ROPER TECHNOLOGIES, INC. You should read the following discussion in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year endedDecember 31, 2019 ("Annual Report") as filed onFebruary 28, 2020 with theU.S. Securities and Exchange Commission ("SEC") and the Notes to Condensed Consolidated Financial Statements included elsewhere in this report.
Information About Forward-Looking Statements
This report includes "forward-looking statements" within the meaning of the federal securities laws. In addition, we, or our executive officers on our behalf, may from time to time make forward-looking statements in reports and other documents we file with theSEC or in connection with oral statements made to the press, potential investors or others. All statements that are not historical facts are "forward-looking statements." Forward-looking statements may be indicated by words or phrases such as "anticipate," "estimate," "plans," "expects," "projects," "should," "will," "believes" or "intends" and similar words and phrases. These statements reflect management's current beliefs and are not guarantees of future performance. They involve risks and uncertainties that could cause actual results to differ materially from those expressed or implied in any forward-looking statement. Such risks and uncertainties include the effects of the COVID-19 pandemic on our business, operations, financial results and liquidity, including the duration and magnitude of such effects, which will depend on numerous evolving factors that we cannot accurately predict or assess, including: the duration and scope of the pandemic; the negative impact on global and regional markets, economies and economic activity; actions governments, businesses and individuals take in response to the pandemic; the effects of the pandemic, including all of the foregoing, on our customers, suppliers, and business partners, and how quickly economies and demand for our products and services recover following the pandemic. Additional examples of forward-looking statements in this report include but are not limited to statements regarding operating results, the success of our operating plans, our expectations regarding our ability to generate cash and reduce debt and associated interest expense, profit and cash flow expectations, the prospects for newly acquired businesses to be integrated and contribute to future growth and our expectations regarding growth through acquisitions. Important assumptions relating to the forward-looking statements include, among others, demand for our products, the cost, timing and success of product upgrades and new product introductions, raw material costs, expected pricing levels, expected outcomes of pending litigation, competitive conditions and general economic conditions. These assumptions could prove inaccurate. Although we believe that the estimates and projections reflected in the forward-looking statements are reasonable, our expectations may prove to be incorrect. Important factors that could cause actual results to differ materially from estimates or projections contained in the forward-looking statements include but are not limited to: •general economic conditions; •difficulty making acquisitions and successfully integrating acquired businesses; •any unforeseen liabilities associated with future acquisitions; •limitations on our business imposed by our indebtedness; •unfavorable changes in foreign exchange rates; •failure to effectively mitigate cybersecurity threats; •failure to comply with new data privacy laws and regulations; •difficulties associated with exports/imports and risks of changes to tariff rates; •risks and costs associated with our international sales and operations; •rising interest rates; •product liability and insurance risks; •increased warranty exposure; •future competition; •the cyclical nature of some of our markets; •reduction of business with large customers; •risks associated with government contracts; •changes in the supply of, or price for, raw materials, parts and components; •environmental compliance costs and liabilities; •risks and costs associated with asbestos-related litigation; •potential write-offs of our goodwill and other intangible assets; •our ability to successfully develop new products; •failure to protect our intellectual property; •the effect of, or change in, government regulations (including tax); 15 -------------------------------------------------------------------------------- Table of Contents •economic disruption caused by terrorist attacks, health crises (such as the COVID-19 pandemic) or other unforeseen events; and •the factors discussed in other reports filed with theSEC . We believe these forward-looking statements are reasonable. However, you should not place undue reliance on any forward-looking statements, which are based on current expectations. Further, forward-looking statements speak only as of the date they are made, and we undertake no obligation to publicly update any of them in light of new information or future events.
Overview
Roper Technologies, Inc. ("Roper," "we," "us" or "our") is a diversified technology company. We operate businesses that design and develop software (both license and SaaS) and engineered products and solutions for a variety of niche end markets. We pursue consistent and sustainable growth in earnings and cash flow by emphasizing continuous improvement in the operating performance of our existing businesses and by acquiring other businesses that offer high value-added software, services, engineered products and solutions that we believe are capable of achieving growth and maintaining high margins. We compete in many niche markets and believe we are the market leader or a competitive alternative to the market leader in most of these markets.
Critical Accounting Policies
There were no material changes during the six months endedJune 30, 2020 to the items that we disclosed as our critical accounting policies and estimates in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report.
Recently Issued Accounting Standards
Information regarding new accounting pronouncements is included in Note 2 of the Notes to Condensed Consolidated Financial Statements.
Impact of COVID-19 on our Business
A novel strain of coronavirus (COVID-19) was first identified in
Our top priority during this pandemic is on the health and safety of our employees. The leadership teams at our businesses continue to be proactive in instituting safety measures that protect our employees, while maintaining operational capabilities required to meet their customers' needs. All our businesses with manufacturing facilities have been deemed essential businesses and remain operational, supplying our customers with critical products. Additionally, all of our businesses have been operational in their work-from-home environments with limited disruption. The spread of COVID-19 has caused us to modify our business practices, and we may take further actions as required by governmental and other regulatory authorities or as we determine to protect the safety or best interests of our employees, customers, suppliers and business partners. Some changes in business practices include, but are not limited to: restricting employee travel, developing social distancing plans for our employees, expanding the number of our associateswho work from home, and cancelling physical participation in meetings, events and conferences.
While we did not experience a material impact on our results in the second quarter of 2020, COVID-19 continues to present significant uncertainty in the future economic outlook of our businesses.
We operate a diverse portfolio of businesses, and, as a result, our businesses are navigating through a diverse set of challenges. Some of the impacts our businesses are experiencing from COVID-19 include, but are not limited to:
•Our businesses have been unable to visit current and potential customers in
order to solicit new business and/or provide necessary on-site installation,
implementation and training services, which has, in some cases, limited our
ability to obtain new business and effectively service existing business;
•Government restrictions on non-emergency hospital procedures resulted in
decreased (1) demand in our businesses that provide medical products used in
non-emergency procedures and (2) revenue related to pharmaceutical utilization
in post-acute healthcare settings;
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•The unprecedented slowdown and/or shut down of global economy sectors and the
related uncertain timeline to reopen and recover has created a weak demand
environment for our businesses serving industrial and energy markets; and
•Some of our customers, including those in the medical field, may seek to delay
payments to us while they are addressing the numerous challenges presented by
COVID-19; to date, such delays have not impacted the timing of our cash flow and
our financial performance in a significant manner.
While our expectations for our operating results in 2020 have been lowered to
reflect the new economic environment, our businesses are taking pragmatic cost
countermeasures to manage profitability while continuing strategic investments
for long term growth.
Our financial position remains strong with $1,871 of cash on-hand as of June 30,
2020 and an undrawn $2,500 revolving line of credit. On June 22, 2020 , we issued
and sold $600 aggregate principal amount of our 2.000% Senior Notes due 2030.
These funds have been, and will be, used for general corporate purposes which
may include repaying debt or financing acquisitions. Additionally, we expect our
operating cash flow generation capability to continue due to our high levels of
recurring revenue, high profitability, low capital expenditure requirements, and
low working capital requirements. We believe that existing cash balances,
together with funds generated from operations and amounts available under our
credit facility, will be sufficient to finance our operations and meet our
foreseeable cash requirements, including quarterly cash dividends and certain
strategic acquisitions through at least the next twelve months.
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Results of Operations
All currency amounts are in millions, percentages are of net revenues
General
Percentages may not sum due to rounding.
The following table sets forth selected information for the periods indicated.
Six months ended June
Three months ended June 30, 30,
2020 2019 2020 2019
Net revenues:
Application Software $ 398.4 $ 390.6 $ 803.5 $ 771.8
Network Software & Systems 422.0 366.8 860.2 712.5
Measurement & Analytical Solutions 363.9 408.4 729.1 810.2
Process Technologies 120.7 164.5 262.9 323.0
Total $ 1,305.0 $ 1,330.3 $ 2,655.7 $ 2,617.5
Gross margin:
Application Software 68.7 % 67.3 % 67.7 % 66.9 %
Network Software & Systems 67.5 68.9 67.2 69.0
Measurement & Analytical Solutions 60.9 58.8 59.8 58.2
Process Technologies 52.7 57.4 54.1 56.2
Total 64.7 63.9 64.0 63.4
Selling, general and administrative
expenses:
Application Software 40.3 % 42.0 % 41.5 % 42.3 %
Network Software & Systems 36.5 33.7 35.9 33.3
Measurement & Analytical Solutions 27.1 26.9 27.3 27.5
Process Technologies 38.7 22.6 31.2 22.9
Total 35.2 32.7 34.8 32.9
Segment operating margin:
Application Software 28.5 % 25.2 % 26.3 % 24.6 %
Network Software & Systems 30.9 35.2 31.3 35.7
Measurement & Analytical Solutions 33.8 31.9 32.5 30.7
Process Technologies 14.0 34.8 22.9 33.2
Total 29.4 31.2 29.3 30.6
Corporate administrative expenses (3.9) (3.5) (3.6) (3.3)
Income from operations 25.6 27.7 25.7 27.3
Interest expense, net (3.6) (3.4) (3.5) (3.4)
Other income (expense), net (0.2) (0.1) - (0.2)
Gain on disposal of business - - - 4.6
Earnings before income taxes 21.8 24.2 22.2 28.3
Income taxes (5.0) (5.5) (4.9) (4.7)
Net earnings 16.8 % 18.8 % 17.3 % 23.7 %
Three months ended
Net revenues for the three months ended
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In our Application Software segment, revenues were $398.4 in the second quarter
of 2020 as compared to $390.6 in the second quarter of 2019, an increase of 2%.
Organic revenues increased 1% and acquisitions accounted for 2% of our growth,
partially offset by a negative foreign exchange impact of 1%. The growth in
organic revenues was due primarily to higher perpetual license sales in our
businesses serving the healthcare markets, partially offset by declines in our
businesses serving the higher education and K-12 markets. Gross margin increased
to 68.7% in the second quarter of 2020 as compared to 67.3% in the second
quarter of 2019 and Selling, general and administrative ("SG&A") expenses as a
percentage of revenues decreased to 40.3% in the second quarter of 2020 as
compared to 42.0% in the second quarter of 2019, both due primarily to operating
leverage on higher revenue. The resulting operating margin was 28.5% in the
second quarter of 2020 as compared to 25.2% in the second quarter of 2019.
In our Network Software & Systems segment, revenues were $422.0 in the second
quarter of 2020 as compared to $366.8 in the second quarter of 2019, an increase
of 15%. Organic revenues increased 2% and acquisitions accounted for 13% of our
growth. The growth in organic revenues was led by our higher project activity at
our toll and traffic business and subscription growth at our SaaS businesses,
partially offset by declines in our businesses that provide access management
solutions. Gross margin decreased to 67.5% in the second quarter of 2020 as
compared to 68.9% in the second quarter of 2019 due primarily to revenue mix.
SG&A expenses as a percentage of revenues increased to 36.5% in the second
quarter of 2020 as compared to 33.7% in the second quarter of 2019 due primarily
to higher amortization of acquired intangibles from the acquisitions completed
in 2019. As a result, operating margin was 30.9% in the second quarter of 2020
as compared to 35.2% in the second quarter of 2019.
Our Measurement & Analytical Solutions segment revenues decreased by 11% to
$363.9 in the second quarter of 2020 as compared to $408.4 in the second quarter
of 2019. Organic revenues decreased 1%, divestitures accounted for 9%
attributable to the disposal of Gatan, Inc. ("Gatan") on October 29, 2019 , and a
negative foreign exchange impact of 1%. The decline in organic revenues was due
primarily to our water meter technology business and industrial businesses,
partially offset by organic growth primarily in our medical products businesses
used in the treatment of COVID-19. Gross margin increased to 60.9% in the second
quarter of 2020 as compared to 58.8% in the second quarter of 2019 due primarily
to revenue mix. SG&A expenses as a percentage of revenues increased to 27.1% in
the second quarter of 2020 as compared to 26.9% in the second quarter of 2019
due primarily to lower operating leverage on organic revenue declines. The
resulting operating margin was 33.8% in the second quarter of 2020 as compared
to 31.9% in the second quarter of 2019.
Our Process Technologies segment revenues decreased by 27% to $120.7 in the
second quarter of 2020 as compared to $164.5 in the second quarter of 2019.
Organic revenues decreased 26%, and the negative foreign exchange impact was 1%.
The decrease in organic revenues was due to due broad-based revenue declines
across the segment led by lower demand at our businesses serving upstream oil
and gas end markets. Gross margin decreased to 52.7% in the second quarter of
2020 as compared to 57.4% in the second quarter of 2019 due primarily to lower
revenues across the businesses. SG&A expenses as a percentage of revenues
increased to 38.7% in the second quarter of 2020 as compared to 22.6% in the
second quarter of 2019 due primarily to $13.6 restructuring charge for
structural cost reduction actions taken at certain businesses and lower
operating leverage on organic revenue declines. As a result, operating margin
was 14.0% in the second quarter of 2020 as compared to 34.8% in the second
quarter of 2019.
Corporate expenses increased to
Net interest expense was
Other expense, net, of$2.0 and$1.0 for the second quarter of 2020 and 2019, respectively, was composed primarily of foreign exchange losses at our non-U.S. based subsidiaries. Income taxes as a percent of pretax earnings were 22.8% in the second quarter of 2020 as compared to 22.5% in the second quarter of 2019. The increase is due primarily to higher state taxes in 2020 compared to 2019. Backlog is equal to our remaining performance obligations expected to be recognized within the next 12 months as discussed in Note 12 of the Notes to Condensed Consolidated Financial Statements. Backlog increased 14% to$2,044.3 atJune 30, 2020 as compared to$1,789.0 atJune 30, 2019 , organic growth was 13% and acquisitions contributed 6%, partially offset by a 5% decline related to the disposal of theGatan business. 19
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Backlog as of
June 30,
2020 2019
Application Software $ 870.3 $ 804.1
Network Software & Systems 832.9 585.8
Measurement & Analytical Solutions 231.4 277.2
Process Technologies 109.7 121.9
Total $ 2,044.3 $ 1,789.0 Six months ended
Net revenues for the six months endedJune 30, 2020 increased by 1.5% as compared to the six months endedJune 30, 2019 . The increase was the result of organic growth of 0.4%, and a net acquisitions/divestiture contribution of 1.6%, partially offset by a negative foreign exchange impact of 0.4%. In our Application Software segment, revenues were$803.5 in the six months endedJune 30, 2020 as compared to$771.8 in the six months endedJune 30, 2019 , an increase of 4%. Organic revenues increased 3% and acquisitions accounted for 2% of our growth, partially offset by a negative foreign exchange impact of 1%. The growth in organic revenues was primarily due to businesses serving healthcare and government contracting markets. Gross margin increased to 67.7% in the six months endedJune 30, 2020 as compared to 66.9% in the six months endedJune 30, 2019 and SG&A expenses decreased as a percentage of revenue to 41.5% in the six months endedJune 30, 2020 as compared to 42.3% in the six months endedJune 30, 2019 due primarily to operating leverage on higher organic revenues. The resulting operating margin was 26.3% in the six months endedJune 30, 2020 as compared to 24.6% in the six months endedJune 30, 2019 . In ourNetwork Software & Systems segment, revenues increased by 21% to$860.2 in the six months endedJune 30, 2020 as compared to$712.5 in the six months endedJune 30, 2019 . Organic revenues increased 5% and acquisitions accounted for 16%. The growth in organic revenues was led by our higher project activity at our toll and traffic business and subscription growth at our SaaS businesses. Gross margin decreased to 67.2% in the six months endedJune 30, 2020 as compared to 69.0% in the six months endedJune 30, 2019 due primarily to revenue mix. SG&A expenses increased as a percentage of revenues at 35.9% in the six months endedJune 30, 2020 as compared to 33.3% in the six months endedJune 30, 2019 due primarily to higher amortization of acquired intangibles from the acquisitions completed in 2019. As a result, operating margin was 31.3% in the six months endedJune 30, 2020 as compared to 35.7% in the six months endedJune 30, 2019 . Our Measurement and Analytical segment revenues decreased by 10% to$729.1 in the six months endedJune 30, 2020 as compared to$810.2 in the six months endedJune 30, 2019 . Organic revenues increased 1%, more than offset by a decrease in revenue of 11% attributable to the disposal of the Imaging andGatan businesses as discussed above, and a negative foreign exchange impact of 1%. The growth in organic revenues was due to our medical products businesses, partially offset by our water meter technology and industrial business declines. Gross margin increased to 59.8% in the six months endedJune 30, 2020 as compared to 58.2% in the six months endedJune 30, 2019 . SG&A expenses as a percentage of revenues decreased to 27.3% in the six months endedJune 30, 2020 as compared to 27.5% in the six months endedJune 30, 2019 due primarily to revenue mix. The resulting operating margin was 32.5% in the six months endedJune 30, 2020 as compared to 30.7% in the six months endedJune 30, 2019 . Our Process Technologies segment revenues decreased by 19% to$262.9 in the six months endedJune 30, 2020 as compared to$323.0 in the six months endedJune 30, 2019 . Organic revenues decreased by 18%, and the negative foreign exchange impact was 1%. The decrease in organic revenues was due to due broad-based revenue declines across the segment led by lower demand at our businesses serving upstream oil and gas end markets. Gross margin decreased to 54.1% in the six months endedJune 30, 2020 as compared to 56.2% in the six months endedJune 30, 2019 due primarily to lower revenues. SG&A expenses as a percentage of revenues decreased to 31.2% in the six months endedJune 30, 2020 as compared to 22.9% in the six months endedJune 30, 2019 due primarily to$13.6 restructuring charge for structural cost reduction actions taken at certain of our businesses and lower operating leverage on organic revenue declines. As a result, operating margin was 22.9% in the six months endedJune 30, 2020 as compared to 33.2% in the six months endedJune 30, 2019 . Corporate expenses increased to$94.7 , or 3.6% of revenues, in the six months endedJune 30, 2020 as compared to$85.2 , or 3.3% of revenues, in the six months endedJune 30, 2019 . The dollar increase was due primarily to higher professional services expenses, stock compensation expenses and acquisition-related expenses. 20
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Net interest expense was
Other expense, net, of$1.2 and$4.1 for the six months endedJune 30, 2020 and 2019, respectively, was composed primarily of foreign exchange losses at our non-U.S. based subsidiaries.
Gain on disposal of business, of
Income taxes as a percent of pretax earnings increased to 21.9% in the six months endedJune 30, 2020 as compared to 16.5% in the six months endedJune 30, 2019 . The increase is due primarily to the recognition of a discrete tax benefit of$41.0 during the six months endedJune 30, 2019 .
Financial Condition, Liquidity and Capital Resources All currency amounts are in millions
Selected cash flows for the six months endedJune 30, 2020 and 2019 were as follows: Six months ended June 30, Cash provided by/(used in): 2020 2019 Operating activities$ 813.0 $ 591.1 Investing activities (177.5) (354.1) Financing activities 532.9 (282.9) Operating activities - Net cash provided by operating activities increased by 37.5% to$813.0 in the six months endedJune 30, 2020 as compared to$591.1 in the six months endedJune 30, 2019 due primarily to (i) the deferral of$137.5 of tax payments comprised of$123.9 of US Federal and state income tax payments that were deferred into the third quarter of 2020 and$13.7 of second quarter 2020 employer social security payroll taxes that are payable in installments in 2021 and 2022 under the CARES Act, (ii) cash taxes paid of$39.4 on the disposal of the Imaging businesses in the first six months of 2019 as compared to$10.0 of cash taxes paid on the disposal ofGatan during the first six months of 2020, and (iii) improvement in working capital. Investing activities - Cash used in investing activities during the six months endedJune 30, 2020 was primarily business acquisitions. Cash used in investing activities during the six months endedJune 30, 2019 was primarily for the acquisition of Foundry, partially offset by proceeds from the disposal of the Imaging businesses. Financing activities - Cash from financing activities for the six months endedJune 30, 2020 was primarily due to net proceeds from the issuance of the 2030 Notes and net proceeds from stock based compensation, partially offset by dividend payments. Cash used in financing activities during the six months endedJune 30, 2019 was primarily due to net repayments on our unsecured credit facility and dividend payments, partially offset by net proceeds from stock option exercises. Effect of foreign currency exchange rate changes on cash - Cash and cash equivalents decreased during the six months endedJune 30, 2020 by$7.3 due primarily to the strengthening of theU.S. dollar against the functional currencies of ourUnited Kingdom and Canadian subsidiaries. Cash and cash equivalents increased during the six months endedJune 30, 2019 by$2.3 due primarily to the strengthening of the Canadian dollar against theU.S. dollar. We are also participating in certain legislative provisions to improve our liquidity. Under these provisions we deferred approximately$320 ofU.S. and state income tax payments from the second quarter to the third quarter of 2020, including approximately$190 of deferredU.S. income tax payments associated with the gain on sale ofGatan . Additionally, under theU.S. Coronavirus Aid, Relief, and Economic Security ("CARES") Act, we deferred approximately$14 of employer social security payroll tax payments in the second quarter of 2020 and expect to defer an additional$28 during the remainder of 2020 to be paid equally in the fourth quarters of 2021 and 2022. 21 -------------------------------------------------------------------------------- Table of Contents Total debt atJune 30, 2020 consisted of the following:$600 3.000% senior notes due 2020$ 600.0 $500 2.800% senior notes due 2021 500.0$500 3.125% senior notes due 2022 500.0$700 3.650% senior notes due 2023 700.0$500 2.350% senior notes due 2024 500.0$300 3.850% senior notes due 2025 300.0$700 3.800% senior notes due 2026 700.0$800 4.200% senior notes due 2028 800.0$700 2.950% senior notes due 2029 700.0$600 2.000% senior notes due 2030 600.0 Deferred finance costs (40.6) Other 7.0
Total debt, net of deferred finance costs 5,866.4 Less current portion
602.6
Long-term debt, net of deferred finance costs
The interest rate on borrowings under our$2,500.0 unsecured credit facility is calculated based upon various recognized indices plus a margin as defined in the credit facility. AtJune 30, 2020 , there were no outstanding borrowings under our unsecured credit facility. AtJune 30, 2020 , we had$7.0 of other debt in the form of short term borrowings, finance leases and several smaller facilities that allow for borrowings in various foreign locations to support our non-U.S. businesses and$69.3 of outstanding letters of credit. Cash at our foreign subsidiaries atJune 30, 2020 decreased to$196 as compared to$292 atDecember 31, 2019 due primarily to the repatriation of historical foreign earnings, partially offset by the cash generated at our foreign subsidiaries during the six months endedJune 30, 2020 . We intend to repatriate substantially all historical and future unremitted foreign earnings. We expect existing cash and cash equivalents, cash generated by our operations and availability under our unsecured credit facility, as well as our expected ability to access the capital markets, will be sufficient to fund operating requirements for the foreseeable future.
We were in compliance with all debt covenants related to our unsecured credit
facility throughout the six months ended
Net working capital (total current assets, excluding cash, less total current liabilities, excluding debt) was negative$587.6 atJune 30, 2020 as compared to negative$505.4 atDecember 31, 2019 , reflecting a decrease in working capital due primarily to an increase in income taxes payable and a decrease in accounts receivable, partially offset by an increase in unbilled receivables and a decrease in accrued compensation. Consistent negative net working capital demonstrates Roper's continued evolution and focus on asset-light business models. Total debt was$5,866.4 atJune 30, 2020 as compared to$5,275.3 atDecember 31, 2019 , due primarily to the issuance of the 2030 Notes. Our leverage is shown in the following table: June 30, December 31, 2020 2019 Total debt$ 5,866.4 $ 5,275.3 Cash (1,870.8) (709.7) Net debt 3,995.6 4,565.6 Stockholders' equity 9,879.7 9,491.9 Total net capital$ 13,875.3 $ 14,057.5 Net debt / total net capital 28.8 % 32.5 % Capital expenditures were$15.5 for the six months endedJune 30, 2020 as compared to$27.9 for the six months endedJune 30, 2019 . Capitalized software expenditures were$5.2 for the six months endedJune 30, 2020 as compared to$4.9 for the 22 -------------------------------------------------------------------------------- Table of Contents six months endedJune 30, 2019 . We expect the aggregate of capital expenditures and capitalized software expenditures for the balance of the year to be comparable to prior years as a percentage of revenues. OnApril 23, 2020 , the Company entered into Amendment No. 2 to Credit Agreement (the "Amendment") to the Credit Agreement datedSeptember 23, 2016 among the Company, the lenders party thereto,JPMorgan Chase Bank, N.A ., as administrative agent, and the other agents and parties thereto, as previously amendedDecember 2, 2016 (the "Credit Agreement"). The Amendment modified our gross debt to EBITDA covenant to allow for the benefit of our cash balance to be included in the calculation, changing the covenant to a net debt to EBITDA ratio. This provides the Company further flexibility and capacity in executing on our pipeline of high quality acquisition opportunities. The Amendment amends the definition of Consolidated Total Leverage Ratio (as defined in the Credit Agreement) to be the ratio of (a)(i) Consolidated Total Debt (as defined in the Credit Agreement) minus (ii) the aggregate amount of Unrestricted Cash (as defined in the Credit Agreement) to (b) Consolidated EBITDA (as defined in the Credit Agreement). The Amendment also adds a condition to each extension of credit throughDecember 31, 2020 , that after giving effect to any such borrowing and intended use of such borrowing, the aggregate amount of Unrestricted Cash may not be greater than$1,250 .
There have been no material changes to our contractual obligations from those disclosed in our Annual Report other than the Amendment.
Off-Balance Sheet Arrangements
AtJune 30, 2020 , we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Outlook Current geopolitical and economic uncertainties could adversely affect our business prospects. The COVID-19 pandemic has had, and will continue to have, an adverse impact on our business. A significant terrorist attack, other global conflict, or public health crisis could cause changes in world economies that would adversely affect us. It is impossible to isolate each of these potential factor's future effects on current economic conditions or any of our businesses. It is also impossible to predict with any reasonable degree of certainty what or when any additional events may occur that also would similarly disrupt the economy and have an adverse impact on our businesses. We maintain an active acquisition program; however, future acquisitions will be dependent on numerous factors and it is not feasible to reasonably estimate if or when any such acquisitions will occur and what the impact will be on our business, financial condition and results of operations. Such acquisitions may be financed by the use of existing credit lines, future cash flows from operations, future divestitures, the proceeds from the issuance of new debt or equity securities or any combination of these methods, the terms and availability of which will be subject to market and economic conditions generally. We anticipate that our businesses will generate positive cash flows from operating activities, and that these cash flows will permit the reduction of currently outstanding debt in accordance with the repayment schedule. However, the rate at which we can reduce our debt during 2020 (and reduce the associated interest expense) will be affected by, among other things, the financing and operating requirements of any new acquisitions and the financial performance of our existing companies. None of these factors can be predicted with certainty. 23
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