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Good morning. The Roper Technologies conference call will now begin. Today's call is being recorded. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing star zero. I would now like to turn the call over to Zack Moxcey, Vice President, Investor Relations. Please go ahead.

Good morning, and thank you all for joining us as we discuss the third quarter 2026 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 Chief Accounting Officer, and Shannon O'Callaghan, Senior 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've prepared slides to accompany today's call which are available through the webcast and are also available on our website. Now if you'll please turn to page two. 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 three. Today we will discuss our results primarily on an adjusted, non-GAAP basis. For the third quarter, the difference between our GAAP results and adjusted results consists of the following items. Amortization of acquisition-related intangible assets, transaction-related expenses associated with completed acquisitions, financial impacts associated with our minority investment in Indicor, and lastly, cash collected on Outgo's beneficial interest, which is the residual amount owed to Outgo after it sells receivables to a third party and is classified within cash flows from investing activities. 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 four, I'll hand the call over to Neil. After our prepared remarks, we'll take questions from our telephone participants. Neil?

Thank you, Zack, and thanks to everyone for joining us this morning. You can see our agenda on page four, so let's get into it. Next slide, please. As we turn to page five, I want to highlight three takeaways. First, we delivered solid third quarter results, including 7% organic revenue growth, and increased depth guidance for the year. Second, AI momentum continues to build and we're pleased with the progress in the quarter. Our businesses are bringing new products to market and we're increasingly encouraged by the breadth of that progress and what these products will do for our customers. And third, we're active again on the acquisition front, completing three bolt-ons with our longstanding capital allocation discipline. Starting with our results, total revenue grew 8%, for gaming revenue grew 7%, EBITDA grew 7%, and debts grew 15%. At a high level, we had a strong quarter, and despite that, a few of our larger businesses. We had another encouraging quarter for Dell Tech, although we continued to take a wait-and-see approach. We continued to see a nice supply-side recovery at DAT, and unfortunately, Neptune continues to face subdued meter market conditions. Based on these results, we're also increasing are full-year desk items. It was a solid quarter, and Jason will walk you through the financial details in a moment. Turning to AI, since our last call, our businesses have introduced a broad range of products that apply AI to the specialized tasks and workflows our customers manage every day. Let me share a few examples. First, Vertifor launched agents for submission processing, benefit plans, and document research, and has now added two agents that automate policy processing for independent agencies. Since the beginning of the year, VertiFOR has developed and launched 12 workflow automation agents with many, many more in development. At Adderant, seven AI agents are now in early access to help law firms bill more accurately and collect cash faster. The appeals agent helps draft billing appeals, the collection agent prioritizes overdue accounts, and the time agent approves billing descriptions. These are practical uses of AI to reduce administrative work and help law firms run more efficiently. Another example is Power Plan, where a new intelligent unitization product tackles a significant industry challenge. More than $180 billion of capital investments awaiting detailed asset classification across the U.S. electric utilities. Our purpose-built AI capability analyzes project and accounting data and recommends how cost should be allocated to individual assets. By accelerating that process, it helps utilities recover their capital investments and earn returns sooner, bringing forward revenue, earnings, and cash flow, and the productivity gains are substantial. Customers are completing this work in minutes that previous of days or weeks. This is another powerful example of our focus across Roper, putting AI to work to help our customers grow, perform better, and operate more efficiently. Great work by Rafi and the team at PowerPlan. At Strata, financial decision intelligence helps healthcare finance teams identify what needs attention and understand what is driving performance. In a few minutes, I'm going to double-click on this specifically. At Central Reach, ReportDraft AI is designed to improve provider productivity and economics. Clinical reauthorization reports typically take 9 to 12 hours per learner, much of which is non-billable. By automating data gathering and preparing a draft for clinician input and review, the product frees up substantial capacity for billable care, creating opportunities for providers to serve more learners, supporting revenue growth, and improving operational efficiency with their existing clinical teams. And Foundry introduced new AI capabilities for visual effects while Subsplash launched work management products that bring AI and automation into church operations. What is encouraging is both the breadth of this activity and how specific these products are to the markets we serve. They address work our customers know well, work that takes time, requires specialized knowledge, and matters how their organizations operate. We continue to see a substantial opportunity to help customers do work more efficiently and effectively, and we're excited to partner with our customers from across the enterprise to realize the promise of AI. Our confidence and opportunity is grounded in the same advantages that have always made our vertical market software businesses strong. Deep domain expertise, embedded workflows, unique data assets, trusted customer relationships, and scale distribution. Our businesses know their customers' workflows and where AI can save time and approve decisions. Each business develops products close to its customers, while our AI accelerator team helps speed development and share reasonable approaches across the portfolio. We're still early in commercialization and are starting to see adoption and monetization of our AI solutions. Importantly, our products change how customers do work, so adoption will develop over time. As customers use our products, that experience will help our businesses refine the products and expand their capability remit. There's more work ahead, but we love the progress. We have new products reaching customers across a broad range of markets and a meaningful opportunity to build from here. And third, we continue to execute our disciplined capital allocation strategy and are encouraged that we're able to execute three bolt-on acquisitions during the quarter. Specifically, we deployed $436 million towards bolt-on acquisitions for iPipeline, Procare, and Strata. The common theme is expanding the capabilities and reach of our existing businesses and in complementary products, expertise, and customer relationships in markets we know well. Each acquisition builds on our existing domain expertise and distribution, creating more opportunities to serve customers and drive long-term organic growth. Our approach remains consistent. Evaluate each opportunity carefully and deploy capital where we see attractive long-term returns. So, a solid quarter with another impactful step on our AI journey. With that, let me turn the call over to Jason to walk through our financial results, capital allocation activity, and balance sheet position. Jason? Thanks, Neil, and good morning, everyone.

Please turn with me to slide six to review our financial performance. Our third quarter was highlighted by solid organic revenue growth and strong depth growth. We delivered revenue of $2.2 billion, which is up 8% over prior year, underpinned by organic growth of 7%. Digging deeper here, organic recurring revenue grew 8% across our two software segments. Our enterprise software gross retention remains very high, consistently in the mid-90s. And further, core enterprise bookings were up mid-single digits on a TTM basis. EBITDA of $864 million was up 7% and converted to EBITDA margin of 39.8%. Core EBITDA margin was down 30 basis points, with our software segments, in aggregate, slightly expanding, while our tech segment was down 90 basis points. Our Neptune business delivered more mechanical meters in the quarter, which has a dilutive impact on revenue dollars and margin. Over a longer arc, we expect a continued migration to ultrasonic meters, which drives higher lifetime value for customers and Neptune. Depths of $5.89 was up 15% over prior year and above our guided range of $5.75 to $5.80 on better margin performance. Free cash flow at $805 million represents 37% of revenue, but was down 4% versus prior year given. We had timing of interest coupon payments on bonds issued in 2025, and we had a temporary lag in collections at our Illumia business as they moved through an ERP implementation. For the year, we expect free cash flow to be 30% or more of revenue, and with our share repurchase activity, Free cash flow per share is expected to grow in the double digits area. Now, if you turn with me to slide seven, I'll walk through our financial position and capital employment. Enabled by seasonally strong free cash flow and proceeds from the divestiture of Indicor's instrumentation businesses, we reduced our net debt to EBITDA by half a turn within the quarter to land at 2.9 times, all while simultaneously deploying $436 million towards acquisitions. We finished with over $300 million of cash and $1.3 billion drawn on our $3.5 billion revolver. In the quarter, Indicor announced the sale of the remaining flow controls businesses to Xylem. We expect around $600 million of pre-tax proceeds sometime in Q4 as the transaction moves through regulatory clearance. Also in the quarter, we acquired three tuck-in businesses for iPipeline, Procare, and Strata. and many more. In summary, we remain well positioned to deploy capital towards the highest risk-adjusted return opportunities through a disciplined and analytical process and approach.

Neil, with that, I'll turn the call back over to you. Thanks, Jason. As we turn to page 9, let's review our application software segment. Revenue grew 7% total with organic growth of 6%. EBITDA margins were 43.7%, up 30 basis points year-over-year. Looking across the segment, AI momentum continues to build with more of our businesses bringing new solutions to market. We also continue to see solid progress on cloud conversions, including encouraging signals at Dell Tech. Turning to the business highlights, Adder had another excellent quarter. The team continued to expand its AI agent platform, as previously mentioned, with capabilities across rates, compliance, and general ledger forecasting. VertiFOR delivered growth across its agency, MGA, and carrier businesses and launched six new AI agents along with its value-based credit model. This value-based pricing model is a key enabler of product-led growth as customers will utilize credits towards any current and future agentic solutions on the Velocity platform. As we discussed last quarter, VertiFOR's strategy starts with high-volume, labor-intensive work, embedding agents directly into the systems customers already use. The latest launches expand the work those agents can do and build on the foundation established with Velocity. Deltek had another encouraging quarter with continued strength in its private sector solutions. Government contracting bookings have been solid over the last couple quarters, although the broader market remains uncertain. Against that backdrop, customers are showing increased interest in moving from perpetual license to our cloud-based offerings. As we discussed earlier, we also saw new AI solution launches at Central Reach with ReportDraft AI and PowerPlan with intelligent unitization. Finally, we completed two bolt-on acquisitions. At ProCare, we added Playground, which helps child care centers manage enrollment, billing, and daily operations. Playground has exceptional product market fit and is highly complementary to the existing ProCare product stack. We're excited about the growth opportunity from pairing that product with Procare's distribution and payments infrastructure. And at Strata, we added C. Myers, which helps banks and credit unions plan for growth and manage financial risk. This quarter, I spent a full day with the Strata team and finance leaders from nine of our health system customers at a co-designed workshop for financial decision intelligence, or FDI, Strata's new AI capability for healthcare finance. FDI became generally available on September 1st. FDI helps finance teams diagnose what is changing in their business and where to intervene to improve performance. For example, when joint replacement margins decline despite rising procedure volumes, FDI automatically explores the underlying drivers from pair mix and reimbursement to labor and implant costs to identify the source of margin pressure and focus management's response. FDI brings together three advantages we see from across the portfolio. First, proprietary data and ontologies. Every health system has its own accounting procedures and definitions. Two hospitals can both report their margin on joint replacements and mean very different things. Strata has spent decades mapping thousands of provider general ledgers into a specific common structure supported by healthcare cost accounting down to the individual patient encounter. That makes meaningful benchmarking possible and gives FDI its foundation. Its calculations use the same governed measures customers rely on to close their books with consistent, repeatable results that are traceable to the source. You cannot prompt your way to that. It has earned one customer implementation at a time over years. Second, turning insight into action. SEI operates inside the Strata platform Delivering answers in seconds and connecting those insights directly to the workflows where customers manage costs, improve margins, and allocate resources. And third, real customer trust. Healthcare finance leaders need confidence in the tools they use to make consequential decisions. Strata has earned that confidence through long customer relationships. Trust is critical to AI adoption, and it's very hard to replicate. Throughout the workshop, the customer request was simple and consistent, productivity, less time assembling and reconciling analysis, and more time working with operating leaders to improve performance. One CFO described analysis that took several people hours to being nearly instant, and FDI doing a more comprehensive and grounded analysis. This reached finance teams that focus on improving profitability and supporting higher quality care. Strata is selling FDI as an add-on subscription, creating an opportunity to grow recurring revenue. This is just the beginning for FDI, and I'm excited about the roadmap ahead. I'm proud of the Strata team's development speed and close customer collaboration, and pleased with its partnership with our Roper AI Accelerator team. Deep vertical data and domain expertise within each business, paired with central AI capabilities. That is the model we're scaling across Roper. Now turning to our outlook. We expect to see application software organic growth in the fourth quarter to be similar to that of the third quarter in the mid single digit plus range. Please turn with us to page 10. Total revenue of our network software segment grew 8% with organic growth of 5%. EBITDA margins were 52.4% down 130 basis points year over year. Core margins were essentially flat the prior year. Turning to the business highlights. DAT was strong in the quarter and accelerated growth, supported by expansion of its network, higher average revenue per user, and continued adoption of its digital freight marketplace solutions. We continue to see encouraging signs in the freight market, with a supply-side recovery progressing. As we've discussed, we would still like to see a stronger load volume before calling it broader recovery. We also completed the ORAGO bolt-on acquisition for iPipeline. Orgo connects UK pension providers, investment platforms, and financial advisors, automating wealth transfers, enabling secure data exchange. It complements iPipeline solutions for selling and administering financial products, expands its presence in the UK wealth and retirement market. Foundry also continued to grow and reached a record level of ARR. SoftRiders grew as adoption of its AI order entry solution continued to expand. As I shared last quarter following my visit to LIScript, this solution addresses a meaningful customer need, reducing the time spent on manual order entry so pharmacy teams can focus more of their capacity on clinical review, customer service, and patient care. Order entry is a starting point, and the team now has additional AI products in beta. Subsplash is tracking in line with our year one target and continues to advance the AI offerings, including enhanced workflow automation. Turning to our outlook, we expect network software organic growth in the fourth quarter to be a touch higher than Q3 and be in a mid-single-digit plus range. It's based on strength at DAT and sub-slash becoming organic in Q4. Now, please turn to page 11, and let's review our test segment. Total revenue and organic revenue both grew 10% in the quarter, with exceptional growth in NDI and strong performance of Arathons. Even our margins were 34.3% down 90 basis points year-over-year. Starting with NDI, the business had another excellent quarter delivering exceptional growth driven by continued demand for its precision measurement solutions. Verathon also delivered a very solid quarter with strength across its B-Flex, GlideScope, and BladderScan product families. In addition, we're encouraged by the positive customer response to the C-Flex Single-Use Cystoscope launch which further expands Verathon's single-use portfolio. Neptune had a softer Q3 following a better than expected first half. We now see second half revenue slightly down versus our prior outlook for modest growth. Q3 mix skewed towards mechanical meters putting pressure on both revenue and margins. That mix is likely to continue into Q4. We view this as temporary as a long-term secular demand for static meters remains fully intact. Finally, I want to recognize the teams at Civco, FMI, Innovonix, and RF Ideas, each delivered strong execution and growth in the quarter. Turning to our TEP outlook, we expect organic growth in the fourth quarter to be in the mid-single-digit range. With that, please turn with us to page 13. On this page, let's walk through our increased four-year adjusted depth guidance, as well as our Q4 outlook. For the full year, we're raising and narrowing adjusted depth guidance to a range of $2235 to $2240. That represents a $0.15 increase at the midpoint from our prior guide and a $0.95 increase from our original guide. Our full year revenue expectations continue to have total revenue growth north of 8% and organic revenue growth in the 6% area. For Q4, we're establishing our depth guidance, adjusted depth guidance, of $595 to $6 Expect your tax rate to be in the 20% to 21% zip code. Now, please turn to page 14, and then we'll open it up to your questions. We included the same three points with which we started. First, we delivered solid third quarter results. Revenue grew 8%, organic revenue grew 7%, EBITDA grew 7%, and adjusted debts grew 15%. We're raising our four-year earnings outlook again, reflecting the strength of our year-to-date performance. AI Momentum continues to build across Roper. Our businesses launched several new agentic solutions this quarter, expanding the work we can help our customers accomplish. The Strata Workshop brought that opportunity to life. Our ability to deliver that kind of value rests on advantages built over many years. Deep domain expertise, proprietary data, embedded workflows, and customer trust. Those advantages are unique to our businesses and central to how our businesses are developing and deploying AI. We're still early, but the opportunity is substantial. As our software takes on more valuable customer work, we have the opportunity to expand our addressable markets and earn a greater share of the value we create. Finally, our capital allocation discipline remains unchanged. This quarter, we deployed $436 million into bolt-on acquisitions for iPipeline, ProCare, and Strata, adding capabilities to establish businesses in markets we know well. As you heard Jason mention, Our leverage now sits at 2.9 times, and we have over $6 billion of capital deployment capacity over the next 12 months. With that, we're pleased to be putting capital back to work through M&A, and we look to 2027 with cautious optimism about compelling opportunities to deploy capital and accelerate long-term cash flow for share compounding. As always, our standard for deploying capital remains the same. We'll pursue the opportunities that offer the most attractive, durable, and long-term cash flow for share compounding or through acquisitions or opportunistic shared purchases. Looking ahead, our focus is straightforward. Help our customers accomplish more, expand the work our businesses can do for them, and invest the cash we generate where we can compound it most effectively. That is how we will build an even stronger roper and deliver durable, long-term growth in cash flow per share. As we wrap up, I'd also like to welcome Abhijit Dubey to our Board of Directors who is the CEO and Chief AI Officer at NTT Data. We're delighted to have him join us and look forward to his perspective and contributions as we continue to execute our strategy, broadly deploy AI across our product stacks in our enterprise, and create long-term value for our shareholders. So with that, let's open up to your questions.

Thank you. We will now go to our question and answer session portion of the call. We request that our callers limit their questions to one main question and one follow-up. If you would like to ask a question, you may do so by pressing the star followed by the one in a touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press the star followed by the number 2. Again, we request that callers limit their questions to one main question and one follow-up. Your first question is from Joe Giordano from TD Cowan. Your line is now open.

Hey, guys. Good morning. Good morning. Hey, maybe one just, like, on a specific company, but, like, I'm sure you saw, like, the journal article the other day on autism care hours, particularly at, you know, at PE-owned facilities, and I'm just, maybe it's for the wrong reasons that these hours are going up at some of these places, but I'm just curious, like, what that means for the rollout of stuff like central reach. Like, it seems like Almost requirement to have technology like that if you're going to push the hours to the extent that this seems to be happening.

Well, I appreciate the question. So I think the thing that is great about central reach to solutions is that it's all about appropriate care that is auditable, that's to the standards. And there was an article or there's a flare-up on this about a year ago when we looked across the central reach customer base. and it was like the most compliant set of customers. I think it was in Minnesota. I forget where it was a year or so ago on some fraud claims. And it was the automation with Centrreach was the cleanest set of providers in the jurisdiction. So same thing here. I mean, it's just a good audit sort of backbone when you sort of use the Centrreach or automated systems here.

If I think about it, The fourth quarter guidance, I'm just curious, like I know it's early for 27, but like are these exit rates fair starting points for us to think about moving forward? Like I'm curious, like something like Neptune, right? Like that's a project-centric business. It's hard for us to kind of contextualize. So like if that's – what are the prospects like kind of into next year?

Yeah, I would say for the 27 sort of set up, First it's super important that you know we're just starting basically next week the planning process so this is we have to go through all the process with all 29 companies and understand the puts and takes and all the nuances so we always have to caveat that but we say it's generally a constructive setup the recurring sort of revenue sort of exit run rates encouraging certainly the velocity of the product development on the AI side is encouraging now Caveat there is we're now in the commercialization phase, and we've got to try the bookings and adoption and consumption. That's sort of where we are in that. I'm sure there'll be questions on that today's call. And then if you sort of go segment by segment, Dell Tech has had a couple good quarters. As I mentioned, we're still in a wait and see. We want to see that continue. And then the other thing about Dell Tech is the business is definitively turning more recurring, more SaaS, So we have to overlap the perpetual in that business. And then just a reminder, Central Reach, we get a full year of organic. And Network, certainly what we're seeing at DAT is encouraging, but it's supply-driven. So it'd be healthier if it was demand-driven, but it's definitely a better setup coming into next year versus coming into this year at DAT. And then remind you, Subsplash is fully organic for the full year. And then TEPP, Neptune's really the to-be-determined, and it has a wider range of outcomes. It had a wider range of outcomes this year that we anticipated that we're experiencing, and so that's a to-be-determined. We'll have to really sort of spend a lot of time with the management team and understand the industry trends heading in next year. And then NDI, which has just been awesome for us this year, will be more normalized next year. But the setup is generally constructive.

Thanks, guys.

Thank you. Your next question is from Brent Till from Jefferies. Your line is now open.

Hi, this is Rhea on for Brent. Thank you for taking the question. On Dell Tech last quarter, you mentioned that you wanted to see consistent conversion of the GovCon pipeline before being able to call this an inflection from OBDB. Mr. Reyes, did this quarter give you that? And I recognize it's early, but maybe just to elaborate on that last question. How are you thinking about Dell Tech for 2027?

Yeah, I think it was a very good quarter for Dell Tech. What we are seeing, thankfully, is that more customers are starting to move to the cloud, so the bookings were quite strong. That doesn't, you know, obviously materialize in revenue immediately like perpetual. You know, it's an uncertain market. I think what Dell Tech's doing is, and we mentioned this last quarter, is announced the end of support for the cost point on-prem solution in the first quarter of 28. So that's creating a catalyst for them to go back to the base and start to do that migration. So despite a sort of uncertain market, they're sort of making growth happen. So we'll see. One more quarter before we move into it.

Got it, thanks. And then just curious on any incremental updates on the M&A environment since last quarter. I think you mentioned 436 million deployed towards bolt-ons, but I think I'm wondering more so on the larger deal side of things what you're seeing. So any color you're able to provide there would be helpful.

Yeah, I would say, as I mentioned, the prepared remarks, we looked at next year with sort of cautious optimism. Janet and her team continues to be very busy. I would say the pipeline tilts more proprietary and proactive outreaches and large-scale processes are very bespoke. We just had a couple weeks ago our second annual CEO conference where we had 20 or so target CEOs together for a day, day and a half going through Roper and getting to know the businesses. So that was well attended and very high quality targets at that summit. And we're cautiously optimistic. I mean, all the pressures that have been on the private equity firms for now going on three years continue to exist. LP credit, DPI pressure, and sort of just coming to grips with where public companies are valued. There's a lot of psychology in that, and that psychology appears to be coming into reality.

Got it. Thank you.

Yep, you bet. Thanks for the questions.

Thank you. Your next question is from Brian Peterson from Raymond James. Your line is now open.

Thanks, guys.

Oh, thank you, Brian. We lost him.

Maybe hit star one accidentally. Yeah. We'll come back. Operator, if we come back to him, that'd be great. Okay.

Okay. Your next question is from Terry Tillman from Truist Securities. Your line is now open.

Yeah, hey, Neil, Jason, Zack, and the rest of the team. Thanks for taking my primary question and a follow-up. On VertiFOR, I care a lot about the insured tech space. I'm curious, you called out the ARR growth. How is that faring versus the overall app software growth? And then it's still the first question. It's a multi-parter, the first one. This idea of the value-based credits, will that just take some time for that revenue stream to ramp? And then I had a follow-up on Deltac. Thank you.

Yeah, I'll take the value-based credit when Jason can take the first one. Yeah, Terry, so they're in line with the segment in terms of ARR growth. And on the value-based credits, just to remind everybody, these contracts are being structured as recurring contracts. So you're buying a fixed amount. Those have to be consumed in a specific period of time. As a result, their revenue recognition treatment is recurring, not reoccurring. So it'll look and feel like subscription revenue. Now, obviously, it's very important for, if you will, for deployed teams, the customer support implementation teams, to make sure there's wide-scale adoption and utilization so you get the upgrades, the uplifts, the additional sort of credit purchases and the renewals. And that's where we are right now. It's where I think the Velocity platform was GA'd within the last 60 or 90 days. I mean, the full GA release has been very recent, and we're in the early adoption phase.

It's good to know on recurring versus reoccurring. I'm glad to ask that. In terms of Dell Tech, I don't know if this is kind of a change in tone here, but I forgot where you all last gave an update on the SaaS versus on-prem for Dell Tech. But it sounds like maybe things are picking up. So it is kind of the real takeaway that the license part of total revenue could be like an incremental headwind in 27. But then you're going to have right behind it this kind of acceleration and recurring. Just anything more you can share on kind of what you're talking about here? Because it sounds like maybe it is picking up steam.

Yeah, and I think, as you can appreciate, Terry, the timing of getting to the cloud is a little harder because it's a different value prop. So there's... That's sort of what we're managing through. But certainly it's our biggest maintenance base at Roper. And so the timing of getting that to the cloud certainly would outstrip perpetual. It's just kind of how that phases over the next few years is a question. But we do feel good about the momentum as we sit here today.

Thank you. Your next question is from Brian Peterson from Raymond James. Your line is now open.

Thanks, guys. Can you hear me?

Hopefully I'm coming in okay. All right. Sorry about that. I just wanted to ask on the appetite for AI and the adoption curve, I'm curious, you know, what products are you seeing that ramp a little bit faster than expected? And also just on the customer appetite and the packaging aspect, Has that been any challenges, or is it more about change management? Just kind of curious what the customer appetite is at this point.

I'll try to be comprehensive in my answer. We can certainly take this offline as well. We'll follow the bouncing ball of this. It was really a year ago, the models and the capability of AI, we really could do agentic work. The first question is, can we think of the ideas, the customer magic, if you will, to I think it's 17 or 18 of the 21 software businesses have agentic solutions in the market. So that's the first question. So first we think of the idea. The second one, can we build them? So that's yes, and that's led us to where we have the vast majority of the companies having these products in the market. Now the question is, can we drive early adoption, convert sort of if you will the beta customers to early adopters? The answer to that has been yes. Just go back to the remarks I said in the call about Stratton and FDI or last quarter with SoftRiders with Pharmacy Automation. The answer to that has been yes. Now it's about we need to get to broad scale into the go-to-market teams across all these businesses and get it broadly distributed. into our customer bases and drive adoption. So the customer interest has been very, very positive. It was probably the most positive I've seen in my career in tech because we're literally delivering a butt that does magic things. So that's the good part. Now what I think all companies, and we're not alone in this, is now you're facing budget cycles, AI committees, all the safeguards and governance of data, and so we're just going through the go-to-market processes You know, the early indications are positive, but we said this year was going to be largely a year of commercialization learnings and adaptations, and again, progressing well, but it's still to be proven. And then I think the first part of the question, you know, where are some of the better customer reactions? Certainly Century, certainly Adderant, certainly SoftRiders and Pharmacy Automation, the early adopters at Vertifor, the early adopters at Strata. I mean, there's really not... I'm just going through the list in my mind. There's not really been a flat launch. I mean, again, it's early days, and we will not bet a thousand across all these products, across all the companies, but we haven't had any abject, out-of-the-box failures, if you will.

I think one of the interesting changes with AI, obviously, is when you launch a product, you can continue to iterate, so you'll have immediate customer feedback. So we've seen some times when Something wasn't quite right, but then we've been able to iterate quickly based on feedback from the customer. So that's been helpful.

I appreciate the call, guys. Maybe just one added element there. As we're thinking about use of kind of frontier models versus some of the lighter weight models, how are you guys thinking about that balance? And does that change any views on how we're thinking about AI-oriented margins over the near to medium term?

Yeah, the punchline is our gross margins on these authentic tools are very positive, sort of at our software gross margins. Our philosophy on this at the moment, and this is obviously subject to change, and this is well informed by our leadership team and our central accelerator, AI accelerator team, is we are 100% optimizing speed of development and deployment. And so we're working with a lot of the models that are on the frontier. We don't need the most frontier model. Let's be very clear about that. We don't need, you know, 5.6 Astra or Fable 5.1 or 2 or whatever the current release is. We use the cheaper, downscaled models from the Frontier, but the harnesses that come with them, you can just get moving much, much faster on the product side. Now, over time, every one of the products, 100% of the products have the model routers, and so we have multiple models underneath each product in case when you call Anthropic or OpenAI, if they're not answering the phone with the latency you need, you immediately flip over to another model. That architecture allows us to switch the models either into small language or open source models over time to manage the cost, but right now we're optimizing for speed of development.

Great. Thank you.

You bet.

Thank you. Your next question is from Faith Brenner from William Blair. Your line is now open.

Hey, guys. Thanks for taking my questions and congrats on the quarter. Maybe to pull on a prior thread you talked about, you're seeing that encouraging engagement around adoption and now the focus is scaling that. So as you kind of work through the early process of that, what have you learned? What challenges are still there? And how are you kind of adjusting your go-to-market strategy to address these new challenges? And how do we get to a more clear monetization path, if that makes sense? And then I have a quick follow-up.

Yeah, I mean, this is, keep asking this question because, and we'll just share our learnings as we go. I mean, obviously we've had to figure out how to price all of these, and there's not a one pricing size fits all. It's different per company and per, I wouldn't say per product, but per company based on where their customers are and the existing economic relationships we have with our customers. So we've generally figured, I think we've figured that out across the board. Then it's how do you sell this in addition to versus in lieu of everything else that we're selling because there still is strong demand for, if you will, the legacy software stack, so how we make sure this is on top of and addition to. And then it's like I said, like in healthcare in particular, acute care hospitals have sort of an AI governance overlay, and that was a new learning from the Strata team, for instance. It's like it has a traditional sales cycle and then another piece of it, so it's not a It's not a barrier, it's just maybe it slows things down a little bit. And those are the sorts of things that we're learning right now.

That makes sense. And then maybe as we get more cautiously optimistic about M&A, how are you thinking about how does AI change your whole thought process on what makes an attractive target, right? So is there different growth considerations, different competitive considerations that you now have to consider and how are you guys working through that?

For sure. The first thing, and we've been doing this since over the last couple, three years since AI, since the chat GPT moment, if you will, we need to certainly make Sure, I do the diligence that the end customer of the software company we're looking at is a viable long-term customer. The customer is viable. So look at what we did last year. It was autism therapy, so people providing therapy to youth and then people going to church. So the end customer is highly viable and will not be sort of disintermediated by AI, if you will. Then it comes down to what we see in our portfolio. Do you have sort of the defensive modes and offensive modes to be a winner in the AI world, right? So do you have sort of the right amount of data, the data rights, proprietary nature of the data? Do you have network effects? Do you have sort of configuration lock-in? Et cetera, et cetera. I won't go through the full framework here. So then do you have the preconditions to be successful in AI? That's where we are now. Fast forward, you know, a year or two or three from now, it becomes, I think, the discernment becomes even easier because you'll have taken, targets will have taken those advantages and will either have proven or not proven that they're winning in the AI with being able to develop products, bring them to the market, monetize the products, drive additional customer value. And so the companies that we're looking at now are in the earlier stages of that.

Okay, awesome. Very helpful. Thanks, guys.

You bet.

Thank you. Your next question is from George Kurosawa from Citi. Your line is now open.

Hi. Thanks for taking the questions. A couple quick ones for me. It looks like buyback activity was paused in the quarter. I think it's something you kind of messaged you were doing as you're preparing for the M&A environment to potentially warm up, just maybe how you're thinking about buybacks going forward.

Yeah. Thanks, George. I think it's the same as we've always talked about, which is the relative sort of Risk Adjusted Returns for us, and for us, obviously the buyback is attractive, but the option value on the M&A, given all the dynamics we've talked about in PE and that everybody really knows about, is worth the deleverage and preparing our balance sheet for that event. Now, if we fast forward a couple quarters from now, we still have that option available to us. We still have quite a bit on the So that's still a viable alternative if M&A markets don't cooperate.

Okay, great. And you referenced on the free cash flow side some impact from collections timing near ERP implementation at Illumia. Maybe if you could quantify the magnitude of that and then ERP implementations have a habit of are those collections issues now addressed, or is there any potential that could extend into Q4?

Yeah, certainly a lot of focus by the team there, and I know they're going to do a good job. They're just powering through some order-to-cash challenges. They actually went live in January, but the big renewal season is in the summer and fall, so we expect to see some improvement in the fourth quarter. Some of that might spill into the first quarter of next year, but when you kind of take a step back for the year, We expect free cash flow per share to be in line with Dev's growth, maybe even a little bit better. We'll see how it plays out. So that should all sort of normalize as we close out the year.

Got it. Thanks for taking the questions.

You bet.

Thank you. Your next question is from Daniel Jester from BMO Capital Markets. Your line is now open.

Hey, good morning, and thank you for taking my question. I wanted to make sure I caught this right, but I think you said earlier in the call that a majority of your businesses now have an AI solution in the market. And I guess given the sort of urgency and the sort of moment in time that we're in and the past comments you've made about the ability to sort of speed your development, I guess what's the timeline to get to 100% in terms of your businesses and software having an AI tool? And are there any sort of commonalities in terms of limiting factors to get there?

Yeah, I appreciate the question. So when you look at the portfolio, there's basically three companies that don't have an AI tool. One's not a true software company. It's a group purchasing organization. So they don't really have an agentic software front that's reported. MHA is reported in the network segment. They're using all sorts of AI inside the business to drive productivity, but so that one, set that aside. Then you have two businesses that are in clinical diagnostics, DI and Klinisis. They have early AI tools, but this is a, what laboratory software does and this sort of, this remit, is it's a, nearly a fully solved technical problem. There's not, like, this is how you run laboratories and route samples to analyzers and take results off analyzers and report that. and so it's basically an already fully automated process and so there's not a large agentic you know remit to do here now they're adding some AI tools around it but it's not like these processes are already fully automated so essentially along with a way of saying the companies that have AI remit 100% of those companies have AI tools today.

That's super helpful and thank you for the color and then I guess I'll pull on the AI monetization thread as well for my follow-up. I guess as you think about next year, I guess how diverse across the portfolio do you think that the monetization will be? Do you think that some parts of the business are going to have one type of way of monetization and other parts of the business a very different one? I guess maybe at an enterprise level, How should we be thinking about monetization? And maybe any call you can provide about the diversity at which parts of the business maybe will come sooner and which parts maybe will be coming a little bit later. Thank you.

Happy to do it. All right. So on the diversity of pricing models in AI, it comes in three general flavors. The first flavor we already talked about, I'll call it like this, this tokenized fixed budget, use it over a period of time where you take it as recurring value. That appears to be the predominant, the majority of what Vertifor, Adderant, CentraReach, I mean, that's the predominant chunk, maybe less CentraReach, but that's the predominant way that our companies are going to monetize early. So it's a consumption-based thing, but you buy a fixed amount of consumption, it's used to lose it. As you consume that, you buy additional sort of chunks. The other model is straight consumption. It's a minority of what we're doing, but we have straight consumption. It's where our customers already buy from us largely on a consumption basis. So in pharmacy automation, a lot of the tools are already paid on a per-script basis. So we monetize on a per-script basis with AI tools there. Or at DAT, we monetize what we do at Convoy and DAT on a per-load basis. So AI therapy on a per-load basis. The third way is, and this is like, for example, at Dell Tech, where their software remit is ERP for government contractors. And so how do you automate the accounting close is one of the product features they're delivering right now. That's going to be basically delivered in the cloud as an add-on. So you're going to see, if you will, accelerated move from ground to cloud at a higher price point once you get to the cloud. So those are the three models. To your point about which ones will show up first, I think it'll sort of go in sort of the first two models, the consumption, if you will, sorry, the subscription model where you have consumption embedded in that and the straight consumption. Those will be the ones that show up earlier, and then the lifted shift to the cloud will take a little bit more time, I would anticipate. Great.

Thank you.

Thank you. Your next question is from Ken Wong from Oppenheimer. Your line is now open.

Great. Thanks for taking my question. I just wanted to circle back to TEP growth. You know, decel from the double digit that you guys reported this quarter. How much of that is divestiture? How much of that is you guys, I think I called out some Neptune softness. Any color you can provide there?

Yeah, hey, Con. So second half, you know, we said it was going to be high single digits and it being a little bit higher in the third quarter. And so that did play out. And so we've got mid singles for the fourth. I would just say broadly, it has been the Neptune softness. And that's, it's really a market sort of dynamic. And it's specifically for us, you know, volume is okay, but we actually had more mechanical meters, has a lower ASP and lower margin. So that was sort of the driver of the second half. And we did divest the industrial businesses a few years ago, and we're getting the proceeds from that, but there's no sort of near-term divestiture activity in that segment.

Okay, perfect. And then on the EPS guide or D-EPS guide, Any impact from the bolt-ons that you guys just picked up?

No, I mean, the impact for us will be more next year. The current quarter, it's actually a little bit dilutive as we've got some synergies that will roll through next year. But it's actually, for the fourth quarter, it's a little bit dilutive, a few pennies.

Okay, perfect. Thanks a lot, guys.

Thank you. Your next question is from Josh Tilton from Wolf Research. Your line is now open.

Hey, guys. Thanks for sneaking me in here. Maybe for my first question, I feel like there's been a lot of hypotheticals and what ifs and how do we see the path of adoption play out around AI and just the monetization framework. And I understand why everyone's asking the question, but Unless I misunderstood, I thought you guys called out in the prepared remarks that you are seeing monetization from AI today. So I'd kind of like to focus on that comment. Where are you seeing the monetization today? How are you seeing it? And if we're already seeing it in some places today, is that where we should expect it to be the most meaningful next year?

Yeah, appreciate the question, Josh. So, yeah, I mean, this is, I think the question is more on the how do we scale this, and obviously this is new, not just for us, but for the economy at large, and so we're all trying to figure that out. Where we're seeing early AI sort of monetization is where the product stacks were first to market, so central reach. You know, for instance, central reach, I'll have Jason have to make sure I sort of keep me honest here, But 75% of their bookings are either AI-specific or AI-related bookings in that range, for instance. Atterent, the number is like 25% of their bookings are either AI or AI-related. The anticipation for what's now back behind sort of the – they were, I don't know, a year ahead of the portfolio. Now the portfolio is catching up. 75, 25 to 75% is a wide range, but it'd be nice to see that as we sort of scale across a dozen of our companies, but it's too early to sort of say it's going to be 10, 25, 50% of bookings over time are going to be AI-related. Fast forward three or four years, like everything's AI. Like this whole thing, what's AI, what's not AI, it's going to be indistinguishable. So I think we're in a moment in time in that regard.

Makes sense. And then... Maybe just my follow-up. Neptune sounds, and again, I could be a little bit wrong here, but it sounds like second half is a little bit less favorable. There's a mixed dynamic. We believe in this view of moving towards the ultrasonic meters over time, better pricing. I understand all that. I guess, was the mixed dynamic... unexpected and I ask it in the sense that is there a correction that can be made into next year where we can go back to maybe you know a better than expected Neptune outcome after we saw what happened this quarter we step back we make an adjustment and we go back to being a little bit better or do you expect kind of you know whatever you're seeing pressure the business today sort of last beyond this quarter maybe into next year?

Yeah I appreciate the question I mean I think it's The static pipeline from Neptune, customer by customer, is strong. So there is definitely a market demand for it. We just had pushes on the pipeline. So we do think coming into next year, it's going to be more favorable for us. Timing is going to be uncertain in terms of the quarterly cadence. But yeah, that secular demand is there. So we feel good about that.

Makes sense. Thank you, guys.

Thank you. Your next question is from Brett Lindsay from Mizuho. Your line is now open.

Hey, how you doing, guys? Ryan on here for Brett. Thanks for taking my question. Yeah, I wanted to just ask, get a little bit more color on Neptune, maybe just, you know, help us understand the market conditions, you know, the main puts and takes that you guys are making. are watching, and then, you know, maybe kind of how you expect the mixed dynamic to play out, you know, over the coming quarters. Thanks.

Yeah, I'll take another crack at this. So, just to remind everybody, the macro, what's happening in the water meter, the North American water meter in-market, just to set that first, then we'll get into, like, the specific quarter and our best look at the outlook. So, what's happening is, during COVID, You know, especially in the Northeast where the water meters in people's basements, they could not be sort of maintained or replaced. So then post-COVID, 22, 23, there is a surge. There's a catch-up. Now on the backside of this, you know, last year, this year for sure, we're having to sort of comp over that surge. And so there's a In the industry, there are fewer meters that are being installed last year and this year versus the years before. You're kind of going from peak to trough. This isn't like a macroeconomic cycle. It's still like a COVID super cycle dynamic that the industry at large is digesting. We've talked about that in the past, but just sort of level set you and the team and everybody on that. So inside, so we're just sort of on the, we believe we're on the tail end of sort of that sort of reset getting into a more normalized sort of meter market. Now what's also happened inside of that is this mix from mechanical to static. Static meters are a better technology. They last longer. They measure, they perfectly measure the flow of water over the life of the meter where mechanical degrades slowly over time. So it's a better value proposition to the customer. That's why the market is generally going there. Because it's higher value, it carries a higher price, and so you've had this positive mix that's happened in the industry, in particular at Neptune, that's helped offset some of the meter declines, macro meter declines in the market. In the quarters, Jason just said, there are projects, large projects, static meter projects that pushed, which had the total number of meters that Neptune sold in the quarters actually pretty close to the expectation, but it was a dramatic mix towards mechanical, which had both a revenue implication and a margin implication. As you just said, that likely sort of has a chance, a probability that normalizes in the next year. But that's sort of the setup of the mixed dynamic, both through the macro and the mixed dynamic. We believe over the long arc, you know, this is not a call for next year. It's like this has been, over our ownership, like a mid-single-digit growth business. And we think those dynamics are intact over the long arc.

Awesome. Super helpful. Thank you, guys.

Thank you. This concludes our question and answer session. I will now hand the call back to Zack Moxcey for any closing remarks.

Thanks everyone for joining us today and we look forward to speaking with you during our next earnings call.

Thank you. The conference has now concluded. Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.