- those are -- they're either in your DNA or they're not. And so when you have a competitive builder, learner, long-term-oriented leader that's the beginning of the governance system. The second thing is, we couple that with an incentive system that is totally aligned with growth, organic growth improvement, shareholder value creation. In our case, it's very simple. It's based on organic EBITDA growth. Now that might sound like a very simple idea, and it is, but we have -- there's no compensation in Roper tied to budgets or plans, which is unique to most enterprises. In our case, if we -- and I think this goes to more of a cultural thing than anything else in that if we did provide compensation based on budgets, then every year, we -- all 29 leaders would have an incentive to lie to us, and we'd have a filter not to believe anything they say. And so in that case, everything is construed around sort of compensation. In this case, every company is on a curve, the curve has not changed, a growth curve. And if you're able to get sort of into the money and you're earning 150% or 175% of your target every year, year in, year out because you're above the high end of your growth curve that's awesome and are not going to move the curve. So the incentives are totally aligned. And then as it comes to these new sorts of either early -- maturing leaders or higher growth platform businesses or bolt-ons, now we have very prescriptive value creation drivers that are identified at the point of acquisition. So in the first 12 to 24 months, there's very discrete value creation levers that are being pulled, and we have much tighter accountability and governance around that. So it's layers upon layers upon layers and the execution has followed as a result.

Got it. Maybe we'll just touch on the maturing leaders and why that's the correct strategy. It seems like a pretty good unlock, both top line and bottom line, but maybe walk through your thinking.

Yes. It goes back to the opening statement where we aspire to go from the mid-teens cash flow compounding ZIP code to the high teens. And so we're hunting for 300 or 400 basis points of cash flow compounding, which we think then will accrue into TSR and shareholder compounding. And we looked at all the options available to us, the full menu of strategic options, we settled on 2. One is improving the organic growth rate of the portfolio by 100, 150, 200 basis points. And then I'll simplify it by saying capture more value from our capital deployment sort of strategy. And so on the maturing leader side, so on that branch of the tree, we found that there is -- versus our historical legacy, we'll call it business as usual, buying near perfected businesses at [ garp-ish ] sort of prices, there's between -- there's 30% to 40% more cash flow that we get in year 5, deploying a bolt-on strategy or buying a business that's growing a bit faster, has margin improvement opportunity than there is BAU. So we get a couple of hundred basis points of cash flow compounding in the algorithm by running that strategy. And it's as Jason said, 1/4 to 1/3 will be tuck-ins or bolt-ons in the model and the balance will be these faster-growing businesses. Subsplash would be a good example, our most recent acquisition of church management software space. It's a high teens organic growth business and its margin profile will go from the high 20s to the low 40s over a 3- to 5-year period of time as there's some very discrete cost actions that we can sort of levers we can pull as well as it's going to scale into its revenue base, and it will drive sort of the double whammy or double benefit of not just top line but bottom line growth, so you have mid- to high 20% cash flow EBITDA growth in that business. So there's a lot more value creation there than there is from the business as usual strategy.

I think what's important to highlight though, these businesses are still in niches, and we have a clear understanding of where -- the kind of how the market is going to perform, right? That's usually still like 2 or 3 players in the space, and there's no -- it's too small for sort of larger player disintermediation or interest in the market. So I think all the patterns of the things we bought for the last 15 years are the same. It's just earlier. And we have -- again, we've seen the story book long enough to know that there's not any sort of risk on the horizon. So we're not underwriting sort of market risk. We just think there's an opportunity. And most of the time, it's the fact that whatever that industry has not digitized yet. So we have white space to digitize otherwise pen and paper type solutions that the customers are sort of behind the technology curve.

Got it. No, that makes a lot of sense. You talked a little bit about 150 to 200 basis points of potential organic growth expansion versus your historical, call it, 6% to 7%. Can you do that with the current portfolio? So you talked a little bit about getting there with additions. Are there maybe some subtractions as well to help try to drive that growth rate?

I think -- let me sort of break that down. So our -- if you look back at this portfolio 7 or 8 years ago, this was a mid-single-digit, 5-ish percent plus or minus organic growth business for the current fleet -- the current assets we have today, excluding the divestitures. We've improved that into the 7%, 7.5% range sort of through cycle. And we think there's another 100 to 150 basis points of opportunity as we just operate and optimize the product portfolios, not the company portfolio, but the product velocity and the go-to-market strategies. And each business has very bespoke things they're doing to do that. It's the whole operational sort of organization, our operating executives, all 29 leaders are focused on pulling that lever for sure. Now we are buying businesses that are more growthy. So when you look at Procare, Subsplash and CentralReach, the last 3 platforms, I think plus or minus, they're about 80 basis points accretive once they become organic to organic growth rate. And so in a perfect world, they stack on top of each other. The reality is there's probably a little bit of hedging between the 2, but sort of skid our chain on sort of the very high end of the high single-digit organic growth range.

That's helpful. So clearly, something that's unique about Roper specifically and probably to a lot of folks in the fintech world is the fact that you do so much M&A, right? Talk a little bit about your sourcing process, talk through like the pipeline. One of the things that has come up numerous times over the past decade of covering you guys has been like when are they going to run out of room, right? So maybe just kind of talk through your process and why you believe you've got plenty of runway from here.

Sure. I mean there's multiple vectors. First of all, I would say the market is never static. There's always some product market fit. Somebody -- some founder figured something out that we're always just wowed that just came out of nowhere. Next thing you know you've got a $100 million EBITDA business that some founder...

In a niche -- you didn't even was a niche.

You didn't even know was a niche, so I'll start with that. I think we've always had a motion to have conversation with sponsors about the portfolio. I'd say we've gotten much more sophisticated around that. And so not only at the sort of the large sponsor, but the mid-market sponsor, we're having a lot more conversations with both the principals there, but then also more importantly, the management teams. And so -- and in this period, we'll probably talk about what's happening in private equity right now. We're getting a lot more looks to and access to management. But it's really about getting up to speed on the business, developing relationship with management, specifically the CEO. And because they -- ultimately, they want to come work for a place where they're going to like where they land. They're going to -- they know we're going to invest. So we've become a good home for a lot of these businesses. And if the CEO has a say in it, which is more times than you would think happens then we're going to have a good shot at the business. So that's at this sort of platform level. And then on the -- I started talking about this a little earlier on the bolt-ons, it's developing an inorganic strategy and then working closely with management, the M&A team working closely with management on a cultivation process. How are we going to outreach to that founder? We're going to go to a trade show. We're going to start to talk about how the benefit of coming to selling your business to Roper is going to be wonderful for you and your employees. And so that motion has been going for the last 2 years, and we're starting to see some benefits. It takes time. The first one we did with Neptune that was a software company, and we've been cultivating that for 2 years. So -- but that's a super important part of the strategy. So anything you want to add?

Just the punchline, the headline, I'd say, is of all the constraints in our compounding model, the availability of assets is not one of them. I mean we're $5 billion a year in capital deployment. It compounds, 7 years from now, it's $10 billion we have to deploy. So it's the equivalent of running a $20 billion or $30 billion private equity firm in terms of scale of what we have to deploy, and it's a drop in the bucket in terms of the assets that are in the marketplace.

How do you guard against getting the right -- like getting the wrong assets?

Yes. So we've alluded to it through the conversation, Jason certainly did. So in our case, again, we're looking for leaders, the leader in a small market. We're looking for the competitive intensity is low. So oftentimes, we have 1 or 2 primary competitors. We're looking for the basis of the competition is identifiable. And so if there's -- if we identify zeros in the Monte Carlo -- if we can't answer those questions and there's a 0 in our sort of mind in the Monte Carlo, we're out because we can't afford to have nothing go backwards. We can afford for something to go a little bit slower than we thought. We cannot afford in a compounding model for anything to go backwards. So we're really tuned to be existential risk identifiers, and it's not a valuation question. It's we're not going to buy the asset question. And so that's how we think about that.

Fair enough. Subsplash is interesting for a variety of different reasons, the least of which is that you're selling into 20,000 religious organizations. I never thought I'd be covering an asset that was selling into that group. But also because you talked about the financial projections where you've got strong double-digit growth, this really massive margin opportunity within the company as well. When you look at the pipeline of deals today, like how unique is Subsplash versus what you see across the pipeline?

So I think the -- the attributes are not that unique in that you have a market that is -- that has for whatever set of reasons, a market -- the market is growing 10% to 15%. The reason the CentralReach market and autism therapy software market is growing at its pace and Subsplash growing at pace for different reasons, but they're structural and they're quite long term. The fact that the business is the leader in a category or the space, and they're using their distribution advantage and their scale against the competitive set to drive product velocity is common, but the exact product road maps and product features are different. And so those are -- that's essentially what we're looking for in terms of the acquisition, the attributes. The specific details are very different from deal to deal.

And then because you did make a recent acquisition with CentralReach, do you want to maybe just talk about some of the proof points there, the early proof points on how that's going?

Yes, sure. So CentralReach is a leader in the autism space. So we provide ABA therapy to hundreds of thousands of...

We don't provide the therapy, we're the software for it.

Software to provide therapy to millions of patients or they call them learners. So it's a leader in its space. It's definitely had just a tremendous success so far. I think what we talked about during diligence or when we announced it was that the supply-demand imbalance is there, and we're seeing that. So the growth in seats for the therapists has been tremendous. Importantly, too, we talked about the AI opportunity at CentralReach. They had launched new AI products probably a year before we acquired them. And so the cross-sell, both the direct cross-sell of the AI solutions has been just on track, if not a little better. And they're also getting a halo effect because of the AI kind of first positioning in the market, they're starting to attract new logos as well. So they're winning new -- they're gaining share. And so on all metrics, they've really been tracking gross, net retention, new logos, it's tracking on plan and margins have been flowing just as we thought they would.

So it took 23 minutes before AI was actually said in this discussion, but it's a good segue. Clearly, a lot of focus on whether it's an opportunity or a threat. So why don't we start with how you're thinking about the opportunity versus threat perspective and then we can get into the specifics around like what you're doing internally.

Happy to do it. Well, I'll first say it is an incredibly fun and exciting time to be in technology and leading a larger vertical market software business. We've come to conclude, and we try to be as objective as we can on this. We've concluded that this is just a huge TAM unlock for us and as a result, will be a meaningful growth driver for us. The magnitude and the timing is still very much to be determined because I think all software changes go a little bit slower than what the initial hype would suggest. The reason that we like it is we're -- and I think most people will agree with this conceptually is we're fortunate to have a vertical market software portfolio. I'll start with that. It's better to be lucky than good. Back in 2008, when we did our first software investment, happened to be in a vertical, and we continue with that trend. Why is that important? So we have enormous -- and it's also important to have a portfolio of leaders. So we have leadership. We're vertical oriented. So we have enormous data advantages that are very, very specific to very small slivers of the economy, and we have massive distribution advantage. I think unlike other technology disruptions, Internet, mobility, cloud, where innovators dilemma reared its ugly head, the incumbents thought that next technology wave need not apply to them so they gave all the start-ups a huge sort of advantage timing-wise. I think incumbency in this case matters a ton because we were sort of -- well, the incumbents were donated speed by the technology, right? So we can develop just as fast as a start-up, but then we have distribution to put it into when the start-up was not donated sort of distribution or customer base. And so it is a very, very exciting time for us. The other thing is, one of the things we've invested in, just going back to that growth opportunity, the TAM potential is to be selected to be part of the Roper portfolio, we're buying leaders in small markets. So by definition, we're constrained by TAM. Like we like the constraint because it's protective. But now we've got the opportunity to sort of have software eat labor and sort of upstream and downstream from what we do. So it's hugely TAM expanding. And we have, we believe, an enormous right to win, and we're getting after it. I'm sure you're going to ask questions about how we're getting after it.

Yes. We're going to talk about that, but I mean, it sounds to me like you're not concerned really about any of the horizontal players coming into the space and trying to encroach upon any of your businesses because...

That's been a -- I mean the horizontal or vertical debate, I think, has largely been asked and answered historically. I mean it's the -- if anything, I think the market is getting more verticalized, not more horizontalized because of the data advantages, the workflow specificity, the very bespoke questions, like answers or problems are solved. I'll give you like a very simple example, like a generic question or problem is how you create a professional services bill accurately. That's a very generic unspecific problem that a horizontal player will sort of try to address. What we try to address is how do you create a King & Spalding bill to Roper Technologies in the legal space that's compliant with how Roper pays for the month of August. It's a very specific problem that's a snowflake of complexity that our software solves. And I just multiply that times all the various verticals that we have. It's -- we're not -- we haven't seen sort of horizontal encroachment in any -- if anything, it's the other. At the very, very, very tippy top of our markets you might see horizontal players and they're generally slowly being displaced by us or our competition.

That's great to hear. Look, you guys called out CentralReach just a couple of minutes ago is already having some AI-enabled products. On your recent earnings call, you were highlighting Aderant. Maybe just talk about where you're seeing some wins on the top line. What is the opportunity here?

Yes. So maybe I can set the table, and then I'll have Jason sort of talk about that. So this is one of the advantages, I think, of being part of the Roper enterprise. So again, 29 relatively small businesses that have a huge right to win. But what's happened over the course of the last 18 months or so is, and again, we're built for speed because we're divided by 29. So -- but once -- but we got to prime the pump. So once the pump is primed and it becomes the front of the prefrontal cortex for all of our leaders and their team, then the engine just sort of runs itself, but we've got to prime the pump, and we started doing that 1.5 years or so ago around AI, really sort of turned up the pace this year. So we've asked every one of our businesses has fundamentally re-underwritten or reimagined their entire business model to the AI native. This isn't like incremental thinking about fast forward 1, 2 or 3 derivatives out from a customer value chain point of view, how your customers -- industry can be reshaped, how can we do the reshaping, how can we drive product there. Same thing on the internal productivity front. And so we have very clear vision and direction of travel to be AI native for all of our businesses. We've certainly made it easier for them by doing enterprise layer agreements, so they don't have to worry about contracting with the large models or the Cursors of the world so they can try to get to speed. We've helped them with organizational structure about how do you sort of pull out pods of AI native teams that can iterate very, very fast versus be in the slower sort of development sort of chassis of our businesses. And what you're seeing is early results of that. I'll say early, but a year ago, maybe we had 5 or 10, sort of 5 products, plus or minus of any consequence. Now there's 25 plus or minus products that will be either in market now or in market by the end of the year. That number will continue to sort of, I'll dare to say, explode as we head into next year because there's so much opportunity in front of us. And so we feel really good about the forward-leaning posture of our companies, especially against our relatively small competitors, right, in the markets we serve. And then Jason can give you a couple of early data points on that.

Yes. I think there's several vectors where we're going to see opportunity. We think about like a Deltek where they're creating new AI features on their Costpoint product, and that's only going to be available in the cloud. So they have a huge ground to cloud tailwind ahead of them that we thought was going to take longer. It's probably going to be pulled ahead. So that's just sort of one vector. The other is just AI and AI-influenced solutions. So we talked about CentralReach, Aderant. You're seeing a little bit of that at iPipeline now. They're starting to see some new products. So I think it's going to happen slowly over time. But the key is really to make sure that the customer is enjoying those features so that when you come to contract renegotiation, you have the opportunity to upsell those solutions. And it will take the form -- I think the sort of the current thinking is in terms of pricing is you're always going to have some fixed component of this. I mean most customers want a predictable budget. And by the way, we're very...

It's kind of like subscription-based model...

There's always going to be a fee and then it's a consumption or outcomes-based model on top of that. And so again, we're usually about 1% of the cost bar of our customers. So -- and if we have the ability to obviously provide productivity to them, there's ample opportunity to take price there.

Are there any of the 29 platforms that don't lend itself naturally to AI?

I think they all lend themselves. There is 1% -- there's -- of all of our businesses, there's one where there's some -- there is potential existential risk to that business. It's 1% of Roper. It's our media entertainment software business called Foundry. But there's a -- I think for the next 3 to 5 years, I think this is nothing but a growth tailwind for the business because it will be more of this business composites, it basically takes live action, anything computer generated and puts them in a single screen. So think Game of Thrones like the people and the Dragons and our software puts those things in the same screen. There's just got to be more CG, way more CG and still live action that gets overlaid. The question for 10 years from now is, is there any live action? That's -- I think the answer is -- we all think the answer is yes, it's how much is there going to be. But that's the only asset in the portfolio where we see sort of a potential existential risk.

You could have some government contractor customers that have classified projects that we may never because they may stay on-prem the whole time. So that being another, but small sliver.

yes. And then just -- so we talked about the top line opportunity. You mentioned a little bit around like the operational and productivity opportunities. Does this result in higher margins for Roper over time?

So we've asked our businesses to all the productivity gains that they harvest, we want to play offense with that and put it to the product road map velocity or go-to-market. That's the mindset. I think Jason and I, when we're sort of chatting in his or my office, we think we'll probably not be able to spend at all. And so probably if you look forward 5 or 7 years, it is a higher-margin business. But the short term, we hope that it drives the growth engine.

Makes sense. Just maybe we've got a couple of minutes left, just closing it out on just this year. And look, you've got this really nice tailwind with your enterprise bookings being up mid-teens, I think, or high teens actually this past quarter. How are you thinking -- what's really driving that? And how are you thinking about demand levels like exiting the year and into next year?

Yes. And I think we always think of it as sort of over a longer period. First half, I think was up low doubles because we're a little -- after coming off a strong Q4 last year, we were low singles in the -- or mid-singles in the first quarter. So really, that's sort of on plan. So what we thought sort of informed our second half guide and into a little bit of next year. So demand has been -- it's been pretty good across -- outside of government contracting. We mentioned Aderant, it's been really strong. They have their largest ground to cloud conversion in the second quarter booking as well as continuing to sell AI. Health care in general has been solid across Strata, but even our lab software set of businesses have been up nicely. So I think that the hangover of budgets in the health care space has certainly abated now. And now for us, I think our DAT business is not necessarily bookings driven. That's been sort of bouncing along the bottom. So -- but we're still growing as we've been able to create more value for customers, we've been able to charge for that. So I would say the environment in general has been pretty decent.

I know that we still have a few months left in the year, and there's a lot going on in the background, a lot of discussion around the big beautiful bill as well. As you kind of take everything that's occurring, the fact that your business right now is running at very healthy levels, how are you thinking about maybe just like early framework for next year?

So -- there's been 2 of our larger businesses have sort of had some economic headwinds attached to them. So our Deltek, our government -- 60% of it is federal government contractors. The other is our freight matching business. So we organize the spot freight market in North America. There's been now a 2-plus year freight recession. So both those businesses this year have been below trends. The big beautiful bill, we think, is the unlock for the government contracting. It's a very large spending bill in categories that are large contractor spend categories, DoD, DHS. It will take a quarter or 2 or 3 for that to sort of play into the bookings momentum. We think that sets up well for at some point in '26, exactly when we don't know. And we're very much wait and see in DAT. I mean we -- in the freight, it's -- we're very much reflective of what's happening in the market in that regard, and it's been a freight recession. And so we continue to be conservative in our outlook there. But when the freight -- when the market does turn around, we're poised to grow with it very nicely.

It sounds like from an M&A standpoint, plenty of deals in the pipeline to do over the next 12 months.

It's -- there's always plenty of deals to do. Yes, It's -- we're very active.

Great. Neil, I'll turn it back to you if you have any closing remarks before we...

I just really -- we appreciate being here. We're very excited about the story about the durability of what we do, about the cash flow compounding nature of it and the tailwind of AI. So we're very excited for where we're going.

Great. Neil, Jason, thanks for joining us.

Thank you.