The Roper Technologies fourth quarter 2019 financial results conference call will now begin. Today's conference is being recorded. I will now turn the call over to Zack Moxcey.
Good morning, and thank you all for joining us as we discuss the fourth quarter and full year financial results for Roper Technologies. Joining me on the call this morning are Neil Hunn, President and Chief Executive Officer, Rob Crisci, Executive Vice President and Chief Financial Officer, Jason Conley, Vice President and Controller, and Shannon O'Callaghan, Vice President of Finance. Earlier this morning, we issued a press release announcing our financial results.
The press release also includes replay information for today's call. We have prepared slides to accompany today's call, which are available through the webcast and are also available on our website. Now, if you'll please turn to slide two. We begin with our safe harbor statement. During the course of today's call, we will make forward-looking statements, which are subject to risks and uncertainties as described on this page, in our press release, and in our SEC filings.
You should listen to today's call in the context of that information. Please turn to slide three. Today, we will discuss our results for the quarter and year, primarily on an adjusted non-GAAP basis. Reconciliations between GAAP and adjusted measures can be found in our press release and in the appendix of this presentation on our website.
For the fourth quarter, the difference between our GAAP results and adjusted results consists of the following items: amortization of acquisition-related intangible assets, purchase accounting adjustments to acquire deferred revenue, and lastly, a gain on sale related to the divestiture of Gatan. If you'll please turn to slide four, I will hand the call over to Neil. After our prepared remarks, we will take questions from our telephone participants. Neil?
Thanks, Zack, good morning, everyone. As usual, we'll start with our fourth quarter consolidated highlights. We'll turn to discuss our Q4 results on a segment basis. I'll turn the call over to Rob to review our full-year financial results. I'll walk us through the full-year details and next year's outlook on a segment-by-segment basis, followed by our consolidated full-year and Q1 2020 guidance. I'll conclude with a brief summary prior to turning the call over to your questions. Next slide, please. Q4 for Roper was a very solid quarter. Revenue grew 1% organically and came in at $1.4 billion, with positive organic growth in three of our four segments, and this was largely based on the strength of our software franchises, our medical product and RF product businesses, and Neptune.
As a partial offset to this growth, we did see our short-cycle industrial and upstream oil and gas businesses decline as expected in the quarter. Margin performance for the quarter was really fantastic. Gross margins grew 60 basis points to 64.1%. EBITDA grew 4% to $518 million, which represented an EBITDA margin of 37%, a record for Roper. Also in the quarter, DEPS grew 5%. Our free cash flow of $453 million was 32% of revenue.
That's free cash flow of 32% of revenue for the quarter. This margin performance in the face of short-cycle industrial and oil and gas headwinds is a perfect proof point regarding Roper's business model, one that is comprised of niche-oriented businesses with highly variable cost structures that have aligned management teams and incentive systems that enable nimble and swift execution based on the prevailing market conditions.
Performance across the enterprise was excellent this year. I would like to thank each of our business leaders and all of our employees worldwide for another record performance for Roper. Thank you. Also, importantly, we successfully completed the divestiture of Gatan in October of last year. In combination with the sale of the camera businesses earlier in the year and this year's $2.4 billion of capital deployment, our portfolio has been meaningfully improved to continue our long-term cash flow compounding.
Also, during the fourth quarter, we spent time with each of our businesses in person discussing their long-range strategy and focusing on where each business plays, how they will compete and win, and discussing market trends, customer behaviors, and competitive activity. We talked through each business's enablement and execution of strategy and concluded with a discussion regarding each of our business's activities regarding talent development.
We are all encouraged by these plan reviews and our business' orientation towards investing in both product and channel opportunities to drive sustained long-term and CRI accretive growth. Next slide, please. Turning to our fourth quarter P&L, we saw revenues increase to $1.4 billion, which was a 2% increase and 1% on an organic basis.
As mentioned on the prior slide, gross margins expanded 60 basis points to 64.1%, and EBITDA margins grew 100 basis points to a record 37.0% in the quarter. Finally, our DEPS grew 5%. All in all, a very solid quarter. Next slide, please. As we turn to our fourth quarter segment results, I'll start with our Application Software segment. Revenues for the segment were $411 million or plus 2% on an organic basis. EBITDA came in at $164 million or a 40.0% margin.
We continue to see strength across the group of application software companies, especially at Aderant, Data Innovations, and Strata. Deltek also had a strong quarter highlighted by continued double-digit, actually high teens, ACV bookings growth. Revenues for Deltek were a touch light of our expectations due to a few larger GovCon prospects opting for Deltek's staff ITAR compliance solution and a handful of perpetual opportunities sliding into 2020.
As we reported for several quarters, Deltek's growth is quite balanced across their GovCon and professional services market, the business continues to perform exceptionally well versus the competition. The segment EBITDA margin performance for this quarter was stunning, improving 190 basis points. Great job by the teams. Turning to our networks segment. We saw fourth quarter revenues increase to $431 million, or an increase of 3% on an organic basis.
Importantly, our software businesses in this segment grew organically 6% in the quarter, and the growth was quite broad-based. As a partial offset, we saw TransCore's revenue decline a bit based on project timing associated with a few non-New York City projects. For the quarter, we saw segment EBITDA margins increase 80 basis points to 45.5%. For our measurement and analytical solutions segment, revenues increased 1% organically to $388 million.
Growth in this segment was driven with continued gains at Neptune and broadly across our medical product businesses. Neptune did a nice job clearing the majority of the backlog associated with their newer residential static water meter, and our medical products businesses continue to compete and win in the marketplace. Relative to our short cycle industrial businesses, they modestly declined in the quarter, but managed margins extremely well.
Finally, as we turn to our Process Technologies segment, we saw this segment decline 6% on an organic basis with revenues of $170 million. Margin performance was quite strong with EBITDA margins coming in at 38.7%. This quarter's segment performance was expected as we saw pressure in our upstream businesses. Also expected, CCC posted continued gains in the quarter. With that, I'll now turn the call over to our CFO to walk you through our consolidated annual results. Rob?
Thanks, Neil. Good morning, everyone. Turning to page eight and looking at our full year income statement performance. Full year organic growth for 2019 was 3%, which was at the low end of our initial organic guidance against a difficult comp of 8% organic growth in 2018. Total revenue growth was also 3%. We had a one-point FX headwind and also the impact of the acquisition as well as the divestiture of our Scientific imaging businesses in hand within the year. Our two segments that are primarily software, application software, and network software and systems, both finished in line with our initial guidance with mid-single-digit organic growth for the year.
For our largest product segment, measurement analytical solutions, our medical products businesses and Neptune had another very strong year of organic growth, while we did have some declines in our short cycle industrial businesses, which lowered the overall organic growth of the segment to 2% for 2019. Lastly, our smallest segment, process technologies, declined 4% organically for the year, in line with our initial guidance.
That was primarily due to the weakness in upstream oil and gas as we had expected. As Neil mentioned, for the fourth quarter, we really had outstanding margin execution by our business leaders throughout 2019, driving very strong operating leverage while we're continuing to invest for future growth. If you look at the margins, gross margin for the year, up 70 basis points to 63.9%.
EBITDA margin increased 110 basis points up to a record 35.8%, and that drove 7% EBITDA growth for the year. Our tax rate was lower in 2019 at about 19%. You add all that up, we had a double-digit adjusted DEPS growth of 10% up to $13.05 for the year. Really overall, a very strong year for Roper. Next slide. Looking at our full-year cash flow performance, as Neil mentioned, in the fourth quarter, we did have $453 million of free cash flow, which is a very strong 32% of revenue. On a full-year basis, we exceeded $1.5 billion, which was a 5% increase over prior year. It's worth noting many who were probably on our call in January 2017, just three years ago, when we proudly announced that we had exceeded $1 billion in cash flow for the first time.
Well, now only three years later, we've eclipsed $1.5 billion for the first time. Next slide. At Roper, cash does remain the best measure of performance. Speaking of cash as the best measure of performance, the next slide is a look at our multi-year EBITDA growth and cash flow compounding. If you look at the period from 2016- 2019, both EBITDA and free cash flow compounded a very strong 14%. When we think about cash conversion, a metric we like to track internally here is EBITDA to free cash flow. This seems especially relevant as investors have been moving away from P/E towards metrics closer to cash, such as EV to EBITDA. However, for many companies, EBITDA does not consistently convert to free cash flow at high levels. For Roper, it absolutely does.
For this period, 2016 to 2019, while our free cash flow conversion to adjusted net earnings has been consistently well above 100%, ranging from 105%-120%, free cash flow to EBITDA has also been very consistent, between 73% and 76%. This is driven mainly by our asset-light business model with our low capital needs and negative working capital.
As we look forward, our working capital position will continue to become more negative, as you'll see on the next slide, and that will further increase our ability to convert EBITDA to free cash flow at very high levels. Next slide. Turning to the asset-light business model slide, maybe our favorite slide. Aided by the Gatan divestiture that we completed in the quarter, we ended the year at - 5.3% net working capital as a percentage of revenue.
This record result actually includes receivables, as you can see, close to 18%, which quite honestly is a little bit higher than we would normally like to see, driven largely by the timing of collections for some TransCore projects and some product revenue that came in late in the quarter. We certainly expect those receivables to be collected here early in 2020, and that number should improve moving forward.
Even with the receivables number slightly higher, that negative 5.3% represents an 800 basis point improvement over the past three years. Really tremendous performance in terms of working capital. Of course, the big driver of that is our deferred revenue. Deferred revenue increased nearly $350 million over this period, driven by organic growth in our software businesses, as well as our recent software acquisitions that come in at very attractive working capital levels.
In summary, from a working capital perspective, at a record -5%, we exit the year better positioned than ever before for future cash flow compounding. Next slide. Looking at the balance sheet, if you look at our full-year results, if I look at December 2019 compared to December 2018, net debt's actually down $12 million. Now, at the same time period, TTM EBITDA is up $119 million, and we end the year with our gross debt to EBITDA at 2.7 times, and our net debt to EBITDA at 2.4 times. Largely due to the proceeds from our successful Gatan divestiture, we ended the year with a total cash balance of $710 million, with approximately $400 million in the U.S. This is not the norm for us. Now, $200 million of this cash will go towards paying the Gatan taxes due in April.
If you look at the cash balance, if you look at our revolver, which is now a $2.5 billion revolver, fully undrawn, very attractive capital market conditions, which we took advantage of in August, and certainly that we have the capability as we move forward to access the capital market, we are incredibly well-positioned to take advantage of a very high-quality pipeline of acquisition opportunities in 2020. With that, I'll turn it back over to Neil to review our 2019 segment performance and 2020 outlook.
Thanks, Rob. Let's turn to the full year 2019 highlights for our application software segment. For the year, revenue came in at $1.589 billion, which represented an increase of 4% on an organic basis, and EBITDA was $636 million, an increase of 10% versus the prior year, and EBITDA margins were 40.0%. Deltek turned in a great year.
Revenues increased mid-single digits on an organic basis, and this growth was balanced across both markets, GovCon and professional services, as well as across the perpetual and SaaS offerings. Also during the year, Deltek's product and solution portfolio was meaningfully enhanced. On an organic basis, the company released an ITAR-compliant GovCon SaaS offering and started gaining meaningful traction with its Vantagepoint product, the company's newer professional services SaaS ERP solution.
In addition to this organic innovation, Deltek onboarded and integrated two acquisitions, ComputerEase and Avitru, both targeted to meaningfully enhance their architectural engineering and construction offering. Aderant had a stellar year. This time last year, we talked about product innovation and Aderant, specifically about three newer SaaS products. Based on the market traction of these products, especially their e-billing and mid-law SaaS solutions, and combined with Aderant's continued ability to take share in the large law space,
Aderant posted double-digit organic growth end of year. Also, in the fourth quarter, we acquired Bellefield Systems for Aderant, which enhances their SaaS solutions targeting the front office of law firms, specifically focused on professional service automation, compliance, and timekeeping. As we turn to PowerPlan, we saw double-digit increases in their recurring revenues in the year.
These recurring revenue increases were offset by expected declines in their service revenue, which were largely tied to lease accounting product implementation sold and delivered throughout 2018. Strata continues to be a star within Roper Technologies, having tremendous organic growth gains this year again. To remind everyone, Strata is our SaaS software business that helps hospitals have better visibility to their financial operations, both costing and revenue.
Strata solutions better enable hospital executives to plan and run their hospital operations. Also in the quarter, Strata launched a new product, a new data product called StrataSphere. Today, about 25% of U.S. hospitals' operational and financial data runs through Strata's products. StrataSphere is designed to normalize this data set and provide Strata's customers with AI-enhanced insights into the data and content across various customer cohorts.
It is very early days for this product, but the team is very excited to partner with our customers to fully develop the product's potential. Within our lab software business, Sunquest, our U.S.-focused business, continued to face the same competitive headwind throughout the year, which we expect to persist into 2020. Much of this headwind was mitigated by continued organic gains at Data Innovations and Clinisys.
Finally, before turning to the segment's 2020 outlook, we wanted to highlight that CBORD had a great year with very strong organic growth and even better cash performance. As for the outlook for this segment, we expect to see mid-single-digit organic revenue growth with broad-based growth contributions across the segment. It's worth noting Deltek's momentum entering this year based on their recent double-digit bookings increases. Next slide, please.
For the year, revenue for our network software and systems segment came in at $1.539 billion, which represented an increase of 5% on an organic basis. EBITDA was $681 million, an increase of 17% versus prior year, and EBITDA margins were an amazing 44.3%. During 2019, we successfully completed the acquisitions of Foundry and iPipeline. While still early, both are off to a great start and have very solid growth contributions planned for 2020. Both management teams have welcomed the Roper approach and are excited to be part of our enterprise. On an organic basis, DAT had a truly amazing year. Their growth has been multifaceted, with meaningful contributions coming from expansions to their core Freight Match network and growth in their rate data offering. MHA had a great year as well.
Their growth was a function of continued competitive strength and near 100% customer retention, combined with adding several new contracted pharmaceutical products to their portfolio. In addition to a very solid financial year, the company executed a president succession in a near-perfect manner. ConstructConnect had a good year as well. Much of 2019 was focused on launching their new integrated SaaS solution, which they did quite well.
ConstructConnect has seen increased ARPU, or revenue per user, from new customers as these contractors are seeing more value in the integrated bid management and project estimating solution. iTrade was fantastic in 2019. Rhonda and her team did a tremendous job driving very strong renewals, adding several new customers, and positioning the product portfolio for continued long-term network expansion. Finally, TransCore's year was highlighted by their high-profile and large contract win with the New York City Congestion Pricing Infrastructure Project.
As we turn to the outlook for next year or this year, we see mid-teens organic growth for the segment. Within this outlook, we see mid-single-digit plus organic growth for our network software businesses and very strong organic growth for TransCore on the back of the New York City congestion pricing project. For the first quarter of this year, we expect to see mid-single-digit organic growth for the segment.
Excluding TransCore, we expect low single-digit growth for the first quarter given a very challenging Q1 comp for MHA. Specific to TransCore, now that the New York City project details are coming more into view, we expect the majority of TransCore's growth to occur in Q2 through Q4, though the timing of project revenues will be difficult to forecast with precision given that we are in the early stages of this large New York City project. Next slide, please.
For the year, revenue for our Measurement & Analytical Solutions segment came in at $1.596 billion, which represented an increase of 2% on an organic basis. EBITDA was $541 million, a decrease of 4% versus the prior year, but EBITDA grew 2% excluding divestitures. EBITDA margins were 33.9%. For the year, we saw strong execution across our medical product businesses. In total, this group grew high single digits organically for the year.
Within the medical products businesses, NDI was the star for 2019. This business grew double digits on the back of very strong adoption of both their electromagnetic and optical precision measurement and guided solutions. Verathon's growth in 2019 was driven by meaningful and successful product launch of a single-use bronchoscope and new product extensions across the full GlideScope product family, both of which were introduced on this call a year ago.
2019 is the year that is marked by Verathon's recurring consumables revenues becoming larger than their capital-based product revenues. This business is very well-positioned for continued strong growth in 2020 and for many years after. In the medical products group, CIVCO grew nicely again based on market adoption of their ultrasound guidance and infection control products. Neptune for the year grew mid-single digits.
Neptune saw nice increases in their residential static ultrasonic water meter products. Neptune made very nice gains in our innovation lab relative to the larger gauge commercial and industrial static meters. We continue to feel very good about how Neptune is positioned to compete and win in the marketplace. Turning to our shorter cycle and industrial businesses, these businesses performed very well in 2019 amid challenging end market conditions.
As we all know, the market conditions changed meaningfully in the second quarter of the year. While these businesses did decline a bit in the year, their early recognition of the changing market condition and their corresponding expense management was well executed. Of note and of importance, we did see some moderation of their declines in the most recent quarter. Also during the year, we successfully exited our scientific imaging and Gatan businesses and generated $1.2 billion of pre-tax proceeds.
As we turn to 2020, we see this segment growing mid-single digit organically based on continued strength in our medical product and Neptune franchises. We further expect to see continued industrial declines in the first half and return to modest growth in the second half, largely based on easing 2H comps. Next slide, please.
For the year, revenue for our process technology segment came in at $653 million, which was a 4% organic decline for the year. EBITDA was $238 million, a decrease of 4% versus the prior year, and EBITDA margins were 36.4%. Our upstream oil and gas businesses declined high single digits in the year due to the deteriorating marketing conditions that we've discussed throughout the year. However, our CCC business continues to perform well based on the competitive strength in winning virtually all of the new LNG construction projects. In addition, CCC's strategy of increasing their intimacy with their core customers is yielding nice system replacement opportunities. Cornell executed at a very high level throughout the year. They saw very strong growth across virtually all of their end markets, with particular strength in their ag market offering.
In addition, Cornell saw strength across their aftermarket parts business for much of the year. These strengths were offset by declines in their rental markets. All in all, another solid year for Cornell. Finally, we saw EBITDA margins expand across this segment. These businesses increased margins in the face of very uncertain and declining market conditions. This is possible given the very high variable cost nature of the businesses, which provide our business leaders the ability to take costs out extremely fast once weakening market conditions are observed. There is no better example of nimble execution than this. To this end, we discussed how PAC and CCC had new presidents onboarded in 2019. Each of these new teams performed exactly as we would've hoped, swiftly, nimbly, and with conviction.
As we look to 2020, we see this segment declining mid-single digits based on the continued assumption of upstream oil and gas market difficulties. Comps do ease in the second half. Next slide, please. Turning to our 2020 full year guidance. We are establishing our 2020 full year adjusted EPS guidance in the range of $13.30-$13.60, with organic revenue growth in the range of 6%-7%. This organic revenue growth range includes the impact of TransCore's growth associated with their New York City Congestion Pricing Project. Excluding TransCore, organic growth for the enterprise is expected to be in the 3%-4% range. For the full year, we expect our tax rate to be approximately 22%. For Q1, we expect adjusted EPS to be in the range of $2.94 and $3 per share. To remind everyone, last year's Q1 had a $0.41 tax benefit.
Further, as discussed earlier, we expect the majority of TransCore's growth to occur in Q2 through Q4. Next slide, please. As we look back on 2019, we're very pleased with our results and our strategic process. We continue to see strength in our niche market strategy and governance model that promotes nimble local execution. EBITDA for the year increased 7% to $1.93 billion, and EBITDA margins increased 110 basis points to 35.8%. Adjusted EPS increased 10% to $13.05 per share.
Free cash flow increased to $1.44 billion and was an astounding 27% of revenue. Specific to our portfolio of businesses, we meaningfully improved our business mix. We deployed $2.4 billion to our software acquisitions led by Foundry and iPipeline. We also exited our imaging and Gatan businesses. Finally, I'm very pleased with the improvements we made across the enterprise relative to talent.
I feel fantastic about the team in Sarasota. In addition to the existing team, during the year, we onboarded two group executives, Satish and Harold. This team is executing at a very high level, and I'm excited for the future. Also, there are meaningful improvements across our business units in terms of the talent offense they are deploying. We're playing the long game, and I fully expect our talent focus to pay dividends in the years to come.
As we turn to 2020, we are super well-positioned. First, we expect to deliver fantastic organic growth for the year. That will be broad-based across our software platforms, Neptune, medical products, RF products, and TransCore. The growth in these parts of our businesses will meaningfully outpace market weakness across our short-cycle industrial and our oil and gas-related businesses.
Relative to future capital deployment, we are very offensively positioned to execute our M&A strategy. The sale of Gatan, our attractive August bond issue, $0 drawn on our $2.5 billion revolver, and a building cash balance has our balance sheet wonderfully well-positioned. We continue to be very active evaluating new capital deployment ideas, and our pipeline is quite full with high-quality opportunities.
We will continue to be very disciplined and hold true to our CRI-based principles, and we are optimistic for a successful year of capital deployment. Now, as we turn to your questions, I want to remind everyone that what we do is very simple. We compound cash flow. By operating a portfolio of businesses that have leading positions in niche markets that have the proven ability to generate increasing cash flow as their businesses expand.
We provide our business leaders with Socratic coaching about what great looks like relevant to driving long-term CRI accretive growth, with particular emphasis focused on strategy, operations, innovation, and talent development. Our business leaders understand that success in our culture is based on their ability to compete and win for talent, and to compete and win for customers that in turn allow us to compete for and win shareholders.
To this end, we incent our management teams based on growth. Based on these factors, and perhaps most importantly, we have a culture that is rooted in the principles of mutual trust and transparency. Finally, we take the excess free cash flow that is generated by our businesses and deploy it to buy businesses that have better cash returns than our existing company, that in turn help accelerate our cash flow compounding.
It is these simple ideas that deliver powerful results. We appreciate your time this morning. Let's turn the call over to your questions.
Thank you. We will now go to the question and answer portion of the call. If you would like to ask a question, you may do so by pressing the star key followed by the digit one on your touchtone telephone. We ask that our callers limit their questions to one main question and one follow-up. Your first question will come from Deane Dray with RBC Capital Markets.
Thank you. Good morning, everyone.
Hey, good morning.
Good morning.
Hey, because the New York City congestion tolling project is such a high-profile installation for you all, I'd be interested in hearing some more color on how this installation compares to the others that you've done in, let's say, London and Stockholm, just from a sense of degree of difficulty of the installation. Is there any new software, new camera systems, or is this basically similar to what you've done in these other successful installations?
Sure, Deane. Let me first start by saying the congestion pricing infrastructure in those other two cities is not us. Those are not our projects. That said, the technology that's being used in the New York City project is, for the most part, the exact same technology that's been used at any of our larger tolling infrastructure projects. It's the same core hardware. It's the same core software. Certainly, there'll be some tweaks that are needed in the software for the specific application that's being used by MTA in this instance. The scale of this project is not actually close to the largest that we've deployed, so the team feels quite confident in the technical ability to do it. Further, our customer, MTA, is a great partner and all the process steps to be able to construct in New York City have largely already been approved.
Really, it's just down to executing the project over the course of this year.
Got it. Just some more color on the expected margin progression for 2020 for the project. It looks like it's starting more into the second quarter, typically, do you see lower margin early in the project on the installation, more upfront costs, and then higher margin in the back quarters? Just what's the expectation here, the base case?
Yeah, Deane, I think that's right. I think you're just getting started with the project here in the first quarter. I think you'd assume you'd have a little bit less Well, we know we have a little bit less in terms of revenue recognition, probably a little bit lower margin, and as we move on throughout the year, both of those will increase quite a bit.
Got it. Just last one from me on Deltek. Could you just provide some color or context around the push-outs on the perpetual deals? You said it got pushed into 2020. Is this a first quarter, second quarter, and just some color around the customer decisions there.
Sure. A couple of things on Deltek. We talked about how their bookings on an ACV basis were quite strong all year with strength ending the year in the high teens in Q4. The competing and winning in the marketplace has remained robust throughout the year. Specific to the revenue recognition, it's really a combination of two things here in Q4. The one is the company has announced its intention to release an ITAR compliance version of their Costpoint product, which is the GovCon ERP product, which really essentially enables that product to be hosted in the cloud and deployed in a SaaS environment. There are a couple of deals signed in Q4 taking advantage of that offering. That's a great trend for the business because the recurring revenue will increase quite meaningfully as that gains more traction.
That combined with the fact that a handful of meaningfully sized perpetual deals pushed. In a hypothetical world, if the ITAR compliance SaaS product was not there, likely these customers would have bought the perpetual version, and then Deltek's revenue would have been right in line. It's really a combination of the SaaS offering gaining traction and a couple of deals pushing into the first or second quarter next year.
Thank you.
You're welcome.
Your next question will come from Christopher Glynn with Oppenheimer.
Thank you. Good morning. As you're positioning for substantial allocation, as you referenced a few times for this year, just curious, look back at a few of the larger ones, iPipeline, Foundry, PowerPlan, around management retention, other key metrics on onboarding and anything in particular around those recent deals that's evolving how you evaluate trade-offs with new opportunities as your shopping criteria evolves over time?
The criteria for capital deployment really has not changed that much. It's always been rooted in finding businesses that have better cash returns than our existing. Over the arc of 20 years, that's gone from industrial products to medical products to more software. The second criteria is always having a management team that is fundamentally focused on building the business, versus transacting. Finally, businesses that share the characteristics that all 45 of our businesses do, right? Niche, leadership position, ability to invest in themselves to grow. High recurring revenues, high gross margins, et cetera. Those criteria have not changed at all, and won't change going forward.
The recent acquisitions that you referenced, certainly the ones really from Deltek, ConstructConnect, Aderant, PowerPlan, Foundry, iPipeline, the larger ones from 2016 forward, have met all those criteria, and the businesses are performing at or maybe modestly above our initial expectations.
Okay. Then just curious, in the pipeline, the more actionable end of it as you see it, what's the mix between bolt-ons versus platform opportunities?
Yeah. The vast majority of our deployment will be on platform ideas. Occasionally, we'll do bolt-ons or tuck-ins as they strategically warrant in the business. It's not a budget. If you just look over our arc of time, about 10% of the capital deployed's been in bolt-ons, but it's just been a byproduct of how it's unfolded. It's certainly not a budget or a planning number going forward, but Mike, it'll be somewhere in that plus or minus ballpark.
Got you. Thank you.
You're welcome.
Your next question will come from Robert McCarthy with Stephens.
Good morning, everyone. The first question I have is, free cash flow as a % of sales for Process Technologies, do you happen to have that metric in that %?
We don't. The free cash flow number is a corporate number with all the corporate interest tax, et cetera, so we don't look at it in that way. I would say the business level cash flow, so if you look at the EBITDA to revenue, subtracting their CapEx is pretty darn close to their EBITDA because the CapEx is not a big number. From a working capital perspective, there's not huge movements there. It's still a very high number. I can't give you an exact free cash flow number for that.
Okay. It screens very well in free cash flow by definition then.
Absolutely.
Okay. Fair point. Then if you look at your outlook, excluding the drag from process, what do you think you would've grown this year organically?
Process for the year was minus four , so you're talking 12% of the company.
Yeah.
We would've added, probably a point or two, just doing the math off the top of my head right now.
In 2020, probably something similar or even higher, right?
That's right.
Yeah. Okay. Then, moving on to TransCore. From that perspective, could you just remind us to level set our expectations in the out years, how you're thinking about the initial deployment revenue and then conceptually the step down from there, just so we get our modeling directionally correct in the out years?
Yeah. There's the $200 or so incremental revenue this year, and then there will be some recurring from the project, probably in the $50 million-$60 million range, into next year and then into the next several years. That would then leave the rest of TransCore and a lot of other projects we're working on to pick up some of that slack, which they're working hard on already today.
Right. Last question is, really around M&A. Obviously, I think Danaher announced today decent results after a pre-announcement. I think rebaseline for even more favorable financing environment for underwriting one of their deals. Clearly, a pretty attractive environment, which you alluded to on the call in terms of the capital markets and debt for funding these deals. You talked about the mission bolt-ons. You look at Neptune, good growth, a great franchise. There is a sense that the smart metering, while albeit at a low rate of growth, maybe in the low single digits, could be very sustainable for a long period of time. There is some sense that transmission distribution spending could be entering a higher level of visible spending, just given PG&E and some of the return profile of AMI.
Is it possible for you guys to think about building around that more in software? Is the utility end market an attractive space, or how would you think about that?
Yeah. Neptune, as you know, is 100% focused in the water meter business, and that's where they're going to be. They're not gonna stray to gas or electric meters, more importantly, it's really water meters in North America where pressure rates are higher than the rest of the world. It's a pretty complicated device metering application, both mechanical and static ultrasonic. The company's gonna stay focused there. That said, the company now for at least three years has been investing in its software applications and capability because now the readers are being read more frequently, there's more use cases that are being developed about what you do with that data around leak detection or shut off or whatever our customers ask for, Neptune is working to build. The shut off is a hard case
Leak detection is a good case, for instance, in terms of value to the end user. To that end, they opened an innovation center three years or so ago in Atlanta to attract better talent than they could in their existing location in more rural Alabama. It's been a part of the strategy, and I suspect it'll remain part of the strategy for quite some time. I don't want to wear out my welcome. Thanks for the questions. Thank you.
Your next question will come from Steve Tusa with JPMorgan.
Hey, guys. Good morning.
Hey, good morning, Steve.
Morning, Steve.
You mentioned PowerPlan saw some solid growth in a part of its business. What did ultimately PowerPlan grow for the year in total?
Yeah. PowerPlan for the year was down a little bit. We think it'll be up in 2020, full year, including the first quarter.
Okay. ConstructConnect as well, did that grow this year?
It did. Yeah. It grew in 2019.
Is that low singles or something like that?
Correct. Yeah, low singles.
Okay. Then lastly, just for modeling purposes, I know you have the Gatan sale headwind on revenue next year. What's the carryover, acquisition-related tailwind that we should add to kind of that organic growth outlook, so on a reported basis?
Yeah. From an EBITDA standpoint, there's about $70 million of EBITDA from the acquisition that's an add, and then you take away about $50 of EBITDA from Gatan. It's a net around $20 of EBITDA.
On sales?
Yeah. On sales, I don't have the exact number. I'll have to follow up with you on that, but it's going to be roughly Do you have it, Shannon?
It nets to basically zero.
Yeah. It nets about zero on revenue.
Zero carry including Gatan?
Yeah. Because the Gatan's a lower margin.
Okay. Sorry, one last one. Just on first quarter organic, you mentioned that there is some TransCore impact, because you talked about first quarter growth in that segment ex TransCore. I guess ex TransCore in the first quarter, is it 2%-3%, 1%-2%, or is it not even that meaningful on an enterprise basis?
It's not too meaningful. There's some incremental revenue from TransCore there in the first quarter. It's not a big add to the first quarter. As I think you know, Q1 last year was a 6% organic, it's just a matter of the comps. If you look at the software businesses, for example, it's just the comps is the only difference as we move forward throughout the year.
Got it. Okay. Thanks a lot. I appreciate it.
Yep. Thanks.
Your next question will come from Richard Eastman with Baird.
Yes. Good morning. Thanks for the questions. Could you possibly just give some commentary around the profit associated with the MTA contract, and what might be the cadence there? Is that just an EBIT or EBITDA contribution from that contract, and does it scale up meaningfully as the revenue grows there? Just some feel for what that could add so I can get kind of a sense per share on a quarterly basis given our revenue assumptions.
Yeah. I think as you're aware, the TransCore business margin is below the Roper average, this business is going to be in that range. I think the margins do improve after the first quarter moving forward. Exactly how linear that's going to be is difficult to predict, as Neil mentioned, given what goes on with the project. It certainly will get a little bit better after the first quarter, it's probably going to be relatively consistent throughout the rest of the year is our best estimate as we sit here today.
Okay. It comes in at TransCore's average contribution?
Correct. That's correct.
Okay.
That's correct.
Okay.
It'll be a little more profitable in the back three quarters than the first quarter, but it's not something where it's breakeven Q1, 10% Q2, and 40 in Q4. It's not anything like that at all.
You referenced this just a couple of minutes ago. I think somebody asked a similar question around, so $200 million is still the right expectation around year one this year. Then I think on a previous call, it was maybe $50 million to finish off the project in year two, the other $250 of the contract essentially was years three through seven on a service contract. That's still kind of roughly the schedule?
Yeah. That's correct.
Yep.
Yeah. It's like that $50 recurring after 2020 goes on for five years, and we would hope it would go on many years after that as you get a chance to renew the maintenance part.
Right. Okay. Just a second follow-up question. Around Roper's core EBITDA, fantastic year from a margin perspective for full 2019. The puts and takes here may be a little bit around MTA contract as well as your commentary around a minus mid-single digit growth for the process tech piece of the business in 2020. What might be a reasonable assumption in basis points for targeted EBITDA margin expansion for Roper in 2020?
Yeah.
Would a reasonable target be 50 or?
Yeah. I think, embedded in our initial guidance, as it normally is that EBITDA margins will be roughly flat year-over-year. There's maybe a little bit of an increase, but certainly the transport project is a negative. Some declines in those more cyclical businesses is generally a negative to your margin. The flip side of that is excellent growth at the software businesses, which is a net positive. If you add all those things together.
Yeah
our initial guidance model has the EBITDA margins about flat year-over-year, and we'll work to a little bit better than that.
Cool. Okay. If you mind, could I just sneak one more in, please?
the transportation business within network software, DAT, the freight matching businesses, just another tremendous year in a fairly tough trucking industry, I guess, if you will. Is that a counter-cyclical business? As things get tough in the trucking industry, we're looking to optimize our assets there by matching freight and Just maybe explain that business a little bit and then maybe what the prospects are for 2020?
Sure. I'll take that one, Rick. First, DAT, let's define what they are. It's whole truckload, spot market, North America, freight match, right? It is a niche industry. There's captive, there's contracted, and there's spot markets. What we have observed here over the last, really, two or three years with DAT is their network strength, right? Their relative market share is three-ish, versus their competitor, right? Their network is three times the size of their next largest competitor. That network strength has proven to play well when the trucking markets are super hot and when they weaken. A step back from that, why is that, right? If you're a carrier and it is a very hot market, the carrier is going to want to be very selective in their routes.
Maybe they're going from Kansas City to Chicago, and they want to go right back to Kansas City. They're going to be a network participant to be able to select specifically what they want. You see active participation, and then conversely, the brokers are looking for the capacity. When things lighten up, the truckers are looking for work, right? They become less selective. The value proposition of participating in the network, on both sides of the network in both market conditions, tends to be quite robust.
Okay. Outlook for 2020, do we kind of sustain the current growth rate or do we settle down? It seems around the fringes, there's more competition in that space. You guys have maneuvered quite well there.
Yeah, there really isn't more competition in the freight matching space. That said, the company has done so well for a number of years. We do expect the growth to moderate a bit in 2020.
Just based on the activity in the market is the only thing driving that.
That said, we expected this business to moderate for the last few years as well, and they've outperformed our expectations.
Okay. Very good. Thank you.
Yeah.
Your next question will come from Julian Mitchell with Barclays.
Thanks a lot. Just trying to keep my questions a little briefer. Starting with the software as a service model. You spent some time in the prepared remarks discussing that. Just wondered, with that strength in Q4, what's the overall scale of your SaaS business now within Roper? Relating to the profitability on that, I think in Q2 you had a SaaS kind of mix surge, and that had hurt margins in application software. Q4, it seems like SaaS did very well again, maybe contributing positively to the margin mix. Help us understand the margin dynamics as that SaaS share of sales expands.
We're still about even in between the SaaS revenue and the traditional on-prem license maintenance revenue within our software businesses. From a margin perspective, there really isn't that large of a difference in terms of EBITDA margin between those two business models for our businesses. Where the variability happens, as Neil mentioned, is when you get a new license win in a quarter, all that revenue's recognized immediately. If you get a new SaaS win in a quarter, that revenue is recognized over the next 12 months and beyond. That's the only difference. From a margin standpoint, there isn't a lot of change between the two models.
Yeah, I think the 2Q point you're referencing is, Deltek had two very large perpetual deals in 2Q of 2018, which drove outside margin in that very specific. It was a very hard comp coming over in 2Q of 2019, if my memory serves correct.
Thank you. Maybe for Neil, you mentioned talent development in your prepared remarks. Maybe expand a little bit what you're hoping to see from those group executive roles this year. I think a bit more of a push on organic growth is underway at Roper. In that context, maybe just if you could highlight what the R&D spending was in 2019. I know we'll see it in the K, but maybe how you see the cadence of R&D developing.
Sure. All right. If these are short questions, Julian, I'd hate to hear a long one. I'll try to hit the talent, the group, the organic, and the R&D. I'll hit the organic first. We've said that it's my intention objective to position the company, supporting my businesses, to execute our organic growth strategy that's been a little bit better in the past. That said, this is going to take time because we want to do it structurally.
We want to do it, we're playing the long game, importantly, we're going to only do it to the extent it's CRI accretive. This is going to take a long time. Success, by the way, is measured by 50 or 100 basis points more of organic growth, not doubling the organic growth profile, because these businesses are built for defensibility, yet we haven't met a Roper business that's optimized this organic growth algorithm. We believe there's long-term, and I'll emphasize long-term, potential there. Now, we're going to do that through the group executives engaging with our teams, principally on three things: how to develop strategy, how to execute strategy, and how to run a talent offense. We can spend more time later sort of unpacking that, because it's a passion of ours here to do that.
We believe the right strategy or the right strategic enablement with putting the right team on the field will yield great results for our shareholders over a long arc of time. Specific to your R&D spend, in 2020 for the software businesses, but basically both software segments, we're planning on 70 or 80 basis points more spend in R&D. When you multiply that through, it's $20 or $25 million of incremental spend in R&D on relative to revenue. That's sort of spread across where the best opportunities are in each one of the businesses. We'd expect that pace to I can't tell you if it's that exact number of basis points each year, but I expect the number to continue to increase over time as it naturally does in software businesses.
That is embedded in everything Rob mentioned earlier about margins being flat for the year and everything he talked about. That's my view on your question, and happy to follow up as needed later.
Great. Thank you.
Yep.
Your next question will come from Joe Ritchie with Goldman Sachs.
Thanks. Good morning, everyone.
Good morning, Joe.
Good morning.
Neil, you mentioned the headwinds in Sunquest continuing into 2020. Can you just elaborate a little bit more on what kind of impact it's going to have to 2020, and specifically, what you're doing to mitigate some of that within Sunquest?
Yeah. The headwind is the same headwind the business has experienced for quite some time. It is unfortunately slow motion and tectonically playing out because our customers, when they make a decision to leave three years ago, it takes them three years to leave. There's no new information that's just taking this time to play out. The mitigating fact is we've continued to invest in the products of this business, right? We've invested in internationalization of the product. We are investing in the molecular and genetic capabilities. We're investing in the integration of the fluid tissue and genetic molecular labs. That continues and will continue. We just have to let this one competitive headwind play itself out over the course of the next year.
Okay. Got it. Then just a real quick one on ComputerEase and iPipeline, the growth expected for 2020, is it supposed to be similar to the organic growth for the rest of the segment?
Yeah. I think when we announced iPipeline, we felt really good about that being a high single-digit organic grower, and nothing has changed to our opinion on that.
ComputerEase?
Yeah. That's a smaller add-on to Deltek, and it's probably mid-single digit organic grower, maybe better. Yeah.
Okay. Thanks, guys.
Thanks.
Next question will come from Jeff Sprague with Vertical Research Partners.
Thank you. Good morning. I promise I will be brief. Just on TransCore, back to that, I just want to understand how the cash flow actually works on the project. Do you expect to receive ratable cash flow as you're doing the work, or would this be very back-end loaded and maybe even kind of a 2021 kind of cash event for the business?
That sounds like the same questions we asked our management team during this project run-out. We do feel the cash flows to be pretty well aligned with our earnings on the project. We've worked hard with that. We have a great partner that's working with us to make sure that happens. We do feel good about the cash coming in sort of in line with the EBITDA. Now, certainly you could see some payments in 2021 after the project has ended. We'll see what happens, but we're working hard to make sure the cash comes in on time.
Just on Neptune, is there anything programmatic going on in 2020, big localities or anything that's driving the business, or it's just kind of more steady as she goes kind of penetration push?
Steady as she goes. Neptune's strategy has been actually focused on the medium and smaller municipalities. That's what their strength has been and will continue to be.
Great. Thank you.
You're welcome.
Next question will come from Joseph Giordano with Cowen.
Hey, guys. Good morning.
Good morning, Joe.
Good morning.
Just on TransCore, what's the risk that that deal bleeds into 2021, that the deployment actually takes longer, or it gets started late?
It's already started.
It's already started, yeah. Hey, it's a big project that's got some complexity associated with it, so it certainly has the possibility at some that it bleeds into 2021. That said, let me be very clear, our customer has told us the infrastructure needs to be ready by 31st December of 2020. That's the project plan, that's the resources that are being deployed, because that will then in turn enable the MTA to decide when and how they want to introduce the tolling. Our part of the project is to be completed by the end of the year per our customer's demand.
Okay, fair enough. How should we think about absent forward M&A that I'm sure you'll do, but if we just strip that out, how do we think about the forward margin opportunity of application and network? How much of a drag on margins are the current new, relatively new business in there? How should we think about the forward opportunity to expand from already pretty high levels?
Yeah. I wouldn't view the new businesses as a drag at all. They're all generally in line with the margins, EBITDA margins, right? Yeah. I'm always speaking in terms of EBITDA margins, and Shannon correctly sometimes corrects me that the analysts think in terms of OP a lot of time. From an EBITDA margin perspective, very consistent and there's no reason why they should go backwards. As Neil mentioned, we're always spending a lot in R&D. We're growing R&D, and it's easy to do that when you have businesses that come in at high contribution margins. There's plenty of dollars to invest in R&D and talent and people and everything, and that's really how these businesses grow. We're continuing to do that. I wouldn't see any sort of a margin headwind for these businesses anytime into the future.
How should we think about them expanding? Like just normal kind of just capturing an incremental on the growth? Is there like
Yeah, I think it's incremental on the growth, right? When you have EBITDA margins in that 40% range, that's a very healthy software business that continually invests to grow. I think that if it expands, great, but it's really about growing more at current margins.
Yep, fair enough. Thanks, guys.
Thank you.
Your next question will come from Robert McCarthy with Stephens.
My questions have been answered. Thank you.
Oh, you're welcome.
Your next question will come from Steve Tusa with JPMorgan.
Hey, guys. Sorry, just a quick follow-up. Anything moving around on cash conversion? I know that with the TransCore deal coming through, maybe it's a bit of a different cash profile early on. Any dynamics there we have to be aware of for cash conversion or cash margin in 2020?
Yeah. No, thanks, Steve, for the question. I was preparing for it. I'm glad you got that going and asked. Yeah, no, we definitely feel free cash flow.
Somebody pinged me and just wanted me to ask about it. I don't usually ask follow-ups, but here you go.
You saved the day.
Yeah, no, I think if you look at our overall guide, free cash flow should grow double digits based on our guide in 2020. Obviously, as we do acquisitions, that should be further accretive to that. That's how we see it as of today.
Okay.
No, there's no headwinds on cash flow.
I guess your free cash grew this year a little bit less than that. Is there anything unique kind of year-to-year that drives an acceleration in that?
Yeah. What bounces around, right. If you're looking at conversion to adjusted net earnings, what bounces around the most is tax payments and cash tax versus GAAP tax. That's been a headwind the last couple of years with a lot more cash tax payments. As I mentioned in the scripted comments around TransCore, didn't have a very good cash year around some projects last year. Some of the product businesses weren't great. I think as we sit, from a working capital standpoint, I think that we've got some additional room to improve. That'll be beneficial to cash flow next year and beyond. Everything else is very structural from a high cash conversion standpoint.
Okay, great. Thanks a lot. Appreciate it.
Thanks, Steve.
Thank you.
That will end our question and answer session for this call. We now return back to management for closing remarks.
Thank you everyone for joining us today. We look forward to speaking with you during our next earnings call.
That does conclude our call for today. Thank you for your participation. You may now disconnect.