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Roper Technologies, Inc. (ROP) is a diversified technology company operating across four segments, namely application software, network solutions, measurement, and analytics solutions and process technologies.
ROP’s application software and network solutions segments each contribute roughly one-third of its revenue. Measurement and analytics solutions contribute just over one-fourth of total revenue with the balance coming from process technologies.
Despite taking a modest hit on perpetual software licensing revenue during Q3 2020, the company was able to benefit from greater cloud adoption, leading to meaningful growth in its recurring revenue-generating niche-business segments.
Two of its biggest revenue and profit drivers – application software and network solutions – both registered healthy growth compared to the same quarter last year. Laboratory software solutions and hospital-decision support systems benefited from the fight against the COVID-19 pandemic. This helped the company offset lower demand for its measurement solutions from budget-deprived hospitals and lower demand for its process solutions from the struggling oil and gas industry.
Roper’s currently strong financial standing can be gauged from its healthy EBITDA margin of 36% in Q3 2020, which is at a similar level seen in the same quarter of 2019. The company has been successful in growing its adjusted year-to-date free cash flow by 13% to nearly $1.11 billion by the end of Q3 2020. Roper’s financial flexibility has even enabled it to close two acquisitions in the middle of COVID-19 pandemic, with the company acquiring software-as-a-solution (SaaS) provider for property and casualty insurance industry (Vertafone) for $5.35 billion and SaaS provider for hospital-decision support systems (EPSi) for nearly $0.46 billion.
As a result, the company didn’t hesitate to reward shareholders and continued its winning streak of 28 years of increasing its dividend. This time, Roper increased its quarterly dividend by 10% from 51.25 cents to 56.25 cents payable to shareholders of record as of January 8, 2021.
Looking forward, investors can feel comfortable with Roper’s strategy to improve its recurring revenue mix that is expected to further enhance the company’s free cash flow generation capability.
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