Roper Technologies (ROP) Q3 2017 Earnings Conference Call Transcript

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Roper Technologies, Inc. (NYSE: ROP)
Q3 2017 Earnings Conference Call
Oct. 30, 2017, 8:30 a.m. EDT

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Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, everyone. Thank you for standing by. You are currently on hold for today's Roper Technologies third-quarter 2017 financial results conference call. At this time, we are admitting additional participants and will be underway shortly. We appreciate your patience and ask that you please continue to hold.

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...

Good day, everyone, and welcome to the Roper Technologies third quarter 2017 financial results conference call. Today's call is being recorded. At this time, I would like to turn the conference over to Mr. Zack Moxcey, Vice President of Investor Relations. Please go ahead, sir.

Zack Moxcey -- Vice President of Investor Relations

Thank you, Laurie. And thank you all for joining us this morning as we discuss the third-quarter financial results for Roper Technologies. Joining me on the call this morning are Brian Jellison, Chairman, President, and Chief Executive Officer, Rob Crisci, Vice President and Chief Financial Officer, Neil Hunn, Executive Vice President, Jason Conley, Vice President and Controller, 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 will please turn to slide 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 and as further detailed in our SEC filings. You should listen to today's call in the context of that information.

And now please turn to slide three. Today we will discuss our results for the quarter primarily on an adjusted, non-GAAP basis. A full reconciliation between GAAP and adjusted measures is in our press release, and also included as a part of this presentation on our website.

For the second quarter, the difference between our GAAP results and adjusted results consists of the following items on a pre-tax basis: a $12 million purchase accounting adjustment to acquire deferred revenue relating to software acquisitions, and $1 million of related commission expense. This represents revenue and commission that those companies would have recognized if not for our acquisition. And lastly, a $73 million adjustment for amortization of acquisition-related intangible assets.

And now, if you will please turn to slide four, I will hand the call over to Brian. After his prepared remarks, we will take questions from our telephone participants. Brian?

Brian Jellison -- Chairman, President, and Chief Executive Officer

Thank you, Zack, and good morning everyone. I don't know how many of you were fortunate enough to stay up last night, as I was, to watch the second-best baseball game of all time -- the Reds and the Red Sox still are No. 1, but what an incredible game. Anyway, I made it in! So, I'm very happy about that.

If we look here, we've got the Q3 enterprise financial results we'll start with. And then get into the segment detailing the outlook, talk a little bit about Q4 and raising guidance for 2017, and sort of initial outlook about 2018, and then take your questions and answers.

So, let's go to the next slide. The Q3 enterprise highlights here are a summary. We had record third-quarter results in about every category you can imagine, certainly sales and orders and gross margin, EBITDA, etc. I'm very encouraged by the fact it was very broad-based strength. We really only had one situation within medical products that was sort of disappointing, and one product portfolio business that we'll discuss when we get into there. But notwithstanding that, we still had incredible results for the quarter.

Revenue was up 24% to $1.171 billion with 5% organic growth rate. The gross margin was 63 basis points, up 163%, up 170 basis points. And what we're particularly encouraged by that, is it demonstrates our ability, we think, to contain the cost-push challenges that other people are complaining about, with material and supply chain issues. Instead of having a problem, we're up 170 basis points.

Our diluted earnings per share were up 20% to $2.36. EBITDA was up 24% to $407 million and our margin expanded 20 basis points to 34.8%. Year-to-date, our operating cash flow has been $866 million, which represents $0.25 of every sales dollar, and that's allowed us to reduce our debt year-to-date by $880 million. That's very rapid deleveraging, bringing our EBITDA number down dramatically. A great quarter and certainly strengthening the balance sheet was really a little bit above-plan.

Next slide. We look at the Q3 income statement; you can see revenue in the quarter was up $224 million over the prior year. EBITDA was up 24%. Tax rate was -- on our adjusted numbers, we apply a 35% tax rate, and then on the rest of the business that came out there, about 28%. So, we had got a 29.7% tax rate and we expected something around 30%. And then you can see, net earnings up $44 million to 245.

Next slide. Here, we look at how effective our cash flow strategy continues to be, and how well our field people execute. Operating cash flow year-to-date is, as we said, $866 million, 25% of revenue. Our year-to-date free cash flow is 24% of revenue. One of the things we like to point out to people is there's not much capex here, so the difference between operating cash flow and free cash flow is only 1% of revenue. If you look back two years ago, you can see that our operating cash flow year-to-date in 2015 was $660 million. Last year, it went up by $71 million to 731. This year, it's up by $135 million to 866. So, that's just in a 2-year period, up 31%.

Our cash conversion -- which I hear some people stumbling around when I'm talking to folks -- our cash conversion on a GAAP basis is 156% year-to-date. It was higher than that in the third quarter actually, around 160. Our cash conversion on an adjusted net earnings number was up 118% year-to-date, and up 124% this quarter. So, I do occasionally hear people talking about cash earnings vs. our adjusted earnings. Our cash earnings are higher than the adjusted earnings that we report. We reduced debt by $880 million as I said, and all of those things demonstrate our ability to compound cash.

Next slide. We look at the asset-light business model, and that's certainly well and moving ahead. I always like to look at how much progress we've made. If you look back five years ago, our inventory was 7.2% of revenue, and today it's 4.5%. Receivables were 17.1, today they're 16.4. Payables and accruals are the same in both periods, 12%. Our deferred revenue back then -- just five years ago -- was 3.4% of sales. Today, it's 11.5%. So, five years ago our total net number in working capital was 9% of revenue; today it's a negative number of 2.5%. We now have over half a billion dollars in deferred revenue, 535 million as you can see at the bottom of the slide. And the importance, of course, of the negative working capital, is that we don't need to add working capital as we grow. So, we have this incredibly great model that as we grow, we actually get, oftentimes, paid in advance for the work, and so, it actually strengthens the cash in our balance sheet as we grow.

All of this reflects the enterprise transformation that we've overtaken for a long period of time, with particular effectiveness in the last five years. And it's all really driven by our cost return on investment principles and discipline that we always like to talk about.

Next slide. Here, we're just getting ready to get into the specific details of the segments and the outlook, all of them performed very well. There even are margins that were between 30 and 45%. They're really -- each one of them is sort of best-in-class for the platforms that it represents.

Next slide. We thought we'd take a minute today to talk a little bit about the awards and milestones that have been accreting to the businesses, because they're really quite spectacular and we tend to talk about events within the quarter rather than the long-term trajectory of what's going on here in these calls, and so many good things are happening around the future, which I'll just share a couple.

Gatan, which has been our scientific imaging segment, reported through medical, created a technology a few years ago that was instrumental in identifying the Zika virus. And the technology that we have allows cryo-electron microscopy to see things that it wasn't previously able to see. As the cryo-electron microscopy business picks up, this will have a dramatic effect on our Gatan business, since we really have preeminent technology there.

Deltek, this quarter, was recognized as cloud-based professional services automation ERP leader by IDC Marketplace. They have, sort of as people know about the class say, the "magic quadrant." This is sort of a slightly different thing, but still, a very high honor to receive.

Sunquest was named the Clinical Diagnostic Laboratory IT Company of the Year by Frost & Sullivan, and that really demonstrates our customer intimacy in that space.

Strata was named No. 1 by KLAS for hospital decision support software. That's a big payoff for all the enhanced investment that we put into Strata after we acquired it, and the enhanced technology they're delivering for cost and payment in the hospital sector.

Aderant Expert has become the No. 1 enterprise practice management system among the Am Law 200 firms. This is really about us improving a channel to market for them, and the knowledge that we're investing for their future, which is a much higher rate, of course, than what it had when it was inside private equity.

TransCore successfully converted the New York MTA bridges and tunnels. Those of you in New York can give us applause for that. Our ability to execute that was preeminent. We delivered everything on time, and TransCore can be quite proud of what it's been able to do and will do in the future, as infrastructure spending starts to pick up.

All of this is sort of the culture of innovation we have in these niche markets. We've got dramatically higher RD&E investments in all of our businesses.

Next slide. If we start with our largest sector -- that's RF Technology and Software -- it's now 42% of the entire company revenue, a little bit more than that on an EBITDA basis. The third quarter represented nearly a half a billion dollar of revenue on its own. It was up 61%, with organic up 4. We had a little bit of pull in from the fourth quarter at Deltek that strengthened our Q3 results Deltek's really had a lot of GovCon wins. We made an acquisition for them in Denmark -- meaning non-US cash -- of a company called WorkBook, which is gonna enhance our professional services platform. ConstructConnect also was able to drive considerable growth as their recurring revenue was increasing, and we think there'll be some bolt-ons in the ConstructConnect space in the near future.

When you look at the core business without the acquisitions, the operating margins in the quarter were up 280 basis points, and EBITDA, you can see, also performed very well.

We had mid-single-digit growth across the other software businesses. Aderant continued to gain share. We made an acquisition, a bolt-on, for them that we called Handshake, which is in Florida. It adds knowledge management software for these same firms, so it's a common thing to add and sell within our existing distribution channel. And our freight matching business continues to expand, with net subscriber growth.

We got great execution, from a margin viewpoint, in our toll and traffic project in the quarter, which is very encouraging because oftentimes those projects have contingencies associated with them and performance dictates how much you really make at the end of one of the projects.

In the fourth quarter, our software businesses are expected to continue to grow with the same strong margins and cash performance that we've enjoyed in the third quarter. We see continued momentum for both Deltek and ConstructConnect; they really do have tailwinds behind those businesses. We expect that we'll get low single-digit organic growth in the segment in Q4, solely because we had the difficult comp with the MTA start-up in the fourth quarter of last year. We see a lot of continuing opportunities for TransCore projects. When we talk to our team there, they'll -- they've actually added people for the bidding process, because there's so much opportunity. And they're likely to create even better opportunities at '18. We used to think, at the beginning of the year, that '18 would be a challenge because it would be difficult to replace the MTA project in New York, but that's no longer a fear and in fact, we think we're gonna grow beyond this year.

Next slide. Here, if we look at medical and scientific imaging, we had a great quarter but a little bit abnormal around organic growth; you can see it was only up 1%. It really should be mid-single-digits, and in fact, many of the businesses were mid-single-digits and above. The margins in the quarter were essentially what we expected, so we're happy with the margins. We did get mid-single-digit growth in the medical businesses if we exclude this one unusual transaction that happened in our Verathon business which, right at the end of the quarter, fell short on its revenue projections in the US. We don't expect that to continue for long at all.

Revenue grew across all three medical platforms, and they do represent 85% of this segment. In the products, we had terrific performance out of Northern Digital and IPA, and that was offset a bit by what happened at Verathon so we wind up with a net organic of one instead of four or five. In our Acute Care Solutions, we did exceptionally well in the middle-ware and international arena. A little bit softer in the US, but still net positive organic growth. In the Alternate Site Healthcare business, we continue to have good growth in the long-term care GPO and software businesses that are there and don't see really any headwinds for those at all.

In the scientific imaging business, we had said at the end of quarter two that we would have a light quarter in quarter three from a revenue viewpoint, just because of issues associated with getting all of the cryo-EM technology out with the cameras. And in fact, that occurred, but that gives us kind of a bolstered opportunity in Q4.

If we look at how the fourth quarter is gonna look, we think that the growth initiatives, and RD&E, and channel access for these three medical platforms will continue to be substantial for us. We're spending about $14 million more this year than the prior year, all in the hopes of capturing forward growth that we've talked about earlier today and throughout the year. Revenue growth should occur in all three platforms; imaging ought to be a little better on timing its shipments. We expect to have better margin improvement sequentially from the third quarter to the fourth quarter, and while we may get only two or three points of organic growth in the segment in Q4, we expect to have much better organic growth again in 2018 as we're back to a normal pace, with mid-single-digit activity.

Next slide. If we look at industrial technology and energy systems, the industrial technology business was up 12% organically. Neptune had another record quarter; they had double-digit growth in earnings, so those people that are complaining about copper might wanna pay attention to what we're doing. Fluid handling growth from continued share gains is doing really well, with Roper pumping with Cornell. We improved the upstream oil and gas environment -- it did, and it helped us quite a bit. We think the fourth quarter's gonna have the same kind of growth characteristics around it, as the third quarter did, and we expect to get leverage in these businesses above 40%.

If you look at energy, organic is up 6%. The reason for that is that we had double-digit growth in the oil and gas portion, which is about two-thirds of our segment, but we had the expected high-single-digit decline that we thought we would have at CCC, so the net effect wasn't a double-digit organic growth. In the third of the business that reports in energy that's really sensor technology and industrial markets, we were up high-mid-single-digits there. We see the fourth quarter being similar growth to the third quarter, with leverage -- again -- above 40%. If you look at the two segments together, they delivered $107 million of EBITDA and $335 million in sales, or 32%. So, the businesses remain really outstanding.

Next slide. So, here we get ready to talk about the guidance profile for Q4.

Next slide. So, we're raising our full year guidance, raised the midpoint by nine cents. We had been $9.12 to $9.30. We're raising that to $9.27 to $9.33. The full year, then, will deliver about a 22% revenue growth, of which 5% will be organic. We expect to create more than $1,150,000,000.00 of operating cash flow. Fourth quarter guidance, we came in at $2.56 to $2.62, remember, we did a little bit better in Q3, that took some of the fourth quarter out into the third quarter, but on balance we're raising the full year guidance. I think tax rate in the fourth quarter is likely to be similar to what we just saw in the third quarter, maybe a little bit less, depending on how things go, and of course we're all waiting on what happens with the government. If there actually was a change in business tax, Roper would be one of the biggest beneficiaries in the universe.

Next slide. Here, we look at the summary of our activity for the third quarter. As we said, we had a record third quarter, really strength throughout the company. Very few headwinds have developed in 2017, and we really don't see many at all for 2018. Revenue, as we say, is up 24% to $1,171,000,000.00. The gross margins at 63% are really pretty spectacular. DEPS, at $2.36, was considerably above most people's expectations. EBITDA at 24% up with $407 million. Our year-to-date cash flow at 25% of revenue sort of speaks for itself. We've already reduced debt by 880 million. We're rapidly deleveraging, which gives us a big reloading of the balance sheet much more quickly than I think many people thought. Our proven CRI principles and discipline really drive our ability to compound cash flow and acquire great businesses, and you're gonna see that activity accelerate in 2018. We think over the next four years we'll put something above $6 billion to work in acquisitions, which is simply our normal glide path inside keeping our investment rating and just leveraging our free cash flow toward these acquisitions. Another big takeaway about how the quarter is, is we're just started with our 2018-20 planning process, and meeting with people, and seeing their initial submissions for '18. And I have to say that the operating leaders are projecting more confidence for '18 than any year in the last five that we've entered this process. So, we look forward to finishing those activities during the fourth quarter and being able to initiate guidance later around a record 2018 contribution.

...

So, with that, we'll open it up to questions.

Questions and Answers:

Operator

Thank you. We will now go to our question-and-answer portion of the call. If you would like to ask a question, you may do so by pressing the star key followed by the digit one on your touchtone telephone. We do ask that our callers limit their questions to one main question and one follow-up.

And we'll go to Scott Davis, Melius Research.

Scott Davis -- Melius Research -- Chairman and Chief Executive Officer

Hi. Good morning, guys.

Brian Jellison -- Chairman, President, and Chief Executive Officer

Hey, good morning, Scott. And congratulations on the new business.

Scott Davis -- Melius Research -- Chairman and Chief Executive Officer

Thank you. I appreciate that. Congratulations to you guys. I'm gone for a few months and I come back and look at some pretty good numbers. So, looks like you're doing your jobs.

Anyways, this deferred revenue line item is just amazing. I don't cover software companies, so maybe this is more common in that world, but it's a big step up. I assume a large chunk of that is Deltek. Can you just explain to me, like give us an example, of kind of the contracts and how it works that you're able to collect so much cash up front?

Brian Jellison -- Chairman, President, and Chief Executive Officer

It really kind of -- if it's licensed and maintenanced many times, you get paid a year in advance for that activity. If it's a SAS and cloud-based, you may get paid a year, you might get paid six months, you might get three months, but you're always ahead of the curve for pre-payment for the technology that they're using routinely. As they add seats, they've gotta pay in advance for the seats that they add and so forth. But I'll let Neil maybe give you a little more granular explanation about how the contracts work.

Neil Hunn -- Executive Vice President

Yeah, I would say, Scott -- good morning to you. But we're very normal, very typical in the software state. So, we're not doing something abnormal in that regard. As Brian mentioned, on the recurring revenue streams -- which would either be the SAS piece or the maintenance piece -- we bill those, generally, a year ahead on a contract cycle. So, you get paid, maybe at 90 days. You're booking 270 days of net deferred cash on your balance sheet. Then similarly, when you book on a license sale, oftentimes the payment terms on a license sale -- you might get half the payment of the license on signing, and half when you go live. And you're normally always in a deferred revenue implementation during that implementation period. So, it's a very common practice and we're well within sort of industry norms. But it's a part of the core business model that's been created here at Roper over the last decade, as we transformed.

Scott Davis -- Melius Research -- Chairman and Chief Executive Officer

Yeah, no, very clear, and --

Brian Jellison -- Chairman, President, and Chief Executive Officer

Well, let me tell you that five years ago on September 30th of '12, our deferred revenue was $181 million. So, part of our acquisition strategy is purposely directed at these kind of opportunities, where, as you grow, it doesn't draw down your cash.

Scott Davis -- Melius Research -- Chairman and Chief Executive Officer

Yeah, that's clear. Neil, since you're on the line, can you give us a little granularity on this one-time Verathon weakness that you cited? Just a sense of what that is.

Neil Hunn -- Executive Vice President

Sure. Just to start at the top, Brian mentioned it was really isolated to Verathon. The rest of the platform performed at or above our expectation. When you double-click down into Verathon, it was isolated to the US and to our capital equipment sales to hospitals in the US in the quarter. The concealed seats recurring piece was quite robust; the international piece was quite robust. And then we get into the root cause of what happened in the US, it was a combination of channel execution challenges that are being corrected as we speak, and then a little bit of timing between product cycles: new products we're developing and the timing of those releases. We may have frozen our sales force, it may have frozen the market a little bit, but those are starting to relieve here in Q4 and through 2018. So, we expect it to be corrected here rather quickly. Won't say it'll be corrected in Q4 -- might be a little quick -- but take a couple quarters to correct and we should be back on-track there. The future for that business looks quite robust, given the product roadmap that we have and they're executing well again from that.

Scott Davis -- Melius Research -- Chairman and Chief Executive Officer

Perfect. Thank you.

Brian Jellison -- Chairman, President, and Chief Executive Officer

Just a little bit -- a lot of small numbers. No, you're -- the miss from them on revenue was like $5 or $6 million. It just happens to be different than what we expected.

Scott Davis -- Melius Research -- Chairman and Chief Executive Officer

Excellent. Well done, fellas. Thank you for your answers. Good luck.

Operator

We'll go next to Christopher Glynn, Oppenheimer.

Christopher Glynn -- Oppenheimer & Co., Inc. -- Analyst

Thanks, good morning. Just wanted to revisit the RF, kind of, EBITDA growth algorithm. I think it's about 70% software now, if you could, just mark-to-market the normal price and functionality expansion expectation?

Brian Jellison -- Chairman, President, and Chief Executive Officer

Sure, yeah. So, you're right. The segment is now majority software, so you have the TransCore toll and traffic business, which is gonna be more project-driven, and is generally gonna have lower margin than the software businesses. The software businesses are very steady. They've been mid-single-digit growth businesses here for quite awhile, and those leverage ratios generally come in at 35% or higher. So, I think that's very sustainable moving forward. I think you see less variability in this segment than maybe you would've seen five or six years ago when it was primarily the toll and traffic business. Now, it's really primarily the software business and, of course, Deltek and ConstructConnect will both become organic in '18, which should further boost the organic a little bit. Because we said those were solid mid-single-digit growth businesses when we bought them.

Christopher Glynn -- Oppenheimer & Co., Inc. -- Analyst

Okay, and then RF had very large core margin expansion, 280 basis points. Could you just dive into what's going on there a little? Is it just a good mix quarter?

Unidentified Speaker --

Well, I think that one of the things is that the execution of things at TransCore continues to improve around their project management. So, that's a favorable variable, and then the growth in the software businesses does help, obviously, because they're higher-margin businesses, so both those are important. And I think some of the RF businesses aren't really product businesses, and they've performed well in capturing leverage at pretty high levels on incremental revenue.

Unidentified Speaker --

Yeah, that's right. Some of the smaller businesses, we don't speak a lot about, like at RF Ideas, which we acquired a couple years ago, had excellent growth and excellent leverage. So, it really is a mix of a number of businesses performing very well within that segment.

Christopher Glynn -- Oppenheimer & Co., Inc. -- Analyst

Sounds good. Thank you.

Operator

I'll go next to Deane Dray, RBC Capital Markets.

David Lu -- RBC Capital Markets -- Analyst

Hi everyone, this is David Lu on for Deane Dray. I want to ask about an update on the MNA pipeline. So, you're sizing over $6 billion of MNA over the next four years. What does the environment look like today, given that multiples are a little bit extended, and what are the sizes of the deals you're looking at? Thanks.

Brian Jellison -- Chairman, President, and Chief Executive Officer

Oh, if our choice was, we did one billion-and-a-half-dollar deal in 2018, that would be good. And our next choice would be one billion and one 500 million. Our next choice would be, you know, three five-hundred-million-dollar...

So, what happens now is that we do get some bolt-on opportunities. Already this year, we put over 50 million to work on bolt-ons. One for Aderant and one for Deltek. I would expect you see some bolt-on activity in our ConstructConnect business because there's a lot of attractive things. What's unique, and sort of different for us, with those businesses is they have assimilated small units previously. So, they're sort of geared up for that activity, whereas we wouldn't have acquired a small company -- it just wouldn't have had the scale to be successful. So, we will be able to have a mix of some smaller deals out of that 6-plus billion over the four years. But the lion's share of the money will go to large platform expansion opportunities for the company.

David Lu -- RBC Capital Markets -- Analyst

Great, thank you. And just one follow-up. As we approach the winter, we are anniversary-ing Deltek's acquisition. You mentioned mid-single-digit organic growth; what's their demand environment been like? There hasn't really been this infrastructure symbolism looking at it, but it looks like underlying demand's still very long. So, give us an update on Deltek if you could? Thanks.

Brian Jellison -- Chairman, President, and Chief Executive Officer

Well, I think you just did! We agree with that. It's mid-single-digit growth, maybe a little bit better from time to time. Certainly, if you get an infrastructure package ever, that's only good news for them. Getting a budget passed is good news for them. So, that's a big deal for the customers Deltek has, to know the government's got a budget and that's already done and behind us. So, we did see a little pull-in from Q4 into Q3 at Deltek -- probably not because of that, but you never know. So, we might have a little more better performance in '18 than we have in '17, and then they're gonna make substantial contributions from a cash basis, and the acquisitions that we just -- have already announced are -- have a lot of synergies inside them that will benefit Deltek.

David Lu -- RBC Capital Markets -- Analyst

Great, thank you.

Operator

We'll take our next question from Joe Ritchie, Goldman Sachs.

Joe Ritchie -- Goldman Sachs & Co. LLC -- Analyst

Hi, good morning guys. Hey, can we just go back to this Verathon for one second? I know that you guys did your product refresh at the end of last year, and I'm just trying to get a sense for how much of it was channel challenges vs. having the right products. And then again, going back to that comment around it'll take maybe a little bit more than a quarter, a couple quarters, to correct itself: I guess maybe talk a little bit about the confidence you have in it just reversing as we get through 2018.

Brian Jellison -- Chairman, President, and Chief Executive Officer

So, we have a lot of confidence. I want to correct you on -- the product refresh was around our GlideScope products, with a lot of new technology that's been launched. And that was very successful and drove outside organic growth for the last two years inside Verathon. We have another major project launch around what we call a bladder scan line of products. We also have big changes that we haven't announced -- but the sales portion is about them-- to enhance some additional products and how they're used. So, if you were a sales guy and you've already been briefed on all the product technology, occasionally that can get in the way of people making their decision about what they're buying this quarter. We also are adding substantial sales resources, because we think that with the additional new products that are happening we're gonna get much stronger demand, particularly in the second half of 2018, than we've enjoyed throughout 2017. To capture that, we gotta have a lot more resources. It takes time for those people to get trained and those products to get accepted, but we're actually very excited about Verathon for 2018.

What disappointed us about Verathon in the third quarter was not so much that they missed by five or six million in revenue, but it happened in the last two weeks of the quarter and it wasn't foreseen. So, that was a disappointment. We wouldn't expect to be off forecast like that. That's not a Roper trait, and it's one that we know Verathon is embarrassed by and is working rapidly to get that problem solved.

Joe Ritchie -- Goldman Sachs & Co. LLC -- Analyst

Got it. That's helpful color, Brian. Maybe my follow-up here on ConstructConnect: we've had some companies across the space talking about labor constraints across the commercial construction space. First, I'm just curious how that potentially impacts the ConstructConnect business. And then secondly, you mentioned bolt-ons earlier around this business. Would that be adding to different verticals, different geographies, I'm just trying to get a sense for what bolt-ons would mean for ConstructConnect.

Brian Jellison -- Chairman, President, and Chief Executive Officer

I wouldn't say geographic things. I mean, it could be -- there are some regional variances around small nice players. It's more expanding the number of things. Let's say they're very strong in certain activities, weak in plumbing. The first acquisition we made in the space was On Center and that was all about drywall. A lot of what ConstructConnect is terrific around a wide variety of things, and they're very strong in HBAC takeoffs from architects but weak on windows, or whatever. So, there are certain kinds of businesses that we can add to that, that make the suite larger than it currently is and keep up in a preeminent spot. Those are the kind of things we think will occur.

Joe Ritchie -- Goldman Sachs & Co. LLC -- Analyst

Got it. And on the labor constraint side of the question?

Brian Jellison -- Chairman, President, and Chief Executive Officer

I don't see any relevancy to that at all. It's really -- you've got to think about where this is. It's pre-construction activity. It's architectural stuff. The amount of labor could only affect them if it became a constraint on being able to put projects in place, and that won't affect the number of users we have or the number of seats that are used in our software. So, the software is frequently used in the bidding process for people, so that they have a sense of just how much material has to go into the project. That's what you get out of a ConstructConnect analytic and algorithm. So, I really don't think labor would have much of an effect.

Joe Ritchie -- Goldman Sachs & Co. LLC -- Analyst

Got it, that makes sense. Thanks, guys.

Operator

We'll go to Richard Eastman, Robert W. Baird.

Richard Eastman -- Robert W. Baird & Co., Inc. -- Analyst

Yes, good morning Brian, Rob. Brian, could you kind of speak a little bit to -- you know, in Deltek I think there's this Handshake, and we also bumped into an Onvia -- two acquisitions. They're probably small, but just curious if you could speak to those a little bit as tuck-ins or bolt-ons to Deltek.

Brian Jellison -- Chairman, President, and Chief Executive Officer

So, Onvia is not closed, so we really can't talk about that. That's a tiny public company. It's a natural fit with Deltek; it's something that Deltek had paid attention to in the past as something that's very synergistic to Deltek. The company is really sub-scale. It hasn't made much money at all on its own because it just doesn't have the channel access. So, I think you'll see our situation around that, if we can ever get that deal closed, which we expect would happen here within the fourth quarter, will help Deltek and Deltek will make Onvia much more effective.

On Handshake, let me ask Neil to talk about this because it's an exciting bolt-on for Aderant.

Neil Hunn -- Executive Vice President

Yes, it's a bolt-on for Aderant. It's about legal firm knowledge management. If you look inside -- if you're running a law firm, you basically have to have a practice management system which is core Aderant. You need to have a document management system, and you need to have a knowledge management system. So, this firmly plants us in a knowledge management space. It was sort of the recognized leader in that, and we just dug very large cross-selling opportunities into our base to take this capability into. Nice little bolt-on. I would also say, it fits all of the Roper acquisition criteria: data sheet, good management team, negative CRI, etc.

Richard Eastman -- Robert W. Baird & Co., Inc. -- Analyst

Okay, very good. And then can I just ask a quick question about OCF, and then also free cash flow being, essentially, flat year over year in the third quarter. Was there anything in there from a tax payment standpoint, or... Just a little bit curious there.

Unidentified speaker --

Yeah, sure. So... yeah. You know, a little bit higher in terms of tax payment. As we look into Q4 we would expect quite a bit of growth in Q4, as we mentioned, 11-50 or greater for the full year means that we'll have nice growth in the fourth quarter, I think. From a working capital standpoint. Performance was OK in the third quarter; we expect it to be much better in the fourth quarter, just around timing of some receivables. And so, we feel great about the fourth quarter. But I think we're in line with where we said we'd be at this point.

Richard Eastman -- Robert W. Baird & Co., Inc. -- Analyst

Understood. Okay, thank you.

Operator

We'll go next Joseph Giordano, Cowen and Company.

Joseph Giordano -- Cowen & Co. LLC -- Analyst

Hey, guys. Good morning. Can you just explain to me what knowledge management actually is? I feel like that sounds like something we can all use a little of, but I'm not really sure what that means.

Unidentified speaker --

Sure. So, if you're a -- let's say you call your attorney and you ask if there's an expert on a particular topic in the firm, and that firm has 1000 attorneys. How do they answer that question? Well, they go to Handshake software, they do a query. It would look across all the various systems inside that law firms and give you an answer. For instance. It's like an intranet about firm knowledge and who has it inside the various -- inside a law firm.

Joseph Giordano -- Cowen & Co. LLC -- Analyst

Okay, that makes sense. I want to drill down a little bit on some of the comps that -- for things like, in the imaging business, we talked about the backlog and the outlook for cryo-EM looking really strong. I know it's been a drag for a while, down again here. When does that start to -- it's a longer-cycle business, I understand that -- when does that start to loosen up for you, and you start comping off something that looks, kind of, on the easier side? And same with CCC.

Brian Jellison -- Chairman, President, and Chief Executive Officer

I think with imaging, it will be a little better in the fourth quarter, but it's really -- 2018 is when they'll have easier comps. And remember, we keep pruning imaging. We're investing a lot in the technology at Gatan and Luminera, but we generally are pruning those businesses to try to have less unique one-off camera things for scientists. It's wonderful to win the Nobel prize, but generally speaking, there's only one camera required. So, we'd like to have things that have more applications. It's a business -- probably shouldn't really be reporting in that segment. It's really a precision technology business, more fitting with a scourge or something like that. So, we like the business; we particularly like what it's contributing from a social viewpoint. We can be really proud about discovering the Zika virus. But it's not an overly material business for Roper technologies. What's the other question?

Unidentified speaker --

On CCC, that is a business that still doesn't have the sort of big, new construction projects going on. That space gonna be a little bit later in the rebound before we get revenue from those type of projects that really aren't happening yet. So, it is down, not down a lot. We'll see when we do guidance for '18. We wouldn't expect it to go down much more, it's kind of bouncing around at sort of the bottom. But they've done a really nice job executing; their field service business has been improving; I think the management team has done a great job in a difficult environment. Great margins still, and I think the business will do well here whenever there is a little bit of an uptick in that part of the market.

Joseph Giordano -- Cowen & Co. LLC -- Analyst

Very last from me, on Neptune. Brian, I know you've talked about a copper -- I think I know the answer to this, but given a record quarter here, what's the order intake kind of been looking like, and just your view on the underlying markets there. I guess we've had a couple one-off data points that people got freaked out about, but it seems like -- it looks like a pretty green light there.

Brian Jellison -- Chairman, President, and Chief Executive Officer

I know the Neptune guys are smiling when they listen to other people's calls. I can tell you that. There's a lot of people bad-mouthing the activity; we don't see it. It'll be a record year for us, it was a record quarter. We're up double-digits. One of the great investment houses has said copper will be 245 at the end of the year, it's 315. They missed it by a mile. We're absolutely vertically integrated. We have our own foundry, we make lead-free products, we're just incredibly efficient. We just aren't feeling the difficulty that other people are. There's certainly enough activity for bids. We have the biggest installed base. It's really valuable to have an installed base when you're looking at it, and we believe we have the best distribution in the US, so that helps. And then periodically, we'll get a little bit of international business that could help and we see some of those opportunities that might emerge in 2018. So, it's a very resilient, extremely nimble place.

Joseph Giordano -- Cowen & Co. LLC -- Analyst

Thanks, guys.

Operator

We'll go next to Jeff Sprague, Vertical Research Partners.

Jeffrey Todd Sprague -- Vertical Research Partners LLC -- Analyst

Thank you, good morning everyone. Hey, just a few loose ends maybe for me to clean up. I guess first, can you give us some idea of how big this MTA comp is? Brian, you expressed confidence in getting over that hurdle, but what are we talking about there as you're looking to 2018?

Unidentified speaker --

Yeah, so on the MTA we still have a strong fourth quarter but it'll be against the start-up from last year. So, if we look at '18 strictly on MTA, it's probably 15-20 -- well, it could be as much as $30 million -- sorry, $20 million headwind. But as Brian mentioned, there are a number of projects that we're bidding on so it's really too early to tell if we might not be able to replace that or even more. But just on that particular project, around $20 million.

Brian Jellison -- Chairman, President, and Chief Executive Officer

The way we've gotten our people to look at it is, how much net new business in software, how much net new business do you need out of TransCore to make up for projects that are rolling off? And that number is probably something around $50 million a year are projects. And the opportunity against which we're bidding is substantially larger than that $50 million hurdle for new business each year. So, I think people feel pretty good about that, and I think the organization increasingly gets more effective. They've gotten substantially better about the administrative side of what you have to do to bid in those arenas. I think they've gotten better at ratio management. We have a relatively new CFO at that business who's certainly helping to make a contribution. And then Tracy Marks, who runs it, is really the domain expert in North America and around the world for these things. So, people come to TransCore to brainstorm, and it just gives them a massive leg-up.

And then in some of the other arenas where they're doing back-office work, a number of other people have had big failures that are embarrassing. And so TransCore's TransSuite software and TransCore's administrative routines around the infinity lane technology we have really give us a substantial advantage to the competition here.

Jeffrey Todd Sprague -- Vertical Research Partners LLC -- Analyst

Right, and then just two more quick ones. First, on tax, you're making some good progress on tax advance and tax reform. I wonder if you could elaborate on what's driving that.

And I did just want to clarify on Verathon also. I think at the beginning of the call, it was characterized as four or five points of growth, which is more like 15 million, not five million. Could you just kind of clarify that? Maybe --

Brian Jellison -- Chairman, President, and Chief Executive Officer

I didn't hear anything like that. Maybe -- I said it was around $5 or $6 million. It might have been that inside the medical business. Maybe somebody's thinking about -- we had 1% organic growth, it clearly would've been more like 4% organic growth if we didn't have that. Maybe that's

Unidentified speaker --

Yeah, so the miss versus our internal model on medical was high single-digits. It was like eight or so of revenue, versus or model, eight or nine. Six of that was Verathon, and the majority of the rest was around the camera businesses and just kinda noise.

Jeffrey Todd Sprague -- Vertical Research Partners LLC -- Analyst

Okay. And then on tax?

Unidentified speaker --

Tax, we were north of 29% in the third quarter. That was a benefit from a favorable resolution of some audit activity, and we have been working with the tax department on a number of things to lower the rate as much as we can, prior to -- hopefully -- tax reform that would lower it in a big way. But we've been in a similar tax range here for the last couple years.

Brian Jellison -- Chairman, President, and Chief Executive Officer

And I think we expected about 30% and it came in at 29, so it wasn't really a material variance on tax. I think we might do a little bit better in the fourth quarter than we did in the third -- I hope so -- but the big benefit would be when you've got probably close to two-thirds or 70% of the incomes in the US and you're paying 35% plus, if that goes to 20, you can kind of do the math on that. And that's a huge deal for us.

Jeffrey Todd Sprague -- Vertical Research Partners LLC -- Analyst

Great. Thank you, guys.

Operator

We'll go to Alex Blanton, Clear Harbor Asset Management.

Alex Blanton -- Clear Harbor Asset Management -- Analyst

Hello, can you hear me? Hi, how are you? I just wanted to check something that you said you missed the revenue from Verathon by five to six million in the last two weeks. Does that come out to about two cents a share?

Brian Jellison -- Chairman, President, and Chief Executive Officer

Oh, I don't know. Didn't help.

Alex Blanton -- Clear Harbor Asset Management -- Analyst

It would be dependent on the incremental --

Brian Jellison -- Chairman, President, and Chief Executive Officer

If he had $6 million in his incremental at 40% and it'd be 2.4, and take a third of it away for tax, it'd be a million and a half. So, it might round to two cents; it's probably more likely a penny or a penny and a half.

Alex Blanton -- Clear Harbor Asset Management -- Analyst

Yes, right. Okay, thank you. And the problem there was that you introduced the new products so that the customers decided to wait and buy the new product instead of the existing one --

Brian Jellison -- Chairman, President, and Chief Executive Officer

I think it was more about our sales force than our customers. If you're having a good year and you've been having a good year for a while, and you know you've got a lot of new stuff that's coming into the bag, sometimes you can get behavior there that's not perfect. The products are, generally speaking, the best in the industry, but they're gonna be even better. So how much of it is that? I don't know.

I think it's also that we're adding quite a few salespeople, so I think there's just some noise that occurs as you're changing territories and moving things around. It's frictional, but in a quarter where we did a billion-171 and delivered 407 million of EBITDA, there's too much focus and worry in our revenue variance in one business out of 50.

Alex Blanton -- Clear Harbor Asset Management -- Analyst

Okay, and one final question, and that is about the perspective in reduction in corporate tax rate. My feeling is that for most companies, a lot of that benefit will eventually be competed away because every industry has sort of a normal rate of return. If you suddenly get a big increase in the rate of return because of a tax reduction, then it opens the door for competition to compete that benefit away back to the normal rate of return. I mean, think about each industry: why is the return where it is? Because that's the normal return. But in your case, since you dominate so many industries and have so little competition in many cases, it would seem to me that that effect would be less. That you would keep, perhaps, more of the potential corporate tax reduction than the average company. Would you agree with that?

Brian Jellison -- Chairman, President, and Chief Executive Officer

Yes.

Alex Blanton -- Clear Harbor Asset Management -- Analyst

Okay. Thank you.

Brian Jellison -- Chairman, President, and Chief Executive Officer

Thanks, Alex.

Operator

That does conclude the Roper Technologies question-and-answer section. We will now return to Zack Moxcey for closing remarks.

Zack Moxcey -- Vice President of Investor Relations

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

Operator

Again, that does conclude today's conference. Thank you for your participation.

Duration: 54 minutes

Call participants:

Zack Moxcey -- Vice President of Investor Relations

Brian Jellison -- Chairman, President, and Chief Executive Officer

Scott Davis -- Melius Research -- Chairman and Chief Executive Officer

Neil Hunn -- Executive Vice President

Christopher Glynn -- Oppenheimer & Co., Inc. -- Analyst

Richard Eastman -- Robert W. Baird & Co., Inc. -- Analyst

Joseph Giordano -- Cowen & Co. LLC -- Analyst

Jeffrey Todd Sprague -- Vertical Research Partners LLC -- Analyst

Alex Blanton -- Clear Harbor Asset Management -- Analyst

Rob Crisci -- Vice President and Chief Financial Officer

Jason Conley -- Vice President and Controller

Shannon O'Callaghan -- Vice President of Finance

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