Earnings Call: Q1 2021

Apr 27, 2021

Roper Technologies First Quarter 2021 Financial Results Conference Call will now begin. Today's call is being recorded. All participants will be in listen only mode. I would now like to turn turn the call over to Zag Moxie, Vice President, Investor Relations. Please go ahead. Good morning, and thank you all for joining us as we discuss the Q1 financial results for Roper Technologies. Joining me on the call this morning are Neil Hahn, President and Chief Executive Officer Rob Crisci, are: Executive Vice President and Chief Financial Officer Jason Conley, Vice President and Chief Accounting Officer 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 call, which are available through the webcast and are also available on our website. Now if you'll please turn to Slide 2. 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. And now please turn to Slide 3. Today, we will discuss our results for the quarter 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 Q1, the difference between our GAAP results and our adjusted results consist of the following items: amortization of acquisition related intangible assets purchase accounting adjustments to acquire deferred revenue and related commission expense And lastly, a gain on sale related to a minority investment in Seteru. And now if you please turn to Slide 4, I'll hand the call over to Neil. After our prepared remarks, will take questions from our telephone participants. Neil? Good morning and thanks for joining us. For this morning's call, I'll start with a brief will be conducting a summary of this quarter's results and activities. Rob will then highlight our P and L performance and balance sheet metrics. I'll then walk through our segment details, our increased outlook for the year and our concluding comments. As usual, will leave plenty of time to talk to your questions towards the end. Next slide, please. As we turn to Page 5, we got off to a better will start than we expected. Business execution was strong across the portfolio and was also broad based. We are encouraged by seeing nice improvements across the vast majority of our software and product based end markets. In addition, we continue to see accelerating software recurring revenue growth, growing approximately 6% on an organic basis. Importantly, our 2020 cohort of acquisitions led by Vertivor continue to perform very well versus our expectations. When we put this all together, we experienced double digit growth across virtually all financial metrics: revenue, will be in the range of $1,000,000 EBITDA, DEPS and cash flow. The growth in cash flow performance in the quarter allowed us to continue our rapid deleveraging With about $500,000,000 in debt pay down during the quarter. Based on this encouraging start, we're increasing our outlook and guidance for the full year. And with that, let me turn it over to Rob to review the financial details. Rob? Thanks, Neil. Good morning, everyone. Turning to Page 6 and covering the Q1 financial highlights. Total revenue increased 13% to $1,530,000,000 which was an all time record for Any Roper quarter. Organic revenue for the enterprise declined 1% versus last year's plus 4% pre pandemic comp. EBITDA grew 20 percent to $561,000,000 EBITDA margin increased 220 basis points to 36.7 percent on really great incrementals across the portfolio. Adjusted DEPS was $3.60 18% above prior year. Free cash flow was $543,000,000 up 54%. We continue to benefit from our business transformation to a more software weighted model where working capital boosts cash flow as our growth accelerates. Our results were enhanced a bit by approximately 40,000,000 of accelerated payments that were the result of wins at our U. K.-based Clinicsys laboratory software business. Aided by our outstanding cash flow performance, We reduced our debt by approximately $500,000,000 in the quarter, more on that to follow. So in summary, a great start to 2021. Next slide. Turning to page 7, an update on our deleveraging. The charts on this page are a good preview for how we expect 2021 to look as we follow through on our commitment to reduce debt after our 2020 opportunistic capital deployment. As each quarter passes by, will benefit from meaningfully improved trailing EBITDA as the performance of last year's acquisitions rolls into Roper's Financials. EBITDA is then further enhanced by our accelerating organic growth. Concurrently, our strong cash conversion allows us to apply are high levels of excess free cash flow toward consistent reduction of our debt. In the Q1, we reduced our debt by approximately $500,000,000 Over the 1st 3 months of the year, our EBITDA growth combined with debt reduction enabled us to lower our net debt to EBITDA ratio From 4.7 to 4.2. We expect this downward trend in leverage ratios to continue moving forward. So with that, I'll turn it back over to Neil to discuss our segment performance. Thanks, Rob. As we turn to Page 9, Revenues in our Application Software segment were $578,000,000 up 2% on an organic basis. EBITDA margins were an impressive 44.9% in the quarter. Across this segment, we saw organic recurring revenue, which is about 75% of the revenue for this segment, increased approximately 6%. This recurring revenue strength is based on strong customer retention And continued migration to our SaaS delivery models. Of note, this quarter should be the last quarter of non recurring revenue declines As we come across the COVID comp from last year. From a business unit perspective, Deltek continued its long string of great performance. As we expected, Deltek's recurring revenue grew nicely. Of particular importance, Deltek saw an increase to their perpetual revenue during the quarter, are coming off a decently strong quarter a year ago. Also encouraging was the nature of the bookings activity, Which was broad based across our architecture, engineering, creative and government contracting end markets. For reference, the professional services end markets tied to AEC and Creative have been slow since the onset of COVID. Also, Clenesys, our European lab software business just crushed it during the quarter. As Rob mentioned, Clenesys had exceptionally strong cash flow as they gained tremendous market share within the clinical lab consolidation occurring within the United Kingdom. Clenesis has approximately 85% market share in the UK and is now recognized as one of 4 critical IT vendors for the entire National Health Service. Just outstanding execution by the Clenesis team and congrats. We also saw thawing in the higher education markets that Seaboard serves, certainly encouraging. Finally, our 2020 cohort of acquisitions continues to perform very well. Specific to VertiCore, we continue to be encouraged by their customers' comfort in having Roper as a long term owner for the business. Also, Amy and her team have done a great job transitioning to Roper and our governance model. As we turn to the outlook for the balance of the year, we expect high single digit organic growth for the segment. This is based will be conducting a question and answer session. As it relates specifically to the Q2, We expect our growth to be a touch below high single digits due to our global lab software group coming off across a challenging comp from a year ago As they are instrumental standing up COVID testing on a global basis. Solid and encouraging quarter for sure. And with that, let's turn to our next slide please. Turning to Page 10. Revenue in our Networks segment were $440,000,000 flat versus last year and down 3% on an organic basis. EBITDA margins were 40.9% in the quarter. Our software businesses in this segment, about 65% of the revenues, were up 4% on an organic basis. This revenue was broad based among our software businesses and driven by organic recurring revenue growth of are now in the range of 10% to 15% of revenue. Recurring revenue growth is underpinned by strong customer retention. Recurring revenues are also benefited by increasing network participation. At the business level, our Freight Match businesses both in the U. S. And Canada continue to be solid growers are ready for us. As a reminder, our freight match networks are critical and necessary elements to help organize and transact The trucking, shipping, spot markets. Strength in our businesses has been on both sides of the network, brokers and carriers. We also continue to see nice organic gains at ConstructConnect as their network enables commercial construction planning and bidding to occur in a more efficient are in a transparent manner. Lastly, as it relates to our network software businesses, we saw improved end market activity, especially in the middle market are for foundry, our media and entertainment compositing software business. Our non software businesses in this segment were down 13% for the quarter a touch better than we anticipated. TransCore's New York project work continues and is tracking well. TransCore's tag volumes declined versus a year ago based on lower traffic volumes across the U. S. Turning to the outlook for the balance of the year. We expect to see high single digit organic revenue growth for the segment with consistent high single digit growth through the balance of the year for our network software businesses. As it relates specifically to the 2nd quarter, We anticipate our segment organic growth to be a touch below HSD given TransCore should be stronger in the second half versus next quarter based on timing of project execution and tag shipments. All in all, a solid outlook for the balance of the year. Please turn to the next slide. As we turn to Page 11, revenues in our MAS segment were $381,000,000 up 2% on an organic basis. EBITDA margins were 34.8% in the quarter. As usual, in the segment, will profile the 3 macro parts, Medical Products, Neptune and our Industrial businesses. To start, Our Medical Product business has performed very well this quarter. Verathon continued its strength based on consistent factors: GlideScope unit placements and recurring consumables pull through and continued momentum and share gains with our single use bronchoscope product offering. What is also encouraging to see is the growth in their bladder scan product line. We believe this was based on a broader base trend of hospitals resuming have some normal level of clinical capital spending. We saw similar strength in our other medical product businesses as well. For instance, Northern Digital had their best Q1 bookings quarter in history. This trend bodes well for the balance of the year. Neptune, as expected, declined in the quarter for the same reasons discussed in each of the last three quarters, having limited access to indoor meters in the Northeast United States in Canada. However, we did see some easing of these restrictions in March and Neptune's customers are beginning to increase their maintenance schedules throughout Q2 Finally, our Industrial businesses benefited from improvements in their end market conditions. For the balance of the year, we expect high single digit growth for the segment. This is based on broadly improving conditions, both in medical and industrial end markets And increases to access an indoor meter replacements at Neptune. This strength will be somewhat offset by the extraordinary prior year COVID demand at Verathon. We encouraged by our expected high single digit growth for the balance of the year. Now let's turn to our final segment, Process Tech. As we turn to Page 12, revenues in our Process Technologies segment were $131,000,000 down 10% on an organic basis. EBITDA margins hung in at 31% in the quarter. The short story here is we're seeing improving end market conditions Across virtually every one of our businesses in this segment after nearly 2 years of declines. For instance, at CCC, were seeing the resumption of previously deferred projects and demand for field services to come back online. Also greenfield bidding activity is are back in full swing, especially on an international basis. Cornell continues to perform well for us. This is particularly partially based on market conditions, but also based on Cornell's product innovation as they are are seeing very nice demand pickup for their IoT connected pumping solutions. As we look to the outlook for the balance of the year, we see double digit organic growth are based on improving end market conditions and continued easing comps. Now please turn to Page 14, where I'll highlight our increased guidance for 2021. Based on strong Q1 performance and our increased confidence for the balance of the year, we're raising our Full year adjusted DEPS to be in the range of $14.75 $15 per share and organic growth to be in the 6% to 7% range. The 6% to 7% organic growth is against a 1% organic decline in 2020. This demonstrates that we have meaningfully improved on an organic basis since 2019, the compounding continues. Our tax rate should continue to be in the 21% to 22% range. For the Q2, we're establishing adjusted DEPS guidance to be between $3.61 $3.65 and expect 2nd quarter organic Revenue growth to be in line with the full year organic growth rate. Now let's turn to our summary and get to your questions. Turning to Page 15 and our closing summary. This was an encouraging start and we're raising our outlook for the year. We performed well across virtually every financial metric with double digit increases in revenue, EBITDA, DEPS and cash flow. EBITDA margins expanded nicely and free cash flow grew 54 percent to $543,000,000 which enabled us to continue our rapid deleveraging in the quarter. Importantly, we are well positioned for continued double digit compounding. We're seeing improving conditions across virtually all of our end markets. When combined with our leading market positions, we expect high single digit organic growth for the remainder of the year. As owners or prospective owners of RUPERTEC, you should be encouraged by our increasing levels of recurring revenue and the stability of our recurring revenue growth. Also, our 2020 cohort of acquisitions are performing very well and Vertivore has proven to be an excellent addition to our growing portfolio of software We continue to focus on deleveraging our balance sheet and remain committed and focused on our long term capital deployment strategy. To this end, our pipeline of M and A candidates is active, robust and has many high quality opportunities. As our balance sheet becomes more offensive towards the end of this year, our active pipeline of M and A targets will enable us to resume capital deployment in our usual process oriented and disciplined manner. In closing and as we turn to your questions, we recently announced that Amy Woods will become our new Board Chair effective June 1. Amy has been a tremendous Board member since 2015 and will be a fantastic Board Chair. I certainly look forward to working with Amy and the full Board for many years to come. But as we turn to your questions, I would like to take a moment to acknowledge and thank our are outgoing Board Chair, Bill Prezano. Bill has been a Roper Director since 1997 and has reached our mandatory Board retirement age. He served as our Lead Independent Chair, Director and became Board Chair during the CEO transition from Brian Jolson to myself. Bill has been a wonderful Board Chair, enabling a smooth CEO transition and the continued evolution of our strategy and business model. On a personal note, Bill has been a tremendous mentor to me, which I hope will continue on an informal basis for years to come. Bill, Thank you for your years of service to Roper shareholders. I think the share price was around $16 when you started. And thank you for helping me become a better leader and Chief Executive Officer. With that, we'd like to open it up to your questions. We will now go to our question and answer portion of the call. Our first question is from Christopher Glynn from Oppenheimer. Please go ahead. Hey, thanks. Good morning, everybody. Good morning. So strong margins across the board. I was curious in particular application soft were particularly better than expected. I don't know if Vertivor had some incremental revenue versus what you expected, but What kind of drove the AppSoft margins in the quarter? Hey, Chris. Good morning. Yes. There is strength across those businesses. I think Neil mentioned, Clinicsys was strong, Sunquest had a nice quarter, Deltek, Sort of perpetual license wins there, all that stuff comes in at really high incrementals, and that drove most of the margin performance. Okay. And then a question on acquisition philosophy. You've kind of highlighted Financial profile and returns and characteristics over strategic end markets, but it strikes that Briafora and I pipeline are 2 out of your 3 biggest deals ever, both kind of serving the insurance marketplaces. I'm wondering if there's any emerging prioritization and types of end markets? Hey, Chris, I appreciate the question and the opportunity to talk about that. The short answer is no. I mean our M and A strategy for 20 years is centered on picking the best businesses and business models that we can identify from the range of opportunities in the marketplace. If you go back to really starting in 2011, you might have thought from 2011 to 2013, we're all about healthcare IT and then maybe from 14 to 17 about professional services ERP and then the last couple of years about insurance tech, but all of those steps are completely coincidental. We really just evaluate the range of opportunities and pick the very best business that we can find. The next question is from Deane Dray from RBC Capital Markets. Please go ahead. Thank you. Good morning, everyone. Good morning, Deane. Hey, first question is, how would you characterize the software demand this quarter? It might be hard to parse this out, but how much might have been pent up from the COVID shutdown, kind of a catch up versus a through recovery and resumption of growth, not sure you can characterize it broadly, but maybe some individual examples within the businesses. Thanks. Yes. I don't think there's much pent up here from our call downs to our businesses this year. So this quarter, it's more of a More recovery story. For instance, we talked about in the prepared remarks about the professional services end markets that Deltek serves, architecture, engineering, Creative agencies started to come back in the quarter, which is great to see. Vertifor was steady as she goes. They were not Particularly impacted by the pandemic, Aderant Law Firms continue to proceed with their transition. We did see some recovery start in the education and healthcare markets at Seaboard, the middle market at foundry, which is great to see Yes, as production, live production begins and comes out of production in the post production, it was really just a nice The increasing sort of start to recovery. And then anytime anybody asks a question about software, we got to talk about the recurring revenue stream. It was around 6% growth organically across the 2 segments and in total, which bodes well for the future. That's great to hear. And then just a second question, since it is such a high profile project, any updates on the New York City congestion tolling, I saw in the slide it says that work has continued, but any update there would be helpful. Thanks. Yes, just the project continues, the customer continues to want us to get the project done so they can commence the discussions on how they're going to do the tolling And begin to start the tolling. Certainly, the most macro backdrop is more favorable now with the administration and the White House and Secretary Pete And all the that is all in a much more favorable position than it was just a quarter or 2 ago. So the project continues. The next question comes from Julian Mitchell from Barclays. Please go ahead. Expect, so in Application Software, you did have a very substantial margin increase Year on year in the Q1, you laid out some of the reasons why. But maybe just help us understand sort of as we think about the balance of the year for that business and maybe for Roper firm wide, what type of incremental margins or margin trajectory we should expect, Because it looks as if the sort of drop through margin is maybe around 20% in the guide for the balance of the year. I just wanted to sort of check how you are thinking about that. Yes. So I'll give a crack at that. On an EBITDA margin basis, right, I mean, VERTIFOR is a higher EBITDA margin So that you're seeing that and we talked about we bought the business, it's around a 50% or so, a little low below that EBITDA margin business. So that helps. I think on a core basis, it's going to be relatively consistent year over year for the rest of the businesses on an EBITDA margin basis. And That's conversion at 40% to 50%, and that's just consistent with what we see These businesses as they grow and as you know they have great cash characteristics, very negative working capital. So the cash flow growth Cannot be even faster than the EBITDA growth. And so it's a great story there and I think we'll continue to see Margins high within that segment. And Julien, just to underscore one thing Rob said, I mean, the incremental EBITDA margins for the year 40%. But as you said, I just want to underscore that. Yes. That's right. Perfect. Thanks very much. And then The second question would really be around the in network software. How are you thinking about the leaving aside TransCore and other, the sort of core piece of it? You did have some big impacts there in network software last from COVID in sort of healthcare, food and media, I think you'd called out before. Maybe just clarify what pace of top line acceleration, you're seeing in some of those COVID impacted areas, and what kind of Cyclical recovery if you like in network software you're experiencing. Yes. So the network software businesses are Strong high single digit organic for the rest of the year. That's the consistency in the recurring, which we talked about has been growing all along. But then you do get a little The bounce back in some of the markets you mentioned, foundry and others. So I think you're on the right track there. Neil, you want Just a color on the 3, the healthcare, entertainment and food. So MHA is the healthcare business That was tied and next to patient and volumes going through long term care, skilled nursing, assisted living facilities. That's normalized. That business also has added products to its contract portfolio. So that business is on its way to recovery as we speak. We talked about foundry in the prepared remarks, which is there's just tremendous content budget, are not surprising in the marketplace and all that content requires post production and we're a critical element in that post. And then finally, iTrade. ITrade is going to be one of the longer recovery cycles for us. It will be a second half this year and the next year as they're indexed Partially to retail food, but also partially to what I'll call institutional food, which is think about that as restaurants, schools, universities, a little bit of stadiums and that's going to come back on a longer recovery curve. The next question is from Allison Poliniak from Wells Fargo, please go ahead. Hi, guys. Good morning. Just want to circle back on to Dean's question around, I know he mentioned Around the reopening kind of theme in Q2 and it sounds like you are seeing some green shoots. Just trying to reconcile for the balance of the year, it sounds like you guys are expecting a more, I would say gradual recovery in some of those businesses. Any color from your customers in terms of are they still a little concerned about the COVID impact? Are they thinking maybe there could be some pent up demand as we sort of exit this year. Any thoughts there? Well, we got to sort of run through the portfolio, Allison, in that regard. I think it will be I think our comments here will be around the product businesses as opposed to the software ones. First is The tag volumes at TransCore, I mean that's going to be a probably a second half of this year recovery cycle just based on when the tags were bought last year into this year having the customers burn through existing inventories, traffic patterns come back on. We talked about medical products. We got the COVID headwind for a quarter or 2 at Verathon, but the other businesses definitely saw a palpable improvement in the capital purchase of their medical equipment in the quarter and we have no sense that was pent up or one time. We'll find out in the next quarter too, but that was not the read through From the conversations we had with our customers. In fact, NDI had record bookings in the quarter. As we go through the industrial businesses, Struwwers, we definitely saw an improvement across the portfolio of industrial businesses through the quarter With Strewers having record March bookings, which shows that there's some sort of gradual improvement there to continue. And then on the Process Technology businesses, there was just nice I would call that very similar to what we saw at Steward's and Industrial March got In February, February is better than January. Great. That's helpful. And then strong deleveraging in the quarter, you talked about an active pipeline may be more comfort towards the end of the year. Any change to thinking just given the strong performance so far, obviously strong cash flow characteristics That you would have some comfort level of staying slightly above your comfort range at this point? Or are you still focused on getting that down in terms of the net debt leverage? Yes, Allison, it's a great start to deleveraging for Q1. So that certainly helps boost our ability to pay down the debt faster will continue to do that throughout the year. And as Neil mentioned, we're making sure the pipeline is active and there's some exciting things that we're looking at in the early stages and we'll be ready to deploy capital at some point, but for right now, we're really focused on the deleveraging. The next question is from Joe Giordano from Cowen. Please go ahead. Hey, good morning, guys. Good morning. Hey, Joe. Hey, Rob, just I'm going to pick on the guide a little bit. So revenue for the year, you're expecting 6% to 7%, it was kind of mid single digit plus before, came in pretty good in the 1Q, good margins. And we're kind of just passing through the 1Q beat essentially, maybe a tad higher than that So like how would you kind of argue that? Are you seeing anything incrementally challenging? It sounds like you're Everything seems to be at least down plan, if not a bit above. So just want to think through the framework there. Yes. I think that's right. I think It was 1 quarter, right? We had a really nice Q1 and we felt it prudent to raise the guide because it certainly gives us more confidence for the rest of the year. It was 1 quarter and this is an unusual environment where we're coming off of a sort of hopefully once in a lifetime pandemic and so we're trying to be balanced in the outlook And sort of what we do with the businesses. Yes, that's fair. And Neil, maybe can you talk us through just like the structural differences between the Lab software businesses in the U. S. And in Europe and how businesses in each region are differently positioned and why Clintusys is able to do so well Yes. I mean, in the U. S, As we've talked about quite a bit, the lab was the first part of the hospital to become automated. And then 20 years later, Due to with government stimulus, there was the hospitals deploy electronic medical records and then those EMRs, as a general matter appreciated and wanted the connectivity of the lab software to the EMR and that's how we had sort of the competitive headwinds for are 4 or 5 years at Sunquest. When you look at Europe, that dynamic does not exist. The health systems are different, first of all. They're country driven. There is not the concept of an EMR landscape on a country by country basis, it's very, very different. It's characterized by local providers, characterized by country specific providers. And as a result, Klinus' lab software is not just we highlighted the U. K. Wins and strength in this quarter, but they've just been doing a great job pan European in France and Benelux emerging presence in Germany, bought a small business last year in Spain To be able to consolidate the laboratory infrastructure across Europe. Each of the countries in their own way are going through are ready to take the necessary steps to deliver on the regulatory consolidation in a way to save money for the health system itself. And we being basically the only scaled Provider that with demonstrable success at scale have been able to lend market share at a meaningful clip there. And just so I understand, what gives you the confidence that sort of like integration of lab with the broader hospital systems is not Something that's a near term threat to the business. Yes. I think it's essentially the way that for instance the primary competitor in the U. S. That we is Epic. Epic, for instance, is basically doesn't have a presence in Europe. And when they do, it's a country Specific presence. They might be in a very small country or small region of a country and it's sort of isolated there given that it's a country specific decision process and also there just isn't that competitive activity just isn't there. Our next question comes from Blake Gendron from Wolfe Research. Please go ahead. Thanks. Good morning. First question on free cash flow. The conversion from EBITDA has been exceedingly strong over the last several quarters. On top of already strong margins, how should we think about conversion moving forward through the year relative to what you accomplished in 4Q in 1Q, I'd imagine the recovery in non recurring software is helping the working capital profile. So really just wondering how Sure. So I think so in the Q1 right there's no federal tax Payments, so that's always a high cash conversion quarter. So that normalizes more when we make the start making federal payments in Q2. But really, as I mentioned a little bit earlier, I mean, it's great growth from the software businesses. They have negative working capital. Therefore, the cash performance is very strong. The more software growth you have, you drive working capital further negative. It's very structural part of the model. High conversion is embedded in everything that we do. So we expect that free cash flow conversion to continue to get better over time continue that double digit cash flow compounding that we all expect to achieve. Excellent. Just want to circle back on M and A. So plenty of puts and takes With potential U. S. Tax increases and yields moving higher, I'm wondering if you could help us think about these inputs in the context of Historical private software pricing in the pipeline, some of these changes come through, taxes rise, yields rise. How would you expect asset pricing to evolve or how has it evolved in the past? I think we discussed this before about it being a net positive for Robert. Yes, we certainly believe on balance that's the case. So, well, obviously when taxes went down, rates are sort of private prices went up a touch. I think the it was 14 times, 15 times for Deltek and 16 times for power plant really the only difference in the market there was the tax change. So that gives you a sense of the order of magnitude, maybe a couple of turns, but it depends on what the magnitude of the tax change is. Think as interest rates go up, we're competing against private equity firms who have a levered acquisition model. So as interest rates go up, the amount of leverage they can put on a transaction goes down and subsequently the total equity that they put into a deal goes down and multiples compress more so with interest rates going up I think than what you And then in our case, the majority of our acquisition proceeds come from our cash that we generate. And so we're relatively insensitive to interest rate where our competitors for acquisitions are. So in the long arc of time, that's a good thing for us. The next question comes from Steve Tusa from JPMorgan. Please go ahead. Hey guys, good morning. Good morning, Steve. Thanks for joining us. Thanks for having me. Just to clarify on the answer Before on kind of the degree of leverage you're comfortable with before doing a new deal, is kind of 3 times a bit of a line in the sand there where you would get back down to below that before doing another deal? Or maybe just talk about kind of that 3 times level and how that kind of plays into your thoughts? Yes, sure. I wouldn't say a lie in the sand. I think once you get into the low 3s, That certainly it's more reasonable. I think the we spent a lot of time with the rating agencies when we did our last couple of acquisitions. I think they understand the high quality of the cash flow that we have and our incredibly high cash conversion. And so it's really about How good our business model is, how fast we can pay down any leverage that we put on the business, I think we've demonstrated that time and time again, we can do it pretty quickly. So once we get Into the low 3s and I think we have the ability to deploy capital. Okay, great. And then just lastly, when you kind of look out to Next year, are there any you're obviously not going to have any deals here at least in the near term, but are there any moving parts and items from a headwinds perspective, whether it's the Vertifor tax benefit or some of these Sunquest deals around COVID, how do those play out for next year? Do they generally offset are they offset by growth in some of the other businesses? Maybe if there's anything So let me just hit a couple of things and then I think Neil wants to add on. But yes, you're right, there's this $100,000,000 plus Tax benefit around vertivore that we talked about that will hit throughout Q2 through Q4. We did not benefit from that in the Q1. And then there's about $60,000,000 or so of this payroll tax deferral, which is a bad guy this year, for the rest of the year, given that was part of the COVID Rules that you can defer some of those payments and there's always going to be pluses and minuses in sort of that part of the world. But I'll let Neil talk about some of the growth. Well, I think it's always appreciated in the quarter that we have here you highlight the headwinds going into next year, Steve. So we appreciate that. But in a general matter, year 2 out of a pandemic should be pretty good. The next question comes from Alex Blanton from Clear Harbor Asset Management. Please go ahead. Hi, good morning. Congratulations. That's a great quarter and it looks like you're going to have a very good year. I just wanted to comment that so far there have been 7 analysts and every one of them has been cut off Before they finish with their second question, none of them said thank you. And I'd like to ask the moderator to please stop doing that Because that is really not a very good way to conduct a call. You need to allow dialogue with the management On the second question, don't cut people off before they say thank you, let them finish, please. I wanted to ask about the backlog of opportunities That you mentioned that you might get back to accessing it at the end of the year as you start to deploy capital, could you just a little more on the nature of that pipeline, The size of the companies that in there, because as you get bigger, It's obviously important to find bigger and bigger companies in order to keep the growth rate constant. So could you just give us a little bit on that and perhaps characterize The kinds of markets those companies are in that you're looking at in the pipeline. Alex, it's Neil here. I appreciate the question and Appreciate your opening comments. Let me give you a broader view to your question. First, why we're active now with our M and A pipeline is that we're meeting with companies is that Every company of size that we bought from 2016 forward, we met with roughly 9 to 12 months at the earliest at a minimum before buying the So we're establishing a relationship, getting into the management team, getting to know the business, and then sort of, if you will, have a running start when the business actually comes for sale. So we're active and the work we're doing now is going to pay dividends 9, 12, 18 months from now in terms of deploying capital and our ability to do that in companies that we have a high level of conviction in. To your question about doing bigger and bigger I would beg to differ with that a little bit. When you look at our model over the next 7 years, we have to deploy somewhere on a run rate basis $2,000,000,000 to $2,500,000,000 a year based on our cash flow and the leverage profile that we just talked about. And in doing so, when you're looking at the types of businesses that we look to buy, small market, vertically focused, leading software type or software type business models, I think the sweet spot in that is going to be somewhere in the are in the range. So we're talking about doing a couple ish deals a year and then we'll always do are a small number of tuck ins or bolt ons to the existing portfolio. So I think we can at least for the next 7 years on a per year basis, we don't have to do bigger and bigger deals to keep the growth rate at the sustained double digit rate. Would you say that these companies, the margins and the cash flow and the EBITDA and so on are such that you can keep increasing Those metrics like EBITDA margin and operating margin and gross margin, The way you've done for many, many years by buying companies that have Margins that are above the corporate average. Can you keep doing that? I think so. The answer to that is yes, Alex. So It's really about the target the businesses that we target, right? Businesses that have higher organic growth than Roper has historically. Businesses that have Very good margins, often better than Rover, at least at the same level now that we've improved ours over many, many years. And then we buy those businesses, They grow. We hope we believe we can make them better. They accelerate growth. They generate more cash and you get this compounding effect. And so it's really the same strategy that I appreciate you follow for a long time we've had for over a decade now and it's the good news is as you get more and more into software and these types of opportunities, we find more and more Companies that fit that model that will allow us to continue to improve all those metrics for many, many more years to come. Right. Well, this has been the company's strategy since I started following it in 1992 when you went public. It's been a great run. Thank you very much. Thank you. Thank you, Alex. Next question comes from Richard Eastman from Robert W. Baird. Please go ahead. Yes. Good morning and thank you. Hi, Richard. Good morning. Yes. Good morning. Just a question or 2 around the application software business. And When we look at the lab software business as part of that in aggregate around Clinisys and Sunquest, you've spoken nicely about Clinisys' share gains in Europe and the rationale for that. Could you just talk a little bit and maybe characterize the U. S. Business around Sunquest? Has Sunquest share stabilized and maybe post COVID, what does the recovery environment look like for Sunquest domestically? Yes. So Sunquest did I mean they were benefited. Let's also let me back up. Let's You mentioned 2 companies, Cleinysys and Sunquest. We ought to include a third, which is Data Innovations, which is a middleware business. They're very global business, but they're domiciled in the U. S. But specific to your question about Sunquest, the U. S. Laboratory business, they were benefited last year and in this quarter with the COVID tailwinds Standing up COVID testing, they continue to invest in their public health offering, in their molecular offering. The leadership team has done a nice job in that. So that's good news. The unfortunate part of that news is it just delayed the bottoming of this business, which we thought was going to be this year ish if it weren't for COVID. Now it's going to be pushed out a year or 2 before that business sort of gets through all the known attrition and then as baseline from which it can grow from. Okay. And how much of that lab software business now Is domestic when you put those three businesses together, Clintus, Sunquest and Data Innovation, how much is domestic versus international? Is it a know I'm going to let Rob take a look at this. We might have to get back to that. Yes. I want to circle. I mean, it's approaching probably fifty-fifty, given the growth in The fact that DI business is very global and the Sunquest business is mostly U. S. So as a group, it's probably about half. I understand. And then just a follow-up question around measurement analytical and the process businesses. Could you just talk about pricing there? I know you usually allow your GMs to price according to margin targets and things. But can you talk about price and how proactive You've been able to be on the M and A business as well M and A as in measurement analytical in the process side. Yes. I think the characteristics of these businesses is they of all Roper businesses is they price based on the value that's created. A great example there is in our Hansen business where they've added a couple of innovations in their refrigeration valve business product line with coatings and some sensors to allow to identify clearly when it's been triggered. Very low cost increase to build materials, but massive increase of value. So you're seeing very nice price increases On a like for like basis, it's the businesses are agile. They've been very good to be able to push through Any increase to available materials because of the supply chain and otherwise taking normal price. Okay. All right. Well, thank you. Thank you. This concludes our question and answer session. We will now return back to Zack Moxie for any closing remarks. Thank you everyone for joining us today. We look forward to speaking with you during our next earnings call. The conference has now concluded. Thank you for attending today's presentation.