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Section 1: 10-Q (10-Q)

rop-20200930
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2020.
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                   to                 .

Commission File Number   1-12273
ROPER TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Delaware51-0263969
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
6901 Professional Pkwy. East, Suite 200
Sarasota,Florida34240
(Address of principal executive offices)(Zip Code)
(941) 556-2601
(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of Each ClassTrading Symbol(s)Name of Each Exchange On Which Registered
Common Stock, $0.01 Par ValueROPNew York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes    No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
 Yes    No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filer (Do not check if a smaller reporting company)Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes    No
The number of shares outstanding of the registrant’s common stock as of October 30, 2020 was 104,872,361.
1


ROPER TECHNOLOGIES, INC.

REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2020

TABLE OF CONTENTS

Page

2

Table of Contents
PART I.    FINANCIAL INFORMATION
 
ITEM 1.    FINANCIAL STATEMENTS
 
Roper Technologies, Inc. and Subsidiaries
Condensed Consolidated Statements of Earnings (unaudited)
(in millions, except per share data)
 
Three months ended September 30,Nine months ended September 30,
2020201920202019
Net revenues$1,366.1 $1,354.5 $4,021.8 $3,972.0 
Cost of sales490.2 480.9 1,445.4 1,437.8 
Gross profit875.9 873.6 2,576.4 2,534.2 
Selling, general and administrative expenses508.3 488.4 1,526.0 1,434.2 
Income from operations367.6 385.2 1,050.4 1,100.0 
Interest expense, net62.3 48.8 155.2 137.6 
Other income (expense), net(2.2)1.5 (3.4)(2.6)
Gain on disposal of business   119.6 
Earnings before income taxes303.1 337.9 891.8 1,079.4 
Income taxes68.7 60.4 197.9 182.6 
Net earnings$234.4 $277.5 $693.9 $896.8 
Net earnings per share:
Basic$2.24 $2.67 $6.64 $8.64 
Diluted$2.21 $2.64 $6.57 $8.54 
Weighted average common shares outstanding:
Basic104.7 104.0 104.5 103.8 
Diluted105.9 105.2 105.6 105.0 

See accompanying notes to Condensed Consolidated Financial Statements.
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Table of Contents
Roper Technologies, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income (unaudited)
(in millions)

Three months ended September 30,Nine months ended September 30,
2020201920202019
Net earnings$234.4 $277.5 $693.9 $896.8 
Other comprehensive income, net of tax:
Foreign currency translation adjustments43.4 (41.9)(28.6)(41.8)
Total other comprehensive income (loss), net of tax43.4 (41.9)(28.6)(41.8)
Comprehensive income$277.8 $235.6 $665.3 $855.0 
 
See accompanying notes to Condensed Consolidated Financial Statements.
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Table of Contents
Roper Technologies, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (unaudited)
(in millions)
 
September 30,
2020
December 31,
2019
ASSETS:
Cash and cash equivalents$302.1 $709.7 
Accounts receivable, net773.4 791.6 
Inventories, net214.9 198.6 
Income taxes receivable43.1 18.5 
Unbilled receivables249.9 183.5 
Other current assets122.8 97.6 
Total current assets1,706.2 1,999.5 
Property, plant and equipment, net146.6 139.9 
Goodwill14,158.6 10,815.4 
Other intangible assets, net7,122.5 4,667.7 
Deferred taxes95.1 95.6 
Other assets423.0 390.8 
Total assets$23,652.0 $18,108.9 
LIABILITIES AND STOCKHOLDERS’ EQUITY:
Accounts payable$173.1 $162.0 
Accrued compensation251.5 240.1 
Deferred revenue868.1 831.8 
Other accrued liabilities409.3 346.2 
Income taxes payable35.1 215.1 
Current portion of long-term debt, net602.8 602.2 
Total current liabilities2,339.9 2,397.4 
Long-term debt, net of current portion9,101.2 4,673.1 
Deferred taxes1,563.9 1,108.1 
Other liabilities486.1 438.4 
Total liabilities13,491.1 8,617.0 
Commitments and contingencies (Note 10)
Common stock1.1 1.1 
Additional paid-in capital2,069.9 1,903.9 
Retained earnings8,349.4 7,818.0 
Accumulated other comprehensive loss(241.4)(212.8)
Treasury stock(18.1)(18.3)
Total stockholders’ equity10,160.9 9,491.9 
Total liabilities and stockholders’ equity$23,652.0 $18,108.9 
 
See accompanying notes to Condensed Consolidated Financial Statements.
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Table of Contents
Roper Technologies, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (unaudited)
(in millions)
 
Nine months ended September 30,
20202019
Cash flows from operating activities:
Net earnings$693.9 $896.8 
Adjustments to reconcile net earnings to cash flows from operating activities:
Depreciation and amortization of property, plant and equipment38.3 35.9 
Amortization of intangible assets319.8 263.2 
Amortization of deferred financing costs7.4 5.2 
Non-cash stock compensation88.4 80.4 
Gain on disposal of business, net of associated income tax (87.4)
Income tax provision, excluding tax associated with gain on disposal of businesses197.9150.4
Changes in operating assets and liabilities, net of acquired businesses:
Accounts receivable126.1 52.1 
Unbilled receivables(49.1)(26.6)
Inventories(15.2)(25.2)
Accounts payable and accrued liabilities53.3 (59.2)
Deferred revenue(57.5)26.5 
Cash tax paid for gain on disposal of businesses(201.9)(39.4)
Cash income taxes paid, excluding tax associated with gain on disposal of businesses(236.1)(255.0)
Other, net(14.4)(22.1)
Cash provided by operating activities950.9 995.6 
Cash flows from (used in) investing activities:
Acquisitions of businesses, net of cash acquired(5,653.3)(2,351.9)
Capital expenditures(23.0)(42.2)
Capitalized software expenditures(9.8)(7.7)
Proceeds from (used in) disposal of businesses(4.2)220.5 
Other, net(2.7)(2.5)
Cash used in investing activities(5,693.0)(2,183.8)
Cash flows from (used in) financing activities:
Proceeds from senior notes3,300.0 1,200.0 
Borrowings (payments) under revolving line of credit, net1,160.0 60.0 
Debt issuance costs(42.0)(12.0)
Cash dividends to stockholders(160.0)(143.5)
Proceeds from stock-based compensation, net72.5 38.8 
Treasury stock sales7.3 5.2 
Other(1.4)3.6 
Cash flows from financing activities4,336.4 1,152.1 
Effect of foreign currency exchange rate changes on cash(1.9)(5.3)
Net decrease in cash and cash equivalents(407.6)(41.4)
Cash and cash equivalents, beginning of period709.7 364.4 
Cash and cash equivalents, end of period$302.1 $323.0 
 
See accompanying notes to Condensed Consolidated Financial Statements.
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Table of Contents
Roper Technologies, Inc. and Subsidiaries
Condensed Consolidated Statements of Changes in Stockholders’ Equity (unaudited)
(in millions)

Common
stock
Additional
paid-in
capital
Retained
earnings
Accumulated
other
comprehensive
loss
Treasury
stock
Total stockholders’ equity
Balances at June 30, 2020$1.1 $2,012.9 $8,168.7 $(284.8)$(18.2)$9,879.7 
Net earnings— — 234.4 — — 234.4 
Stock option exercises— 25.9 — — — 25.9 
Treasury stock sold— 2.7 — — 0.1 2.8 
Currency translation adjustments— — — 43.4 — 43.4 
Stock-based compensation— 29.5 — — — 29.5 
Restricted stock activity— (1.1)— — — (1.1)
Dividends declared ($0.5125 per share)
— — (53.7)— — (53.7)
Balances at September 30, 2020$1.1 $2,069.9 $8,349.4 $(241.4)$(18.1)$10,160.9 
Balances at December 31, 2019$1.1 $1,903.9 $7,818.0 $(212.8)$(18.3)$9,491.9 
Adoption of ASC 326
— — (1.7)— — (1.7)
Net earnings— — 693.9 — — 693.9 
Stock option exercises— 88.9 — — — 88.9 
Treasury stock sold— 7.1 — — 0.2 7.3 
Currency translation adjustments— — — (28.6)— (28.6)
Stock-based compensation— 86.4 — — — 86.4 
Restricted stock activity— (16.4)— — — (16.4)
Dividends declared ($1.5375 per share)
— — (160.8)— — (160.8)
Balances at September 30, 2020$1.1 $2,069.9 $8,349.4 $(241.4)$(18.1)$10,160.9 
Balances at June 30, 2019$1.1 $1,840.5 $6,771.0 $(243.2)$(18.4)$8,351.0 
Net earnings— — 277.5 — — 277.5 
Stock option exercises— 6.7 — — — 6.7 
Treasury stock sold— 1.5 — — 0.1 1.6 
Currency translation adjustments— — — (41.9)— (41.9)
Stock-based compensation— 25.4 — — — 25.4 
Restricted stock activity— (0.8)— — — (0.8)
Dividends declared ($0.4625 per share)
— — (48.2)— — (48.2)
Balances at September 30, 2019$1.1 $1,873.3 $7,000.3 $(285.1)$(18.3)$8,571.3 
Balances at December 31, 2018$1.1 $1,751.5 $6,247.7 $(243.3)$(18.5)$7,738.5 
Net earnings— — 896.8 — — 896.8 
Stock option exercises— 55.8 — — — 55.8 
Treasury stock sold— 5.0 — — 0.2 5.2 
Currency translation adjustments— — — (41.8)— (41.8)
Stock-based compensation— 77.9 — — — 77.9 
Restricted stock activity— (16.9)— — — (16.9)
Dividends declared ($1.3875 per share)
— — (144.2)— — (144.2)
Balances at September 30, 2019$1.1 $1,873.3 $7,000.3 $(285.1)$(18.3)$8,571.3 

See accompanying notes to Condensed Consolidated Financial Statements.
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Roper Technologies, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
All currency and share amounts are in millions, except per share data

1.    Basis of Presentation

The accompanying Condensed Consolidated Financial Statements for the three and nine months ended September 30, 2020 and 2019 are unaudited. In the opinion of management, the accompanying unaudited Condensed Consolidated Financial Statements reflect all adjustments, which include only normal recurring adjustments, necessary to state fairly the financial position, results of operations, comprehensive income and cash flows of Roper Technologies, Inc. and its subsidiaries (“Roper,” the “Company,” “we,” “our” or “us”) for all periods presented. The December 31, 2019 financial position data included herein was derived from the audited consolidated financial statements included in the Company’s 2019 Annual Report on Form 10-K (“Annual Report”) filed on February 28, 2020 with the Securities and Exchange Commission (“SEC”) but does not include all disclosures required by U.S. generally accepted accounting principles (“GAAP”).

Roper’s management has made estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these Condensed Consolidated Financial Statements in conformity with GAAP. Actual results could differ from those estimates.

The results of operations for the three and nine months ended September 30, 2020 are not necessarily indicative of the results to be expected for the full year. You should read these unaudited Condensed Consolidated Financial Statements in conjunction with Roper’s audited consolidated financial statements and the notes thereto included in its Annual Report. Certain prior period amounts have been reclassified to conform to current period presentation.

2.    Recent Accounting Pronouncements

The Financial Accounting Standards Board FASB (“FASB”) establishes changes to accounting principles under GAAP in the form of accounting standards updates (“ASUs”) to the Accounting Standards Codification (“ASC”). The Company considers the applicability and impact of all ASUs. Any recent ASUs not listed below were assessed and determined to be either not applicable or are expected to have an immaterial impact on the Company’s results of operations, financial position or cash flows.

Recently Adopted Accounting Pronouncements

The Company adopted ASC Topic 326, Financial Instruments - Credit Losses (“ASC 326”), as of January 1, 2020 using the modified retrospective transition method. This ASU amends the impairment model to utilize an expected loss methodology in place of the incurred loss methodology for financial instruments, including trade receivables, and unbilled receivables. We recorded a noncash cumulative effect decrease to retained earnings of $1.7, net of income taxes, on our opening consolidated balance sheet as of January 1, 2020.

3.    Weighted Average Shares Outstanding

Basic earnings per share were calculated using net earnings and the weighted average number of shares of common stock outstanding during the respective period. Diluted earnings per share were calculated using net earnings and the weighted average number of shares of common stock and potential common stock outstanding during the respective period. Potentially dilutive common stock consisted of stock options based upon the trading price of Roper’s common stock. The effects of potential common stock were determined using the treasury stock method. Weighted average shares outstanding are shown below:
Three months ended September 30,Nine months ended September 30,
2020201920202019
Basic shares outstanding104.7 104.0 104.5 103.8 
Effect of potential common stock:
Common stock awards1.2 1.2 1.1 1.2 
Diluted shares outstanding105.9 105.2 105.6 105.0 
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For the three and nine months ended September 30, 2020, there were 0.135 and 0.809 outstanding stock options, that were not included in the determination of diluted earnings per share because doing so would have been antidilutive, as compared to 0.605 and 0.622 outstanding stock options that would have been antidilutive in the respective 2019 periods.

4.    Business Acquisitions

Roper completed five business acquisitions in the nine months ended September 30, 2020. The results of operations of the acquired businesses are included in Roper’s Condensed Consolidated Financial Statements since the date of each acquisition. Pro forma results of operations and the revenue and net income subsequent to the acquisition date for the acquisitions completed during the first nine months of fiscal 2020 have not been presented because the effects of the acquisitions, individually and in the aggregate, were not material to our financial results.

The largest of the 2020 acquisitions was Vertafore, Inc. (“Vertafore”), a leading provider of SaaS solutions for the property and casualty insurance industry. Roper acquired 100% of the shares of Project Viking Holdings, Inc. (the parent company of Vertafore) on September 3, 2020, for a purchase price of $5,398.6. The purchase price comprises an enterprise value of $5,335.0 and the settlement of certain liabilities, net of cash acquired. Additionally, the purchase price contemplates approximately $120 of federal tax attributes that are expected to be realized by the end of 2022. The results of Vertafore are reported in the Application Software reportable segment.

The Company recorded $3,229.1 in goodwill and $2,660.0 of other identifiable intangibles in connection with the Vertafore acquisition. The majority of the goodwill is not expected to be deductible for tax purposes. Of the $2,660.0 of acquired intangible assets, $120.0 was assigned to trade names that are not subject to amortization. The remaining $2,540.0 of acquired intangible assets include customer relationships of $2,230.0 (17 year useful life) and unpatented technology of $310.0 (8 year useful life).

Net assets acquired also includes $489 of deferred tax liabilities, which are due primarily to $638 of deferred tax liabilities associated with acquired intangible assets, partially offset primarily by approximately $120 of federal tax attributes that are expected to be realized by the end of 2022. Purchase price allocations are preliminary pending final tax-related adjustments.

During the nine months ended September 30, 2020, Roper completed four other acquisitions with an aggregate purchase price of $251.8, net of cash acquired and debt assumed.

On June 9, 2020, Roper acquired substantially all of the assets of Freight Market Intelligence Consortium (“FMIC”), a leading provider of subscription-based freight transaction benchmarking and analysis service. FMIC is integrating into our DAT business and its results are reported in the Network Software & Systems reportable segment.

On June 15, 2020, Roper acquired substantially all of the assets of Team TSI Corporation (“Team TSI”), a leading provider of subscription-based data analytics serving long term health care facilities. Team TSI is integrating into our SHP business and its results are reported in the Network Software & Systems reportable segment.

On September 15, 2020, Roper acquired substantially all of the assets of Impact Financial Systems (“IFS”), a leading provider of service request automation solutions for client onboarding, transaction automation, maintenance and advisor transitions. IFS is integrating into our iPipeline business and its results are reported in the Network Software & Systems reportable segment.

On September 18, 2020, Roper acquired all of the membership interests of WELIS, a premier provider of life insurance illustration systems to carriers in the US. WELIS is integrating into our iPipeline business and its results are reported in the Network Software & Systems reportable segment.

The Company recorded $133.9 in goodwill and $118.0 of other identifiable intangibles in connection with these four acquisitions. The amortizable intangible assets include customer relationships of $105.7 (15 year weighted average useful life) and technology of $12.3 (5 year weighted average useful life).

Subsequent to the nine months ended September 30, 2020, on October 15, 2020, Roper acquired substantially all of the assets of EPSi in an all-cash transaction valued at $361.0. EPSi is a leading provider of financial decision support and planning tools for hospitals and health systems. EPSi is integrating into our Strata business and its results will be reported in the Application Software reportable segment beginning in the fourth quarter of 2020.



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5.    Stock Based Compensation

The Roper Technologies, Inc. 2016 Incentive Plan (“2016 Plan”) is a stock-based compensation plan used to grant incentive stock options, nonqualified stock options, restricted stock, stock appreciation rights or equivalent instruments to Roper’s employees, officers, directors and consultants.

The following table provides information regarding the Company’s stock-based compensation expense:
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Stock-based compensation$30.1 $26.1 $88.3 $80.4 
Tax effect recognized in net earnings6.3 5.5 18.5 16.9 

Stock Options - In the nine months ended September 30, 2020, 0.758 options were granted with a weighted average fair value of $63.01 per option. During the same period in 2019, 0.753 options were granted with a weighted average fair value of $68.05 per option. All options were issued with an exercise price equal to the closing price of Roper’s common stock on the date of grant, as required by the 2016 Plan.

Roper records compensation expense for employee stock options based on the estimated fair value of the options on the date of grant using the Black-Scholes option-pricing model. Historical data is used to estimate the expected price volatility, the expected dividend yield, the expected option life and the expected forfeiture rate. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for the estimated life of the option. The following weighted average assumptions were used to estimate the fair value of options granted during current and prior year periods using the Black-Scholes option-pricing model:
Nine months ended September 30,
20202019
Risk-free interest rate (%)0.81 2.38 
Expected option life (years)5.645.42
Expected volatility (%)20.36 19.22 
Expected dividend yield (%)0.62 0.58 

Cash received from option exercises for the nine months ended September 30, 2020 and 2019 was $88.9 and $55.8, respectively.

Restricted Stock Grants - During the nine months ended September 30, 2020, the Company granted 0.234 shares with a weighted average grant date fair value of $353.68 per restricted share. During the same period in 2019, the Company granted 0.317 shares with a weighted average grant date fair value of $318.46 per restricted share. All grants were issued at grant date fair value.

During the nine months ended September 30, 2020, 0.146 restricted shares vested with a weighted average grant date fair value of $259.42 per restricted share and a weighted average vest date fair value of $354.28 per restricted share.

Employee Stock Purchase Plan - Roper’s stock purchase plan previously allowed employees in the U.S. and Canada to designate up to 10% of eligible earnings to purchase Roper’s common stock at a 5% discount to the average closing price of the stock at the beginning and end of a quarterly offering period. Common stock sold to employees pursuant to the stock purchase plan may be either treasury stock, stock purchased on the open market, or newly issued shares.

We amended the Roper stock purchase plan effective July 1, 2020, which allows employees in the U.S. and Canada to designate up to 10% of eligible earnings to purchase Roper’s common stock at a 10% discount on the lower of the closing price of the stock on the first and last day of each quarterly offering period. Common stock sold to employees pursuant to the stock purchase plan may be either treasury stock, stock purchased on the open market, or newly issued shares.

During the nine months ended September 30, 2020 and 2019, participants in the employee stock purchase plan purchased 0.022 and 0.016 shares of Roper’s common stock for total consideration of $7.3 and $5.2, respectively. All shares were purchased from Roper’s treasury shares.

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6.    Inventories

The components of inventory were as follows:
September 30,
2020
December 31,
2019
Raw materials and supplies$138.3 $125.1 
Work in process29.5 30.9 
Finished products85.4 76.0 
Inventory reserves(38.3)(33.4)
$214.9 $198.6 

7.    Goodwill and Other Intangible Assets

The carrying value of goodwill by segment was as follows:
Application SoftwareNetwork Software & SystemsMeasurement & Analytical SolutionsProcess TechnologiesTotal
Balances at December 31, 2019$5,389.4 $3,933.5 $1,178.0 $314.5 $10,815.4 
Additions3,229.1 133.9   3,363.0 
Other0.5 (1.0)  (0.5)
Currency translation adjustments(4.8)(14.3)0.4 (0.6)(19.3)
Balances at September 30, 2020$8,614.2 $4,052.1 $1,178.4 $313.9 $14,158.6 

Other relates primarily to purchase accounting adjustments for acquisitions.

Other intangible assets were comprised of:
CostAccumulated
amortization
Net book
value
Assets subject to amortization:
Customer related intangibles$4,955.4 $(1,349.4)$3,606.0 
Unpatented technology613.0 (279.6)333.4 
Software172.2 (111.5)60.7 
Patents and other protective rights12.0 (8.0)4.0 
Trade names7.9 (4.1)3.8 
Assets not subject to amortization:
Trade names659.8 — 659.8 
Balances at December 31, 2019$6,420.3 $(1,752.6)$4,667.7 
Assets subject to amortization:
Customer related intangibles$7,282.7 $(1,585.2)$5,697.5 
Unpatented technology934.3 (346.0)588.3 
Software172.1 (123.4)48.7 
Patents and other protective rights14.7 (8.3)6.4 
Trade names7.9 (5.3)2.6 
Assets not subject to amortization:
Trade names779.0 — 779.0 
Balances at September 30, 2020$9,190.7 $(2,068.2)$7,122.5 

Amortization expense of other intangible assets was $316.4 and $262.1 during the nine months ended September 30, 2020 and 2019, respectively.

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An evaluation of the carrying value of goodwill and indefinite-lived intangibles is required to be performed on an annual basis and on an interim basis if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value.

In the first quarter of 2020, changes in facts and circumstances and general market declines from the coronavirus global pandemic (COVID-19) resulted in reduced expectations of near term future operating results. The Company considered these circumstances and the potential long-term impact on revenues and cash flows associated with its trade names and reporting units and determined that an indicator of possible impairment did not exist. While we have concluded that a triggering event did not occur during the first nine months of 2020, a prolonged COVID-19 pandemic could further impact market conditions and expectations of future operating results. The Company will perform the annual analysis during the fourth quarter of 2020.

8.    Debt

On June 22, 2020, the Company completed a public offering of $600.0 aggregate principal amount of 2.00% senior unsecured notes due June 30, 2030 (“2030 Notes”). The net proceeds from the sale of the 2030 Notes were used for general corporate purposes, including acquisitions.

The 2030 Notes bear interest at a fixed rate of 2.00% per year, and are payable semi-annually in arrears on June 30 and December 30 of each year, beginning December 30, 2020.

On September 1, 2020, the Company completed a public offering of $300.0 aggregate principal amount of 0.45% senior unsecured notes due August 15, 2022 (“2022 Notes”), $700.0 aggregate principal amount of 1.00% senior unsecured notes due September 15, 2025 (“2025 Notes”), $700.0 aggregate principal amount of 1.40% senior unsecured notes due September 15, 2027 (“2027 Notes”) and $1,000.0 aggregate principal amount of 1.75% senior unsecured notes due February 15, 2031 (“2031 Notes” and, together with the 2022 Notes, 2025 Notes, and 2027 Notes, the “Notes”). The net proceeds from the sale of the Notes, together with cash on hand and borrowings under our existing credit agreement, were used to fund the purchase price of the acquisition of Vertafore, Inc. and related costs.

The 2022 Notes and 2031 Notes bear interest at a fixed rate of 0.45% and 1.75% per year, respectively, and are payable semi-annually in arrears on February 15 and August 15 of each year, beginning February 15, 2021 and the 2025 Notes and 2027 Notes bear interest at a fixed rate of 1.00% and 1.40% per year, respectively, and are payable semi-annually in arrears on March 15 and September 15 of each year, beginning March 15, 2021.

Roper may redeem some or all of the 2030 Notes and Notes at any time or from time to time, at 100% of their principal amount, plus a make-whole premium based on a spread to U.S. Treasury securities. Roper is also entitled to redeem the 2030 Notes and Notes at 100% of their principal amount plus accrued and unpaid interest at applicable par call dates in advance of maturity.

The 2030 Notes and Notes are senior unsecured obligations of the Company and rank equally in right of payment with all of its existing and future senior unsecured indebtedness. The 2030 Notes and Notes are effectively subordinated to any of our existing and future secured indebtedness to the extent of the value of the collateral securing such indebtedness. The 2030 Notes and Notes are not, and will not be, guaranteed by any of our subsidiaries and are effectively subordinated to all existing and future indebtedness and other liabilities of our subsidiaries.

On September 2, 2020, the Company entered into a new three-year unsecured credit facility (the “Credit Agreement”) among Roper, the financial institutions from time to time party thereto, JPMorgan Chase Bank, N.A., as administrative agent, Wells Fargo Bank, N.A. and Bank of America, N.A., as syndication agents, and MUFG Bank, Ltd., Mizuho Bank, Ltd., PNC Bank, National Association, Truist Bank and TD Bank, N.A., as co-documentation agents, which replaced its existing $2,500.0 unsecured credit facility, dated as of September 23, 2016, as amended. The new facility comprises a three-year $3,000.0 revolving credit facility, which includes availability of up to $150.0 for letters of credit. Loans under the facility will be available in dollars, and letters of credit will be available in dollars and other agreed-upon currencies. The Company may also, subject to compliance with specified conditions, request additional term loans or revolving credit commitments in an aggregate amount not to exceed $500.0.

The Company will have the right to add foreign subsidiaries as borrowers under the Credit Agreement, subject to the satisfaction of specified conditions. The Company will guarantee the payment and performance by the foreign subsidiary borrowers of their obligations under the Credit Agreement. The Company’s obligations under the Credit Agreement are not guaranteed by any of its subsidiaries. However, the Company has the right, subject to the satisfaction of certain conditions set forth in the Credit Agreement, to cause any of its wholly-owned domestic subsidiaries to become guarantors.

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Borrowings under the term loan and revolving credit facilities (if any) will bear interest, at the Company’s option, at a rate based on either:

The highest of (1) the interest per annum publicly announced from time to time by JPMorgan Chase Bank, N.A., as its prime rate in effect at its principal office in New York City, (2) the NYFRB Rate (as defined in the Credit Agreement) plus 0.50% and (3) the Eurocurrency Rate (as defined in the Credit Agreement, and which in no case shall be less than zero) for a deposit in Dollars with a maturity of one month plus 1%, in each case plus a per annum spread depending on the Company’s senior unsecured long-term debt rating. Based on the Company’s current rating, the spread would be 0.125%; or

The Eurocurrency Rate (as defined in the Credit Agreement, and which in no case shall be less than zero) plus a per annum spread depending on the Company’s senior unsecured long-term debt rating. Based on the Company’s current rating, the spread would be 1.125%.

Outstanding letters of credit issued under the Credit Agreement will be charged a quarterly fee depending on the Company’s senior unsecured long-term debt rating. Based on the Company’s current rating, the quarterly fee would be payable at a rate of 1.125% per annum, plus a fronting fee of 0.125% per annum on the undrawn and unexpired amount of all letters of credit.

Additionally, the Company will pay a quarterly facility fee on the used and unused portions of the revolving credit facility depending on the Company’s senior unsecured long-term debt rating. Based on the Company’s current rating, the quarterly fee would accrue at a rate of 0.125% per annum.

Amounts outstanding under the Credit Agreement may be accelerated upon the occurrence of customary events of default. The Credit Agreement requires the Company to maintain a Total Debt to Total Capital Ratio (as defined in the Credit Agreement) of 0.65 to 1.00 or less. Borrowings under the Credit Agreement are prepayable at Roper’s option at any time in whole or in part without premium or penalty.

Subsequent to the nine months ended September 30, 2020, on October 9, 2020, the Company elected to exercise its optional redemption right to redeem all of its outstanding 3.000% Notes due 2020 (the “2020 Notes”) in the original aggregate principal amount of $600.0, and Wells Fargo Bank, National Association, as trustee under the indenture governing the 2020 Notes (the “Indenture”), issued redemption notices to registered holders of the 2020 Notes. The date fixed for the redemption of the 2020 Notes is November 15, 2020 (the “Redemption Date”). The 2020 Notes will be redeemed at 100% of the aggregate principal amount of the 2020 Notes, plus accrued and unpaid interest thereon to, but not including, the Redemption Date in accordance with the terms and conditions set forth in the Indenture. The foregoing does not constitute a notice of redemption with respect to any of the 2020 Notes.

9.    Fair Value of Financial Instruments

Roper’s debt at September 30, 2020 included $8,600 of fixed-rate senior notes with the following fair values:
$600 3.000% senior notes due 2020
602 
$500 2.800% senior notes due 2021
513 
$500 3.125% senior notes due 2022
524 
$300 0.450% senior notes due 2022
300 
$700 3.650% senior notes due 2023
761 
$500 2.350% senior notes due 2024
529 
$300 3.850% senior notes due 2025
342 
$700 1.000% senior notes due 2025
702 
$700 3.800% senior notes due 2026
808 
$700 1.400% senior notes due 2027
708 
$800 4.200% senior notes due 2028
954 
$700 2.950% senior notes due 2029
770 
$600 2.000% senior notes due 2030
612 
$1,000 1.750% senior notes due 2031
1,000 

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The fair values of the senior notes are based on the trading prices of each series of notes, which the Company has determined to be Level 2 in the FASB fair value hierarchy.

10.    Contingencies

Roper, in the ordinary course of business, is the subject of, or a party to, various pending or threatened legal actions, including product liability, intellectual property and employment practices that, in general, are based upon claims of the kind that have been customary over the past several years and which the Company is vigorously defending. After analyzing the Company’s contingent liabilities on a gross basis and, based upon past experience with resolution of its product liability and employment practices claims and the limits of the primary, excess, and umbrella liability insurance coverages that are available with respect to pending claims, management believes that adequate provision has been made to cover any potential liability not covered by insurance, and that the ultimate liability, if any, arising from these actions should not have a material adverse effect on Roper’s consolidated financial position, results of operations or cash flows.

Roper or its subsidiaries have been named defendants along with numerous industrial companies in asbestos-related litigation claims in certain U.S. states. No significant resources have been required by Roper to respond to these cases and Roper believes it has valid defenses to such claims and, if required, intends to defend them vigorously. Given the state of these claims, it is not possible to determine the potential liability, if any.

11.    Business Segments

Net revenues and operating profit by segment are set forth in the following table:
Three months ended September 30,Nine months ended September 30,
20202019Change %20202019Change %
Net revenues:
Application Software$447.9 $405.4 10.5 %$1,251.4 $1,177.2 6.3 %
Network Software & Systems430.2 391.2 10.0 %1,290.4 1,103.7 16.9 %
Measurement & Analytical Solutions367.9 398.3 (7.6)%1,097.0 1,208.5 (9.2)%
Process Technologies120.1 159.6 (24.7)%383.0 482.6 (20.6)%
Total$1,366.1 $1,354.5 0.9 %$4,021.8 $3,972.0 1.3 %
Gross profit:
Application Software$307.6 $275.4 11.7 %$851.8 $791.5 7.6 %
Network Software & Systems287.1 271.9 5.6 %865.1 763.6 13.3 %
Measurement & Analytical Solutions218.4 234.7 (6.9)%654.5 706.1 (7.3)%
Process Technologies62.8 91.6 (31.4)%205.0 273.0 (24.9)%
Total$875.9 $873.6 0.3 %$2,576.4 $2,534.2 1.7 %
Operating profit*:
Application Software$125.6 $110.1 14.1 %$336.6 $299.9 12.2 %
Network Software & Systems134.3 137.5 (2.3)%403.6 392.0 3.0 %
Measurement & Analytical Solutions122.5 127.0 (3.5)%359.5 375.4 (4.2)%
Process Technologies31.5 55.5 (43.2)%91.7 162.8 (43.7)%
Total$413.9 $430.1 (3.8)%$1,191.4 $1,230.1 (3.1)%
Long-lived assets:
Application Software$114.1 $85.6 33.3 %
Network Software & Systems46.0 50.0 (8.0)%
Measurement & Analytical Solutions37.1 41.6 (10.8)%
Process Technologies20.1 21.3 (5.6)%
Total$217.3 $198.5 9.5 %
 
*Segment operating profit is before unallocated corporate general and administrative expenses; these expenses were $46.3 and $44.9 for the three months ended September 30, 2020 and 2019, respectively, and $141.0 and $130.1 for the nine months ended September 30, 2020 and 2019, respectively.
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12.    Revenues from Contracts

Disaggregated Revenue - We disaggregate our revenues into two categories: (i) software and related services; and (ii) engineered products and related services. Software and related services revenues are primarily derived from our Application Software and Network Software & Systems reportable segments. Engineered products and related services revenues are derived from all of our reportable segments except Application Software and comprise substantially all of the revenues generated in our Measurement & Analytical Solutions and Process Technologies reportable segments. See details in the table below.
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Software and related services$714.8 $637.3 $2,038.8 $1,808.8 
Engineered products and related services651.3 717.2 1,983.0 2,163.2 
Net revenues$1,366.1 $1,354.5 $4,021.8 $3,972.0 

Remaining performance obligations - Remaining performance obligations represent the transaction price of firm orders for which work has not been performed and excludes unexercised contract options. As of September 30, 2020, the aggregate amount of the transaction price allocated to remaining performance obligations was $3,997.5. We expect to recognize revenue on approximately 56% of our remaining performance obligations over the next 12 months, with the remainder to be recognized thereafter.

Contract balances
Balance Sheet AccountSeptember 30, 2020December 31, 2019Change
Unbilled receivables $249.9 $183.5 $66.4 
Contract liabilities - current (1)
(873.9)(840.8)(33.1)
Deferred revenue - non-current (2)
(34.2)(33.2)(1.0)
Net contract assets/(liabilities)$(658.2)$(690.5)$32.3 
(1) Consists of “Deferred revenue,” and billings in-excess of revenues (“BIE”). BIE is reported in “Other accrued liabilities” in our Condensed Consolidated Balance Sheets.
(2) The non-current portion of deferred revenue is included in “Other liabilities” in our Condensed Consolidated Balance Sheets.

The change in our net contract assets/(liabilities) from December 31, 2019 to September 30, 2020 was due primarily to the increase in unbilled receivables associated with timing of invoicing in our project-based businesses, most notably our Transcore business, partially offset by the net contract liabilities associated with the acquisitions completed during the nine months ended September 30, 2020, of $44.1.

Most of the Company’s project-based contracts where the input method of revenue recognition is utilized are billed as work progresses in accordance with the contract terms and conditions, either at periodic intervals or upon achievement of certain milestones. Often this results in billing occurring after revenue recognition resulting in contract assets. The Company records contract liabilities when cash payments are received or due in advance of the Company’s performance relating primarily to Software-as-a-Service (“SaaS”) and post contract support (“PCS”) renewals. Revenue recognized during the three and nine months ended September 30, 2020 that was included in the contract liability balance on December 31, 2019 was $179.9 and $714.9, respectively.

In order to determine revenues recognized in the period from contract liabilities, we allocate revenue to the individual deferred revenue or BIE balance outstanding at the beginning of the year until the revenue exceeds that balance.

Impairment losses recognized on our accounts receivable and unbilled receivables were immaterial in the three and nine months ended September 30, 2020.
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ITEM 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2019 (“Annual Report”) as filed on February 28, 2020 with the U.S. Securities and Exchange Commission (“SEC”) and the Notes to Condensed Consolidated Financial Statements included elsewhere in this report.

Information About Forward-Looking Statements

This report includes “forward-looking statements” within the meaning of the federal securities laws. In addition, we, or our executive officers on our behalf, may from time to time make forward-looking statements in reports and other documents we file with the SEC or in connection with oral statements made to the press, potential investors or others. All statements that are not historical facts are “forward-looking statements.”  Forward-looking statements may be indicated by words or phrases such as “anticipate,” “estimate,” “plans,” “expects,” “projects,” “should,” “will,” “believes” or “intends” and similar words and phrases. These statements reflect management’s current beliefs and are not guarantees of future performance. They involve risks and uncertainties that could cause actual results to differ materially from those expressed or implied in any forward-looking statement. Such risks and uncertainties include the effects of the COVID-19 pandemic on our business, operations, financial results and liquidity, including the duration and magnitude of such effects, which will depend on numerous evolving factors that we cannot accurately predict or assess, including: the duration and scope of the pandemic generally and in the geographical markets that we serve; the negative impact on global and regional markets, economies and economic activity; actions governments, businesses and individuals take in response to the pandemic; the effects of the pandemic, including all of the foregoing, on our customers, suppliers, and business partners, and how quickly economies and demand for our products and services recover following the pandemic.

Additional examples of forward-looking statements in this report include but are not limited to statements regarding operating results, the success of our operating plans, our expectations regarding our ability to generate cash and reduce debt and associated interest expense, profit and cash flow expectations, the prospects for newly acquired businesses to be integrated and contribute to future growth and our expectations regarding growth through acquisitions. Important assumptions relating to the forward-looking statements include, among others, demand for our products, the cost, timing and success of product upgrades and new product introductions, raw material costs, expected pricing levels, expected outcomes of pending litigation, competitive conditions and general economic conditions. These assumptions could prove inaccurate. Although we believe that the estimates and projections reflected in the forward-looking statements are reasonable, our expectations may prove to be incorrect. Important factors that could cause actual results to differ materially from estimates or projections contained in the forward-looking statements include but are not limited to:

general economic conditions;
difficulty making acquisitions and successfully integrating acquired businesses;
any unforeseen liabilities associated with future acquisitions;
limitations on our business imposed by our indebtedness;
unfavorable changes in foreign exchange rates;
failure to effectively mitigate cybersecurity threats;
failure to comply with new data privacy laws and regulations;
difficulties associated with exports/imports and risks of changes to tariff rates;
risks and costs associated with our international sales and operations;
rising interest rates;
product liability and insurance risks;
increased warranty exposure;
future competition;
the cyclical nature of some of our markets;
reduction of business with large customers;
risks associated with government contracts;
changes in the supply of, or price for, raw materials, parts and components;
environmental compliance costs and liabilities;
risks and costs associated with asbestos-related litigation;
potential write-offs of our goodwill and other intangible assets;
our ability to successfully develop new products;
failure to protect our intellectual property;
the effect of, or change in, government regulations (including tax);
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