Q4 2023 Roper Technologies Inc Earnings Call

Participants

Jason P. Conley; Executive VP & CFO; Roper Technologies, Inc.

Laurence Neil Hunn; President, CEO & Director; Roper Technologies, Inc.

Zack Moxcey; VP of IR; Roper Technologies, Inc.

Alexander M. Blanton; Senior Analyst; Clear Harbor Asset Management, LLC

Allison Ann Marie Poliniak-Cusic; Director & Senior Equity Analyst; Wells Fargo Securities, LLC, Research Division

Brent John Thill; Equity Analyst; Jefferies LLC, Research Division

Christopher D. Glynn; MD & Senior Analyst; Oppenheimer & Co. Inc., Research Division

Deane Michael Dray; MD of Multi-Industry & Electrical Equipment & Analyst; RBC Capital Markets, Research Division

Joseph Craig Giordano; MD & Senior Analyst; TD Cowen, Research Division

Joseph D. Vruwink; Senior Research Analyst; Robert W. Baird & Co. Incorporated, Research Division

Julian C.H. Mitchell; Research Analyst; Barclays Bank PLC, Research Division

Terrell Frederick Tillman; Research Analyst; Truist Securities, Inc., Research Division

Presentation

Operator

Good morning. The Roper Technologies Conference Call will now begin. Today's call is being recorded. (Operator Instructions)
I would now like to turn the conference over to Zack Moxcey, Vice President, Investor Relations. Please go ahead, sir.

Zack Moxcey

Good morning, and thank you all for joining us as we discuss the fourth quarter and full year 2023 financial results for Roper Technologies. Joining me on the call this morning are Neil Hunn, President and Chief Executive Officer; Jason Conley, Executive Vice President and Chief Financial Officer; Brandon Cross, Vice President and Principal 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 today's call, which are available through the webcast and are also available on our website.
Now if you please turn to Page 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. You should listen to today's call in the context of that information.
And now please turn to Page 3. Today, we will discuss our results, primarily on adjusted non-GAAP and continuing operations basis. For the fourth quarter, the difference between our GAAP results and adjusted results consists of the following items: amortization of acquisition-related intangible assets, the financial impacts associated with our minority investments in Indicor and Certinia and lastly, transaction-related expenses associated with our completed acquisitions. Reconciliations can be found in our press release and in the appendix of this presentation on our website.
And now if you please turn to Page 4, I will hand the call over to Neil. After our prepared remarks, we will take questions from our telephone participants. Neil?

Laurence Neil Hunn

Thank you, Zack, and thanks to everyone for joining our call. We're looking forward to sharing our quite good 2023 4th quarter and full year results with you this morning.
As we turn to Page 4, let's look at today's agenda. This morning, I'll start by walking through our full year highlights and then we turn to commenting on our most recent acquisition, ProCare Solutions. Jason will then go through our quarterly results, both in aggregate and at the segment level, share our annual results and review our strong balance sheet position. Then I'll pick up and discuss our segment level annual results, our 2024 outlook, wrap up and turn to your questions. So let's go ahead and get started.
Next slide, please. As we turn to Page 5, the 2 key takeaways for today's call are: first, we delivered a very strong 2023. And second, we remain well positioned and are carrying positive momentum into 2024. As we look back on the full year, we're proud of what the organization accomplished. From a financial perspective, we delivered 15% revenue growth, 16% EBITDA growth and 32% free cash flow growth with free cash flow margins at 32%.
Our total revenue growth of 15% was underpinned with 8% organic revenue growth. Jason will cover this in a few minutes, but Q4 was strong as well with 13% total revenue growth and 8% organic revenue growth. Also during the year, we deployed $2.1 billion in the high-quality vertical software acquisitions, highlighted by our bolt-on acquisitions of Syntellis and Replicon. As we all know, last year was a challenged year relative to available acquisition opportunities, given that I'm super proud of our team's ability to grow through the market conditions and successfully convert 2 outstanding value-creation M&A opportunities.
Given all this, we entered this year with positive momentum. We continue to see strong demand for our mission-critical solutions. As a reminder, each of our businesses is a leader in their respective market and delivers system of record, network critical or vital and/or life-saving technologies. As a result, we continue to see strong demand for our solutions. Also, as we head into 2024, we have meaningful contributions from our recent acquisitions, Syntellis, Replicon and Procare. It is important to highlight these additions to our portfolio of businesses also improved the underlying quality of our enterprise in terms of reoccurring revenue mix and organic growth profile.
Finally, we continue to be very active in the M&A market, an environment that we expect to be notably improved in 2024 and with a strong balance sheet and a large pipeline of attractive opportunities. So a strong '23 and solid momentum, both organic and inorganic behind us as we enter 2024.
Now please turn to the next page, Page 6, where we'll discuss our most recent acquisition, Procare Solutions. Procare Solutions is a fantastic addition to the Roper portfolio. Let's start with the fundamentals. We're paying $1.75 billion, net of $110 million tax benefit for the business. We expect ProCare to contribute about $260 million of revenue and $95 million of EBITDA for the 12 months ended Q1 '25.
Procare will be accretive to our free cash flow in '24 and to our adjusted DEPS in '25. We'll fund the acquisition with a portion of a $3.5 billion revolver and will report Procare in our Application Software segment and expected deal to close this quarter. Procare meets all our long-standing acquisition criteria, leader in a smaller market, delivers mission-critical verticalized software solutions, competes based on customer intimacy, operates an asset-light business model and is led by a skilled, passionate leadership team.
What is incrementally different for us is the maturing leader nature of this company. As we outlined during our Investor Day last year, our corporate strategy leans on implementing 2 modest improvements. First, continue to improve our long-term sustainable organic growth rate; and second, capture more value from our capital deployment capacity.
Relative to additional capital deployment value capture, we are focusing on doing a higher proportion of bolt-on activity as evidenced by last year's capital deployment record and adding higher growth or maturing leader business profiles to our enterprise. Procare is a prototypical maturing leader archetype, meeting all our long-standing criteria that I mentioned above but a structurally faster growth business that possesses the opportunity to improve margins as the top line scales. For Procare, we expect mid-teens top line growth with improving margins from an already strong position for the years to come. Let's talk about what the company does.
Procare is the leading provider of mission-critical and purpose-built software to 37,000 owners and operators of early childhood education centers which they use to run their business. The software provides all the needed functionality to run the childcare center, ranging from parent and family engagement, staff and teacher scheduling, classroom management, tuition billing and payment processing. The market itself is quite attractive and in the midst of a long-term secular tailwind of young dual-income families seeking higher levels of early child education versus daycare.
In addition, like most industries, this one is undergoing long-term tech enablement. Given these factors, this market is growing annually in the low double-digit area. As mentioned, Procare is the leading player with a 1.5x role market share advantage in this space given their super compelling value proposition that combines both software and the integrated payments capabilities. Given this, Procare has very high gross retention and compelling net retention as well.
Finally, from our extensive due diligence of the business, we're encouraged by the fact that broker has multiple strategic and operating pathways available to deliver mid-teens growth and long-term margin expansion. Net-net, this is a highly compelling value creation opportunity for Roper and our shareholders and to Joanne, your leadership team and all the Procare family, welcome to Roper.
So with that, Jason, let me turn the call over to you, so you can walk through our fourth quarter and full year results as well as our very strong financial position. Jason?

Jason P. Conley

Great. Thanks, Neil. I'll walk through the enterprise and segment results for Q4 and enterprise results for the full year, along with a review of our balance sheet. Starting with Q4 on Slide 7. We have an excellent finish to a strong year. Revenue of over $1.6 billion was 13% over prior year, led by 8% organic growth with acquisitions adding 4 points and less than a point of currency benefit.
Organic outperformance was led by our TEP segment, highlighted by Neptune and Verathon. Gross margin of 69.7% was down 30 basis points versus prior year, given a higher mix coming from our TEP segment. EBITDA grew 11% to $659 million with EBITDA margin coming in at a solid 40.8%. With the offsetting impact of interest and taxes, this translated into debt's growth of 11% to $4.37, above our guidance range of $4.28 to $4.32. Also from a cash perspective free cash flow finished strong at $596 million, up 30% over prior year. This was in line with our expectations with a good renewal season across our software businesses.
We turn to Slide 8, I'll briefly click into the segment performance in Q4. Application Software delivered revenue growth of 15% over prior year to $852 million, with organic growth contributing 7 points and the balance coming primarily from our bolt-on acquisitions of Syntellis and Replicon. EBITDA margin of 43.2% in the quarter was below prior year's high watermark of 45.6%, which as we discussed last year was driven by lower incentive-based compensation.
Network software was up 3% and $363 million with EBITDA 10% to $208 million. As we have discussed before, our freight matching businesses are navigating a drawdown of carriers following exceptional marketplace growth over 2021 and 2022, which is mixing down the growth rate for the segment. However, our business leader at DAT and Load Link have aligned the cost base with reduced carrier subscribers to still drive solid EBITDA growth in the quarter.
Our TEP segment grew by 17% in the quarter to $399 million, with EBITDA up 13% to $134 million. Growth was led by exceptional performance at Neptune with continued increasing demand for ultrasonic technologies and overall favorable market conditions. Also, Verathon continued its remarkable growth with strength in single-use products across laryngoscope and brochoscope. EBITDA margin of 33.6% was down from prior year, given some onetime investments and incentive compensation in the quarter.
Turning to Slide 9, I'll walk through our full year 2023 performance. As Neil has mentioned, revenue was just under $6.2 billion, up 15% over prior year, with organic growth of 8% and acquisitions contributing 7 points, mainly in frontline and Syntellis. Looking at a 3-year revenue CAGR on this slide, similar to 2023, it's also at 15%. Further, the organic -- average organic growth rate over this 3-year period has been about 8%. Though as Neil mentioned, we benefited from some market conditions over that time period.
EBITDA of just over $2.5 billion was up 16% over the prior year, yielding EBITDA margin of 40.6%. Our 3-year EBITDA over this period was also up 16%. So the story remains the same at Roper. We own and continually grow a portfolio of high gross margin businesses, and generally convert EBITDA growth to EBITDA in the 45% range, which allows for ample investment back into the business for future sustainable growth.
Free cash flow for the year was just shy of $2 billion. which represents a 32% margin and is going Stanley up 32% over 2022. Full year contribution from our frontline acquisition and excellent performance across the enterprise drove this result. Underpinned by strong renewals, favorable DSO and improving inventory turns. Of note, our net working capital as a percent of annualized revenue was negative 19% in Q4, which is a new record for Roper. Importantly, over a 3-year period, we have compounded cash flow at 16%. Our consistent focus on growing cash flow and the strength of our new portfolio following our divestitures demonstrates a solid base from which to continue our long-term growth algorithm. To that end, we expect free cash flow margin to be 30% or more in 2024.
With that, we can flip to Slide 10 to discuss our strong financial position. From a liquidity standpoint, we finished the year with $3.14 billion available on our revolver with over $200 million of cash. Regarding leverage, we brought down net debt-to-EBITDA from 2.7x at the beginning of 2023 to a year-end figure of 2.4x despite deploying $2.1 billion towards acquisitions. We expect to close on Procare later in Q1 and will utilize our revolver to fund the transaction. So this will be our pro forma leverage to about 3x. Our solid balance sheet, coupled with strong cash generation gives us capacity to deploy $4 billion or more of capital while remaining committed to our solid investment-grade rating.
Since our October call, deal activity has demonstrably increased with a corresponding lift in asset quality. That said, our market optimism remains balanced by our disciplined process and patient posture.
With that, I'll turn the call back over to Neil to talk about our full year segment performance and indications for 2024. Neil?

Laurence Neil Hunn

Thanks, Jason. As we turn to Page 12, let's look back on the year for Application Software segment. Total revenues grew 21% and organic revenues grew 6% to $3.19 billion, while EBITDA margins remained strong at 43.7%. Within the segment, results were consistent with strength at Deltek, Aderant, Vertafore, Strata and Frontline.
Deltek continued to see strong gains in our SaaS solutions, especially in the private sector markets, as discussed throughout the year, the Deltek market was tempered given all the uncertainty regarding government spending, notwithstanding Deltek delivered mid-single-digit organic growth for the year. In addition, they continue to innovate and add capabilities during times of uncertainty, which is a hallmark of Roper strategy, highlighted by the bolt-ons of Replicon and ProPricer. ProPricer smaller transaction, about $80 million purchase price, that closed late last year and delivers the leading contract pricing solutions and software for government contractors and federal agencies and ideal strategic fit for Deltek's Costpoint product family.
Aderant was just amazing last year. They had record bookings and significant adoption of their anchor SaaS solutions and add-on products. Also, Aderant is one of the leaders within Roper, and the legal software market as it relates to productizing generative AI solutions within their product stack. Great job by Chris, Rafi and the entire team at Aderant.
Continuing on, Vertafore was solid with strong ARR gains throughout the year. Additionally, Vertafore made great strides with our product strategy deployment and the MGA systems bolt-on is trending well ahead of our investment case. [Strata] also was quite good last year, both in terms of organic ARR gains and their acquisition and integration work associated with Syntellis. Finally, frontline executed well, delivering strong retention and cash flow during the year. As I mentioned earlier, we will report Procare solutions in this segment and expected deal to close this quarter. As it relates to our 2024 outlook for this segment, we expect to see mid-single-digit organic revenue growth.
Please turn with us to Page 13. Full year organic revenue for our Network segment grew 5% to $1.44 billion and margins were strong at 55.2%. We'll start with our freight matching businesses, DAT and Loadlink which both grew in the year despite the year-long muted freight market conditions.
Similar to that of Deltek, both businesses continue to innovate during the sluggish market with particularly interesting Gen AI innovations at DAT to help combat industry fraud. Pipeline delivered record bookings and had very strong customer retention and expansion activity, leading to strong ARR growth.
Foundry, our postproduction media and entertainment software business muscle through the year given the writers and actor strikes and made meaningful progress in the transition to a full subscription revenue model. Finally, our alternate site healthcare businesses, MHA, SoftWriters and SHP, were strong throughout the year as census levels in senior care facilities improved. As it relates to our full year 2024 guide for the segment, we expect to see low single-digit organic revenue growth based on the expectation of continued muted freight market conditions but with continued strong EBITDA margin performance.
Now please turn to Page 14, and let's review our TEPs segment's results. Organic revenues for the year grew 15% to $1.55 billion and EBITDA margins remain consistent at 35.3%. As we look back over the year, we entered the year with a high degree of supply chain uncertainty. During the year, the vast majority of these uncertainties were resolved, and our businesses did a tremendous job of capturing the opportunity. As we exit '23 and look to '24, we do not see meaningful supply chain constraints.
As usual, we'll start with Neptune, our water meter and technology business. Neptune was just great and continues to see strong demand and momentum for the residential and commercial ultrasonic or static meters and increasing adoption of their meter data management software. We remain bullish about Neptune and the market in which they compete.
Verathon was awesome as well for the year. Verathon was strong across all 3 of their product families: Ultrasonic, Bladder volume measurement, video-assisted innovation and single-use bronchoscopy. As a reminder, Verathon's reoccurring single-use offerings now make up about 55% of the business' annual revenue stream. Just an amazing product and business execution journey to both scale and improve the underlying quality of the business. Finally, our RF product businesses, Inovonics and rf IDEAS, did a terrific job managing through their supply chain challenges and delivered very strong 2023 financial performance.
Looking to our 2024 guidance for this segment. We expect to see high single-digit organic revenue growth for the full year and the expectation that Q1 will grow in the mid-teens area. Now please turn with us to Page 16. This morning, we're establishing our 2024 full year and first quarter guidance. For the full year, which includes the impact of Procare solutions, we expect to see total revenue growth between 11% and 12%.
On an organic basis, we expect to see full year 2024 revenue grow between 5% and 6% and finally, we expect to see full year adjusted DEPS to be in the range of $17.85 and $18.15, which includes about $0.10 to $0.15 of DEPS dilution associated with the Procare deal. Assumed in this guidance a tax rate in the 21% to 22% range. We want to take a moment to set our guide in context of our long-term strategy and execution model. To remind everyone, historically, we operated a 5% to 6% organic growth portfolio. Our strategy and ambition are to structurally improve organic growth rate to be in the 8% to 9% area.
Over the last 3 years, we grew 8%, 9% and 8% on an organic basis, though these years were benefited to some extent from certain market conditions. As such, our view is our current course and speed organic growth rate is in the 7% to 7.5% area. We are very pleased with our progress to date and continue to work to achieve organic growth aspirations. As it relates to organic revenue outlook for '24, we entered the year mindful of 2 factors: continued subdued large customer activity in our Application Software segment and our freight matching businesses within our Network segment, being below trend based on our expectations for continued muted freight market conditions. As it relates to the first quarter, we expect to see adjusted DEPS in the range of $4.30 and $4.34.
Now please turn with us to Page 17, and then we'll look forward to your questions. As per our custom, we'll conclude with the same key takeaways with which we started. One, we delivered another great year of performance; and two, we have continued positive momentum heading into 2024. Relative to 2023's performance, we delivered 15% revenue growth, 16% EBITDA growth and 32% free cash flow growth with free cash flow margins also at 32%. Our total revenue growth of 15% was underpinned by 8% organic revenue growth. Importantly, free cash flow has grown 16% on a 3-year compounded basis and we delivered our first ever quarter of $1 billion of softer recurring and reoccurring revenues, quite an important milestone for enterprise.
In addition, we deployed $2.1 billion towards high-quality vertical software acquisitions, highlighted by our bolt-ons of Syntellis and Replicon. In a year where deploying capital is structurally challenged and we did so at very compelling values, leading to strong value creation for our shareholders. As we enter 2024, we do so with strong momentum. We continue to see robust demand for our mission-critical solutions and a strong outlook for organic growth. Also, you can count on Roper to improve the underlying business quality as we scale our enterprise. Adding to the momentum for the year are the contributions from our 2023 acquisition cohort and last week's announcement of Procare solutions.
Finally, we are well positioned to continue our capital deployment execution. We remain very active in the M&A market, an environment that we expect to be notably improved in 2024. We can do this with a strong balance sheet, a large pipeline of attractive opportunities and unwavering levels of patience and discipline.
Now as we turn to your questions, and if you could flip to the final slide, our strategic flywheel, we'd like to remind everyone that what we do at Roper is simple. We compound cash flow over a long arc of time by operating a portfolio of market-leading application-specific and vertically oriented businesses. Once the company is part of Roper, we operate a decentralized environment so our businesses compete and win based on customer intimacy. We coach our businesses on how to structurally improve their organic growth rates and underlying business quality.
Finally, we run a centralized process-driven capital deployment strategy that focuses on finding the next great business to add to our cash flow compounding flywheel. Taken together, we compound our cash flow in the mid-teens area over the long arc of time.
So with that, thank you for your continued interest in Roper, and let's open it up to your questions.

Question and Answer Session

Operator

(Operator Instructions) Today's first question comes from Deane Dray with RBC Capital Markets.

Deane Michael Dray

Can we start with Procare and it's interesting. This is the first time I recall where you made a deal announcement, and I had not 1 but 2 people at RBC Research contact me and say, "Hey, that they were active customers. And so -- and they show them the apps on their phone, and it was really interesting to see that dynamic. And my question here is I'm really glad that you highlighted how they're a maturing leader and within that category. And what surprises me is how much growth there is? I mean, low single digit, maybe low double digit to mid-teens.
As you start to see that type of growth might the private equity sellers have a bias where maybe that's a public company exit. That's always been the kind of adage go for these more orphan businesses, there is no public company exit. They're more apt to sell to you at a reasonable price. If you start looking at some of these growthier businesses like Procare, even at a maturing leader category, Might that stretch the multiples because the private equity players might have a public company exit in mind. So maybe we can start there.

Laurence Neil Hunn

Yes. So I think first, I appreciate the comments on Procare. I think there's like 80,000 5-star ratings in the app store, so your colleagues are a couple of many about the -- liking the application and the engagement with their kids and their early child education centers. The -- relative to the question about the IPO as a competitor. I mean maybe on some transactions, but most of what we're going to look at are going to be subscale for the IPO market. The TAM here is sub $1 billion. That's not a very IPO-able type market. So this is, again, a small market leader, the market is growing low double digits that we talked about, which underpins the mid-teens growth rate we're underwriting to here.
In terms of valuation and multiples, I think we're just in a world where sellers, especially private equity sellers understand the cost of capital where the world is. They have constraints from their LPs. They need to get liquidity back to them. They can't raise new funds without it. And so I mean it's hard to guess what this asset would have traded for 12 to 18 months ago, but substantially, substantially higher on a multiple basis. So we think for the moment, the valuations are coming to us because of the market forces that we just talked about.

Jason P. Conley

I think in this current environment, liquidity is really key. So if you do an IPO, you don't get your liquidity right away. So I think that's pretty important.

Deane Michael Dray

And this might be more of a nuance. But at your Analyst Day, you talked about a willingness to look at businesses that might be at an earlier stage of development and is on that spectrum, does Procare is a maturing leader? Is that something you could have acted sooner on -- and when Jason talked about the level of activity, how within the funnel, are there businesses that are at that earlier stage that might look attractive?

Laurence Neil Hunn

Procare is like a perfect example by earlier stage, right? So these are not early-stage companies. They're earlier than what we've typically acquired in the past. So they meet all of our criteria. I have to emphasize that every time we talk about maturing leaders. So it's a leader in a small market. The base of competition is understood and observable in the marketplace. The relative market share advantage this company has is particularly interesting. So those are common traits of everything we've always acquired. This case, the market is growing a little bit faster and the underlying business model, margins are going to scale as the business grows. So that's the earlier part of what we're talking about.
Historically, we would have maybe waited to by Procare until the next trade, the one after the one that just occurred. And so when we look at the model of this over a long arc, it's just much more value for our shareholders to do this type of transaction.
In terms of the pipeline, it is, as Jason said in his comments, and I said in my comments, just a noticeable change in activity since our last call in the marketplace for some of the reasons that we talked about. The -- and it's a variety of opportunities. I mean we're leaning into doing more bolt-ons. So there's a fair amount of bolt-on activity in there. That's a lot of what Janet her team are working to build. And then there's a fair number of these emerging maturing leaders -- excuse me, maturing leader type profiles, and we'll just have to -- we'll be patient and disciplined to figure out the right ones for us.

Operator

Our next question today comes from Julian Mitchell with Barclays.

Julian C.H. Mitchell

Maybe just following up on Procare. If you could clarify a little bit just the financial impact. I think you said maybe $0.10 to $0.15 hit for the year in that guide. So maybe just sort of clarify around that -- is it kind of a smaller hit in Q1 because of the timing of the deal close and then we just spread the rest out over the balance? Any thoughts on kind of the seasonality of the Procare business? And then how quickly you'll get that sort of related debt down?

Laurence Neil Hunn

Yes, sure, Julian. So we expect to close in March, that's sort of our assumption right now. So the way that plays out is of the $0.15, maybe $0.02 in the first quarter. So we expect for the calendar year around $75 million of EBITDA. And then we'll, obviously, from an interest perspective, we'll reload on the revolver, which is going to be at around 6%. And so -- and obviously -- cast out through the rest of the year. So that's how I can get to your $0.10, $0.15 for the year. In terms of seasonality, not a ton of seasonality for the business. And of course, it's growing nicely. So that sort of worked through any aberrations you'd have between quarters.

Julian C.H. Mitchell

That's helpful. And then just homing in on network software for a second. So you have that sort of softness in the freight markets that's been sort of well understood for some time. Foundry was also weak for some of last year. So are we thinking that in the context of that low single-digit organic growth guide for the year in network software. Just trying to understand, are you assuming kind of a slower start than a pickup in the back half or it's a steady sort of 3% growth rate dialed in just like how you exited 2023.

Laurence Neil Hunn

I'll take the first kind of and then ask Jason, anything wants to add any color. So you're right, the call -- I mean the principal driver of the growth rate in this range for '24 is DAT and length and freight matching businesses. Foundry, had, as we talked about, had a tough '23 with actors and writer strike. On top of that, they started the migration to a full subscription model and so '24 will be a bit muted for Foundry as well, but that's small relative to the impact of DAT and the Canadian Freight Match businesses. We've assumed sort of muted conditions throughout the whole year. There certainly are market prognosticators that are suggesting a second half pickup. We've not assumed that in our model. We want to see it before we load it in and that's our core assumption relative to the Freight Match businesses.

Operator

Our next question today comes from Brent Thill with Jefferies.

Brent John Thill

Curious just to get the thoughts on organic growth in '24, obviously, taking a pretty meaningful step down from what you did last year? Maybe if you can explain that and the initial guide and what you're baking in for the overall guide for '24?

Laurence Neil Hunn

Sure. I mean it's -- I'll just comment and share a few of the thoughts we said in the prepared remarks, right? So the -- our long-term aspirations are to grow organically in the 8% to 9% range, and we believe we have the possibility to do that. It's going to take a few more years to get into that run rate that's the aspiration of what we're all working towards both in the group executives and all the operating teams across the company. As you know, the last 3 years, it was an 8%, 9%, 8% throughout that whole period of time. We said we -- those were benefited by some market tailwinds, some comeback from the pandemic, a raging freight market. Things like that, supply chain sort of bottlenecks and releases, and that was sort of in the last 3 years.
So as we look at this year compared to history and then also are the possible. And we think our current course of speed is in the 7% to 7.5% range organic growth through all that noise. So as we compare what we're doing in '24 against all that, it really is 2 simple reconciling factors. One is we just talked about the last question, the freight markets being slow this -- our expectation for them to be slow throughout the whole year. And then as we talked about for a few quarters last year in our Application Software segment, there was notably less large customer activity like enterprise class customer activity.
Deltek, a little bit, we talked about at frontline, a little bit of smaller business called data novations, which all makes sense large company is anticipating a slowdown, they just got cautious in their buy behavior. The good news is Deltek ended Q4 with a fair amount of momentum. I think they're up low double digits, either high single or low double digits in the quarter. So they exited with a fair amount of momentum. It's one data point. We want to see a few of those down together. And so we're -- those are the 2 recoiling items, the freight slowdown, expectation slowdown in large activity application. That's embedded in our model and those are reconciled factors between last year and where we are this year and also pretty much a reconciling factor between where we are this year and where we think we are from a run rate.

Operator

And our next question comes from Joe Vruwink with Baird.

Joseph D. Vruwink

I guess I wanted to pick off on the last answer and maybe contextualize a bit more of the outlook specifically for application software. I appreciate the comments on subdued activity with large accounts. Do you happen to maybe have the trend in enterprise bookings? And then any other forecasting considerations to call out? Because I guess I'm trying to reconcile the good step-up at year-end against the mid-single outlook, but that might just be related to the planning kind of assumptions you just mentioned, Neil.

Laurence Neil Hunn

Yes, I think the step up at the end, I mean, Deltek was strong in Q4. And it's one data point. The pipeline looks attractive. The pipeline for frontline looks attractive at both the enterprise and the SMB portion of their business, but we've been through the better part of 3, 4 quarters where the enterprise activity was slow, and we're just not going to underwrite to that in our guidance at the moment.

Jason P. Conley

In terms of enterprise bookings, they were low single digits, which is consistent for the full year this year and sort of consistent with what we said all year long around just lower activity at the enterprise level.

Joseph D. Vruwink

Okay. Great. And then I wanted to ask, there's some exogenous events like you mentioned Foundry. I think they communicated that they're now exclusively subscriptions here in 2024. You also have a lot of other businesses that have big on-prem maintenance streams that can get a multiplier over time. So there's things that are hurting and helping, I suppose, do you have a sense on a blended and net basis, what this might be contributing to the model in 2024? And when you think about growth improving from the 7% to 7.5% range what these types of items might ultimately mean over the next couple of years?

Jason P. Conley

So I can take the first part of that, Joe, and then maybe Neil can take the second. So in terms of the application software, we still expect it to be strong in the mid-singles. I think nonrecurring revenue will still kind of be flattish we still expect that sort of shift to SaaS to continue, and that's kind of been a small headwind for us throughout the last couple of years, but it's been overcome by the things we talked about, which was enterprise bookings, which we didn't get in '23. So again, recurring is going to be strong. Nonrecurring will be flattish. As Deltek picks up in '24, especially in the large GovCon enterprise, there could be upside in the year because a lot of those customers are still buying on-premise licenses.
So that could be an opportunity, but we didn't bake any of that into our guidance. And then when we look at network, recurring will clearly be down low single digits just based on DAT and Loadlink, at least based on our current assumptions. And to your point, I think nonrecurring will be fairly muted as well because we'll still be -- we'll be at the last point of that conversion of Foundry off license to subscription. So they didn't mandate that in '23, they will mandate in '24, we'll be digesting that last piece there and then on to the 7%...

Laurence Neil Hunn

I think just more longer term on the SaaS migration. We have a little bit over $900 million in on-premise maintenance. That as that converts it converts our recent history, the last 2 or 3 or 4 years. It's north of 2x on an ARR basis as it converts from on-premise maintenance to SaaS and cloud. So when we do that, it's actually going to -- we believe, historically, it's been a bit of a net growth driver while we might -- we will convert perpetual licenses, which are in-period onetime revenue to SaaS, and that's a classic J curve.
The companies that are undergoing this transition, we're going to convert this $900-plus million of maintenance at a clip that will overwhelm that J-curve effect. So we believe it's a net growth driver. Foundry is a bit unique in that they're making a just almost like a day 1 pivot in their business model shift and the other companies are doing more of a migratory approach.

Operator

Our next question today comes from Allison Poliniak with Wells Fargo.

Allison Ann Marie Poliniak-Cusic

Just want to turn to tech-enabled products. Obviously, a strong year. As we think about that guide, and Neptune and Verathon certainly big components of that growth. Does that kind of diverge to some extent? Does one start to outpace the other? It seems like there's a lot of development at Verathon that could drive some of that. Just any thoughts there?

Laurence Neil Hunn

I mean both, as we talked about, both Neptune and Verathon were just great in last year, both grew faster than the segment. Obviously, they are a predominant element of the segment. We believe that the long-term growth rate at Neptune is probably in the high single digits area. And we believe that the long-term organic growth rate of Verathon is probably a bit higher than that. It's -- we want to believe that it's going to be low double digits. We want to see a couple more years of that, some more R&D productivity. We're super encouraged by the pipeline of R&D and the momentum they have in the market across the 3 product categories. So that's where we expect the long-term growth rates to be there.

Allison Ann Marie Poliniak-Cusic

Got it. And then just following up on the M&A side of things, leverage at 3x, obviously, strong cash flow generator. But it sounds like the pipeline is incredibly active with quality transactions. What's the comfort level in terms of going above that range? Is there a way to think through that? Just any thoughts.

Laurence Neil Hunn

I mean we're always -- our long-term policy is between 3x to 3.5x. If you look back to 2015, '16, you can never be right at that level, some of you go above it, come below it. It's always this process and where you draw the line through those swings. We're going to just what's -- business model pickers, as you know. We're going to continue to look for the very best businesses at the most attractive valuations that meet all of our criteria, and then we'll look for the best way to finance those from that point. We certainly understand, I think, acutely risk, both risk in the businesses, risk in the capital structure, and that's a big part of how we think about deploying capital and how we value assets.

Operator

Our next question today comes from Christopher Glynn with Oppenheimer.

Christopher D. Glynn

I had a question about the TEP segment. So you commented on the supply chain issues from the last couple of years all resolved. So curious if you're seeing some nice benefits emerge from production planning and if that drives some natural margin and productivity tailwinds that we should see in the margins in 2024.

Laurence Neil Hunn

Well, I think scaling certainly helps. We've added a fair amount of capacity at Neptune. We've added supplier capacity at Verathon. We've added supplier capacity at the RF IDEAS -- the rf products businesses. And certainly, we're not the similar from most companies. The supply chain operations teams are going from a model that was focused for the last 3 or 4 years on resiliency to maybe a more balance between resiliency and sort of just in time, which certainly will help with inventory turns and asset velocity.
So we do think there's a little bit of money trapped in inventory for us. It will be more of a working capital advantage if we can execute on that plan. In terms of margins, I'll look at Jason. I think it's probably more just scaling infrastructure. I mean what we -- our cost of goods is so low relative to industrial type companies that the input cost or fraction of the cost structure of our enterprise, but your thoughts about that?

Jason P. Conley

Yes. No, I think we'll have leverage that will be a little bit above what the EBITDA margin is for the business. I mean we do have some of the growth that we're seeing is in single-use products, which are great because they have a lot of recurring revenue or the reoccurring revenue, but they come at a little bit of a lower margin. And then when Neptune grows, it has a little bit of impact on the segment too. So I would expect leverage to be consistent with what we've seen in the last couple of years just based on those factors.

Christopher D. Glynn

Great. And then about the aspiration to 8% to 9% organic growth and driving things higher. Certainly, I understand you have a lot of coordination of experts and best practices across the enterprise. What would you characterize as top of the list businesses with particular action plan opportunities in that respect.

Laurence Neil Hunn

So we appreciate the question, right? So we started this portfolio of 5% to 6% growth. We're in a way point of, we think 7% to 7.5% on the way to 8% to 9%. So we've made a fair amount of progress over the last 4 or 5 years. It's less about which company. It's more about the process and discipline across the all 27 now going to 28 companies. And you've heard us talk about this on repeat in the past, but it's just were, if anything, we're consistent. So it's about how do each of our businesses design a strategy in terms of where to play and how to win and where they have the right to lend for durable long-term growth. The second thing is that how do you process enable the execution of that strategy so that you're on repeat. We can use our long-term forever ownership period as a long-term competitive advantage.
So as we stack capabilities that become enduring, then we can outpace our competitors. And then third, is how do we run a talent offense where we use talent as a long-term competitive advantage. We've talked a lot about the upgrade at the field leadership level over the last 3 or 4 years. The expectation for performance is much higher, much, much higher. The alignment of our compensation is tighter to that expectation. And so it's all reacting in unison that you get the Verathon that a decade ago or low single-digit growers and now hopefully low double-digit growers. You take businesses like Deltek, they have the mid and they come solidly mid-plus or maybe they can inch in the high singles over time. So it's about every business doing a little bit better on a sustainable basis.

Operator

Our next question comes from Joe Giordano with TD Cowen.

Joseph Craig Giordano

On DAT, obviously, the freight market is weak. Can you just -- I know we've talked about that relationship kind of being somewhat inverse in weak markets where they actually tend to do better. Is that -- but just to put a finer point on that, is that more like on negative inflections in the market where it kind of spikes and then if it's like prolonged weakness that ultimately is forced to like trickle into DAT. Is that how we should really think about that?

Laurence Neil Hunn

So DAT dynamics are a little bit different than what you described. DAT is when the freight markets are very strong, DAT grows in line or maybe ahead of that strength. When the freight markets are weaker, they tend to slow down. And then the sort of -- so therefore, if you look at their growth, it's more like stair step-type growth. In this particular case, because we're coming off such a surge for a couple of 3 years, it's a little bit more exaggerated.
The dynamic that you're describing perfectly describes our ConstructConnect business, which is the construction analytics business where when the -- when you think about building product manufacturers and contractors and subcontractors subscribed to your content about what commercial real estate buildings are in the process of being planned and built. They want to look for where their next jobs are going to come from. So in the construction markets, the real estate markets are white hot and contractors are fully subscribed years out. The value of our information is less when the market slows and their backlog is spending then the value of what we offer is much higher. So we tend to have a little bit of a countercyclical sort of demand driver inside the construction activity.
So by the way, Matt and his team, the ConstructConnect are working to balance out and have done a good job. So hopefully, to go forward will be up in up markets and up and down markets, but that's the -- that's what our product strategy is trying to execute.

Joseph Craig Giordano

That's good color. Just like a broader question, obviously, we're getting like more and more layoff announcements at like, I guess, that companies across the spectrum from tech to UPS. So how are you guys like in your discussions with your customers -- what's the most recent kind of read they're having on where head count stands and what the implications are for your businesses there that's somewhat dependent on that.

Laurence Neil Hunn

Yes. I think unfortunately, our read across the macro market isn't a great one, right? Because we operate at these relatively insulated end markets, government contractors, property and casualty insurance where brokerages employment is higher, life insurance where employment is higher, healthcare where employment is higher, education where employment seems stable, if not higher, right? We're in the sort of relatively isolated, protected end markets where the macro swings aren't -- don't impact that much. It doesn't have that much impact on the way we drive compliance bookings in our -- across our portfolio. I will say for the labor market, generally loosening up has been advantageous for us all to have been able to not just fully staff at our business level, but use this opportunity to last probably 12 months plus to significantly upgrade talent across the organization.

Operator

Our next question comes from Terry Tillman with Truist.

Terrell Frederick Tillman

Maybe just one question for you. I guess it's for you, Neil, is what we've seen with our vertical SaaS companies and even horizontal SaaS companies in the past, when they get those customers on the new modern architecture, it really can start to reduce the friction to buy those other add-on modules. And so what I'm curious about is you called out some of your businesses in the past like Deltek that have seen improving growth. Anything you can share around kind of net revenue retention from those customers that move to cloud? And I know it's still early days, but is there a propensity to buy those add-on modules, does it speed up? Does it quicken and that's just one of these things that could be a cumulative benefit over time and also help on that organic growth. And then I have a follow-up.

Laurence Neil Hunn

Super appreciate that question. The short answer is categorically, yes. And we see that, first, when you do the lift and shift, from a legacy product to the current cloud delivery product. There's a migratory benefits that we talked about. Strata is a good example. Same-store sales, 2 to 2.5x uplift. But then while they're doing that, the checkbooks open, and they buy more modules at that moment where total ARR goes up over 3x and they lift and shift their customer base. Same can be said slightly different metrics, Aderant, Vertafore, et cetera. .
And so what you're talking about is one of the principal benefits both to the customer and to us, our companies for delivering cloud-delivered SaaS deliver software, which is being able to be on the most recent release to be able to take advantage of all the R&D innovation and more easily be able to take additional products because of the delivery mechanism is faster and the implementations are more smooth. So you're exactly right. We're seeing it across the portfolio and expect to see a lot more of that in the years to come.

Terrell Frederick Tillman

That's great. I appreciate that. And I guess just a follow-up question. And I know you want to be careful in not revealing too much, but if the M&A environment does start opening up more and there's more shots on going, just more things that are interesting, albeit taking into account your discipline. I'm curious, just bigger picture. Usually, it's vertical SaaS. But what about interesting niche horizontal SaaS solutions, whether it's back office or kind of middle office or front office and/or secondarily, the idea of maybe software companies with a meaningful payments business.

Laurence Neil Hunn

So as we always said, will always be we're going to be business model pickers. The reason historically, we've been attracted to vertical -- small market verticalized software businesses is because the basis of competition needs to be able to be understood and observed. We want to be able to compete based on both the value proposition of the product, but also the intimacy with the customer and the customer relationship.
The vast majority of our companies, their customers want us to win right, that we are so integral to what they do. They want us to win. They're always giving us input and feedback about how to be better, how to deliver more value to them. And so it's those dynamics that we look for. There are certainly some nichey horizontal type things that meet those criteria, but not a lot. right? A lot of the horizontal have gigantic TAMs, you compete on the base of an algorithm. There's very little loyalty to the company. So those types of things will never invest in.
Relative to your comment about payments. Business models are -- we have a variety of business models. The software is on-prem, they're SaaS. We just bought a business that is the integration of SaaS software and payments, where you have deep embedded integration with what the company does and the products do with the payment stream. And so it's a business model. We're open-minded to the business model construct as long as there's an immense amount of durability embedded in the business model.

Operator

Our next question comes from Alexander Blanton with Clear Harbor Asset Management.

Alexander M. Blanton

I have some questions on Procare and -- the first one is, you've indicated that it's not accretive to adjusted EPS for this year. And if not, then there's some dilution. How much is that? You might have mentioned that earlier, I might not have caught it.

Jason P. Conley

Alex, this is Jason. So we assume around $75 million of EBITDA and then the interest is going to be $1.86 billion at, call it, 6%, which is our revolver, our current revolver rate. And so that's how you get to your calendar dilution number.

Alexander M. Blanton

But what is that number in EPS?

Jason P. Conley

$0.10 to $0.15.

Alexander M. Blanton

Okay. So that accounts for the shortfall in the guidance versus the consensus you say $0.10 or $0.15 dilution.

Jason P. Conley

Correct.

Alexander M. Blanton

Okay. Now going forward, if you're growing at double digits, mid-teens, that implies that you're going to get some pretty good accretion in 2025, correct?

Jason P. Conley

Absolutely. Yes. We're looking forward to the accretion after '24, and it will come, like I said, it's grown mid-teens, very good cash conversion dynamics. We have a little bit of a tax benefit this year, the next year and a couple of years out after that. So yes, feeling good about Procare's contribution to our growth going forward.

Alexander M. Blanton

Now can you give us an idea of what the total available market is in their business? And I assume it's all domestic at this point. And how do they look compared with that? In other words, with their market share or approximate? I understand that the leading provider, but it looks like it might be a fragmented market.

Laurence Neil Hunn

So the TAMs today is about $750 million. It's growing about 10% a year. So you can do the math on what we said the next 12 months, March '25, it's 260. So you got to grow the market at 10% do the math on their current market share and their relative market share position. So their size relative to their next largest competitor is about 1.5x. The market we would characterize as having a number of legacy technology players and Procare and the Principal competitor are generally replatforming the market from a technology perspective.

Alexander M. Blanton

Okay. Finally, in that market, there are different sizes to the groups that you might be serving. There are nursery schools, for example, that have several hundred students, and there are small ones that are much smaller. Where do you fit in that? Do you -- are you aiming at the -- or serving the smaller schools as the larger ones or both?

Laurence Neil Hunn

Really appreciate the opportunity to address this question because one of the aspects of the business that we like quite a bit. So the way that we segment the market are basically enterprise, mid- and single operators, so 10-plus centers, 1 to 10 centers and a single operator center. Procare is the demonstrable leader -- relative market share advantage substantially higher than the 1.5x in both the enterprise and the mid and the growth rate in the enterprise and the mid is actually growing faster in the overall market.
So the markets -- the segments were -- and then Procare also is highly competes very well in the single operator. I don't want to not comment on that. They could be very effectively there as well, but the strongest and have the largest market share in the enterprise and mid, which means that as the market consolidates ever so slowly over time, that accretes to our advantage.

Alexander M. Blanton

Okay. And finally, is there any foreign business there available? Or are you looking to get into that or not?

Laurence Neil Hunn

Yes. International is not a meaningful part of the business today. It is certainly something that we will consider in the long-term strategic outlook for the business, but not something in probably the near term because there's so much opportunity domestically to go -- to get after.

Operator

This concludes our question-and-answer session. We will now return back to Zack Moxcey for any closing remarks.

Zack Moxcey

Thank you, everyone, for joining us this morning. We look forward to speaking with you during our next earnings call.

Operator

Thank you. The conference has now concluded, and we thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.