Financial Performance and Outlook

FY26Q2 Financial Performance

• Revenue: $2.11B, up 9% YoY (5% organic, 3% from acquisitions)
• Adjusted EBITDA: $815M, up 5% YoY; adjusted EBITDA margin of 38.6%, down 130 bps YoY
• Core EBITDA margin down 70 bps YoY, driven primarily by TEP input cost pressures; core software segment margins down a modest 10 bps
• Adjusted DEPS: $5.38, up 10% YoY; above guidance range of $5.25–$5.30; outperformance driven by solid organic growth and $0.03 of accretion from additional buyback activity
• Adjusted free cash flow: $447M, up 11% YoY; TTM free cash flow of $2.6B, compounding at 18% over 3 years (15% excluding Section 174)
• Organic recurring revenue across software segments grew 7%, consistent with Q1

Full-Year FY26 Guidance (Raised)

• Adjusted DEPS raised to $22.15–$22.30, up $0.30 at the midpoint from prior guidance ($21.80–$22.05), and up $0.80 from the original January guide
• Full-year total revenue growth raised to 8%+ (prior: ~8%); organic revenue growth raised to ~6% (prior: 5–6%)
• Key assumptions unchanged: no GovCon improvement at Deltek, no meaningful freight market recovery at DAT, modest top-line weakness at Neptune
• Guidance excludes Indicor instrumentation divestiture proceeds (~$1.4B gross, ~$1.2B after-tax expected in H2 2026)

FY26Q3 Guidance

• Adjusted DEPS: $5.75–$5.80

Capital Deployment Outlook

• Management expects M&A to offer the more attractive long-term compounding opportunity relative to buybacks as PE market conditions improve
• Near-term capital deployment will favor deleveraging over opportunistic buybacks, with net leverage at 3.4x exiting Q2 2026
• Management expects to deploy $5B or more toward acquisitions over the next 12–18 months, contingent on market conditions
• Indicor's instrumentation business sale to AMETEK expected to close H2 2026, with ~$1.2B after-tax proceeds rebuilding balance sheet capacity

Business Drivers

Deltek GovCon: Encouraging Signs, No Call Yet

• Deltek had a solid Q2, aided by a large perpetual license deal not included in guidance — this drove some outperformance in the Application Software segment
• GovCon commercial pipeline looks strong, and management noted that appropriations from the One Big Beautiful Bill are starting to flow into the contractor community
• However, management explicitly declined to call a trend: "Before upgrading our GovCon outlook, we'd like to see the sales pipeline convert consistently over the next few quarters"
• This remains the single largest swing factor for consolidated organic growth — any sustained improvement would add meaningful upside to the 6% organic guide

DAT Freight: Early Green Shoots, Recovery Not in the Guide

• Carrier additions have increased steadily throughout 2026; spot pricing is strengthening relative to contract rates; carrier rejection rates are rising
• Management noted DAT grew "nicely" in Q2 and is seeing "improving freight market conditions for the first time in many years"
• Load volumes have not yet improved enough for management to turn fully bullish on the recovery
• FY26 benefit from freight recovery is "tracking modestly ahead of prior expectations"; management is increasingly encouraged for 2027
• A new ruling harmonizing broker liability laws at the federal level is viewed as a positive, as it increases broker incentive to use carrier vetting tools like Convoy and DAT

Neptune: Better-Than-Expected First Half, Second Half Recovery on Track

• Neptune revenue declined modestly YoY in Q2 but came in ahead of expectations, with solid mechanical meter volumes and continued growth at UnionLink (cloud-based utility billing)
• Management confirmed Neptune is on track to return to growth in H2 2026, aided by easier comps and price normalization following the 2025 surcharge disruption
• Bronze ingot inflation (a copper derivative) remains elevated and management's base assumption is that input costs stay high; offset being pursued through regular pricing cycles rather than surcharges

TEP Margin Pressure: Input Costs and Mix Shift

• TEP core EBITDA margins were down substantially more than the enterprise-wide 70 bps decline, driven by two dynamics:
  • Neptune shipped a higher mix of mechanical meters (higher copper content) versus static meters; the mix should shift back in H2 2026
  • NDI and Verathon continue shifting toward faster-growing single-use consumables, which carry lower gross margins but are more recurring and durable
• Management expects margin improvement in the TEP segment in H2 2026 as Neptune's static meter mix recovers and comps ease

AI Product Velocity Accelerating

• A notable acceleration in AI product releases occurred in Q2: Vertafore launched its AI Velocity platform with 6 agent SKUs; Deltek released agentic capabilities for RFP development and month-end close; Aderant shipped first-generation agents across collections, billing, and time capture; CentralReach deployed clinical documentation AI; Procare shipped Room Runner (enrollment optimization); DAT deployed its first proactive AI recommendation engine for carriers; and SoftWriters, Foundry, ConstructConnect, and others rounded out the list
• Vertafore's AI opportunity: management framed the TAM expansion from agentic automation at roughly double current market size, with the 6 initial SKUs representing early scaffolding of a much larger product roadmap
• SoftWriters' AI-powered pharmacy order entry compresses processing time from ~90 seconds to ~18 seconds per prescription (an 80% reduction), priced on a transactional basis directly aligned with labor savings
• CentralReach continues as the leading proof point: AI-generated session notes cut from 5–10 minutes to ~30 seconds; 75% of new bookings in Q1 2026 were AI-influenced
• Management acknowledged that material AI revenue contribution remains a 2027 story, with 2026 being a commercialization learning year across pricing, deployment, and adoption

Capital Allocation Pivot: From Buybacks to M&A

• Roper has repurchased 9 million shares (~8% of shares) for $3.2B since November 2025, rolling the share count back to 2013 levels
• Management signaled a deliberate shift: near-term capital will prioritize deleveraging, with net leverage rising to 3.4x after Q2 buybacks
• Indicor instrumentation sale proceeds (~$1.2B after-tax) expected in H2 2026 will rebuild capacity; flow control businesses remaining in Indicor represent additional future liquidity
• M&A pipeline conversations are described as "decidedly more constructive" with PE sponsors accepting lower valuation realities; proprietary deal flow is increasing; investment banking intermediaries are reporting full pipelines
• Management articulated a target of deploying $5B+ toward acquisitions over the next 12–18 months, contingent on the market improving as expected

One-Offs

Indicor Investment Gain

• Roper recorded a $835M pretax equity investment gain on its Indicor minority stake in Q2 2026 (after-tax: $791M, or $7.86 per share), driven by the announced sale of Indicor's instrumentation businesses to AMETEK
• This gain inflated GAAP DEPS to $11.62 in Q2 versus adjusted DEPS of $5.38; the Indicor impact is excluded from all non-GAAP measures going forward as gains cannot be reasonably predicted
• YTD 2026, the cumulative Indicor gain is $1.002B pretax ($9.16 per share)
• Cash proceeds of ~$1.4B gross (~$1.2B after-tax) are expected upon close in H2 2026 and are excluded from current guidance

Buyback Accretion vs. Prior Guidance

• Q2 DEPS outperformed the guidance midpoint partly due to $0.03 of EPS accretion from share repurchases executed in the quarter beyond what was assumed in the prior guide
• The cumulative 9 million share reduction since November 2025 continues to provide a growing per-share tailwind going forward

Network Software Margin Drag from Acquisitions

• Network Software segment operating margin declined from 43.9% in FY25Q2 to 41.0% in FY26Q2, driven by the full-period inclusion of Subsplash (lower-margin, faster-growing business) and continued investment in Convoy (currently unprofitable)
• These are structural dilutants to Network Software margins that will persist until Subsplash scales margins and Convoy reaches profitability

Thesis Updates

Organic Growth Ceiling: Modest Progress, Key Questions Remain

• FY26Q2 organic growth of 5% is below the Q1 pace of 6% and unchanged from FY25Q3's 6%, suggesting the portfolio's organic growth rate continues to settle in the 5-6% range — below Roper's stated 7-8%+ through-cycle aspiration
• The enterprise software bookings trend (TTM core up mid-single-digit-plus) is constructive but not yet accelerating. Management has consistently cited Deltek GovCon and DAT freight as the two businesses keeping consolidated organic growth below its potential
• The Deltek GovCon market remains a "show me" story: a large license deal executed in Q2 is encouraging, but management explicitly declined to call a trend. The business has disappointed on perpetual license timing for three consecutive years. Until pipeline converts consistently, the GovCon recovery thesis remains unproven
• DAT green shoots (carrier additions, higher spot rates, rising rejection rates) are more concrete than at any point in the past three years, but load volumes — the revenue driver — have not yet improved. Management's 2027 framing for DAT's freight recovery benefit is the most concrete positive signal to date

AI Monetization: Product Velocity Is Real, but Commercial Revenue Remains 2027

• The sheer breadth of AI product releases across 21 software companies in a single quarter is notable, and the early customer engagement signals (20% of Procare customer base engaging with Room Runner within 4 hours of launch; hundreds of Vertafore customers in early agent betas) suggest genuine customer interest
• However, management was unambiguous: AI will not be a material revenue contributor in 2026. The 2026 chapter is commercialization learning — how to price, sell, deploy, and drive adoption. The compounding flywheel (more adoption → better models → more value → more adoption) is the long-term thesis, but it requires a longer runway than the current year
• Vertafore's Velocity platform with 6 initial AI SKUs represents the first deployment of the Roper AI Accelerator team, described internally as achieving roughly 10x development velocity. The team is expanding from 1 business engagement to 6 in Q3 2026 — a meaningful scale-up that could begin to show in 2027 bookings
• The risk that AI ARR remains "tens of millions" against a multi-billion revenue base well into 2027 is real; management's refusal to provide a specific AI revenue figure or target is notable

Capital Allocation Pivot: A Deliberate and Consequential Shift

• The pivot from buybacks back toward M&A is management's clearest signal that they believe the valuation dislocation that made buybacks attractive has narrowed. The $3.2B in buybacks at an average price near $356/share (blending Q4 2025 at ~$446 and subsequent quarters at lower prices) was executed at what management described as "silly" dislocation
• The explicit targeting of $5B+ in M&A over 12–18 months, combined with the Indicor proceeds and deleveraging commitment, represents Roper returning to its primary capital allocation mode. Analysts pressed on pipeline specifics and management cited concrete qualitative evidence: PE sponsors are "coming to grips with the new valuation landscape," proprietary deal flow is high, and consultant/banker pipelines are full
• The risk: leveraged buyout sponsors accepting lower valuations does not guarantee they will meet Roper's discipline on business quality. In a more active M&A market, competition from other well-capitalized buyers (private equity using cheaper credit) could re-emerge and push prices back up

Procare: Still a Work in Progress

• Procare is the only business management explicitly called out as a "work in progress" for the second consecutive quarter, with product, go-to-market execution, and implementation capability all cited as areas being addressed
• Room Runner's early engagement metrics are positive, but management's tone on Procare remains materially more cautious than on any other application software business — a notable contrast to businesses like Aderant (described as "excellent"), Illumia ("strong"), and CentralReach ("executing at a high level")
• The maturing leader acquisition thesis requires Roper to successfully turn around multiple sub-scale businesses simultaneously. Procare's continued underperformance while CentralReach and Subsplash are tracking well is a manageable situation today, but adds complexity to any incremental maturing leader acquisitions