Neil Hunn: Yes. So for a long — Deane, as you know, Neptune over a long arc of time is a slow and steady share gainer for sure. I think it proves out in all the market data we see and continue to research and get relative short-term performance. We think it’s a combination of a couple of things. First is there has been — they’re working through an unprecedented amount of backlog. So that has certainly happened. But then when COVID happened and the Northeast, in particular, where a lot of the meter sets or inside people’s homes versus outside, there was basically a stall of that activity yet the customers — our customers still have obligations to stay on their maintenance schedules. So if there was one year, 1.5 years of slower maintenance schedule sort of execution, that’s being deployed now.
We think that’s happening over a three or four year period. So if you will, maybe five or 5.5 years demand squeezed into four, so that’s the market dynamic that’s driving some of the growth that we’re very much in the midst of. We expect that to continue all the next year. Final thing I’d say is there’s just nice momentum on the new technologies that Neptune has in the field, both in terms of solid state ultrasonic meters, both on the resi side and large commercial side, as well as just the cellular and the meter data management software that we have that really helps our customers have better network connectivity.
Deane Dray: Thank you.
Neil Hunn: Thank you. Operator Your next question comes from Joe Vruwink with Baird. Your line is now open.
Joe Vruwink: Great. Hi, everyone. When you consider the businesses that serve clients in the public sector, how are they planning for the balance of the year, just particularly around the election and then the end of stimulus in certain cases. And I ask about stimulus not because a business like frontline has benefited from that. But does just the shifting of revenue sources for a school district perhaps cause a pause in their decision-making.
Neil Hunn: Yes. So we got tens of which as part of the market you’re talking about. Education, our frontline business was not and has not been a meaningful beneficiary of ESR funding. And so as that as coming to an end, we’ve not been a direct beneficiary of that. There might be some second-hand or third-hand benefit by that, just having school districts having a lot of money over the last years and feeling good about life. But we’ve not — none of what — we don’t believe anything that we sell has been directly funded by ESR funding. So the pipeline coverage — first of all, probably had a very solid first quarter bookings. Their pipeline on the second quarter is very good, and so we’re cautiously optimistic there. The other part of the market that we’ve talked about is on U.S. government contractors, but the enterprise class, the largest customers, the largest government contractors just with the uncertainty of government spending that has been a more tepid macro environment and slower on the bookings front.
On the largest of the customers. The SMB portion of that market actually has been quite strong for Deltek. So if you want to talk about other parts of portal happy to do it. But Jason, anything you want to add to that? Joe are you still there?
Joe Vruwink: Yes, yes. No, those are the two that I had in mind. And then if I can ask, I guess this is a pretty targeted segment level question. But the reoccurring revenue sources for application software really look like they jumped this period, maybe about 2 points more in growth contribution than typically you see there. Just what drives that particular part of the business?
Jason Conley: Yes. Joe, that’s the Procare business coming online, right? So we talked about 75% or so of their revenue is payments. And so that’s showing up in the recurring line.
Joe Vruwink: Okay, that makes sense. Thank you.
Operator: Your next question comes from Scott Davis with Miles Research. Your line is now open.
Scott Davis: Hey, good morning, guys.
Neil Hunn: Good morning, Scott.
Scott Davis: I think this was more positive in tone on the M&A side commentary wise, and I think we usually get from you guys. You’re never really that bearish. But talk to us about a couple of things, a little bit more color there. Is it the number of deals? Is it the valuations have gotten more interesting? Is it the competition on the buy side has gotten a little bit better. I mean, just drill down a little bit into that, it would be helpful. And kind of a natural secondary is you say $4 billion of fire price, is that enough? And would you consider tapping equity markets if the deal flow was going to be even more robust?
Neil Hunn: Lot in there, Jason, I’ll do our best to cover all points if we don’t cover one they’ll pull us a catalog re-ring us back to it. So we’re very optimistic at the moment. I think it’s for really all the reasons you talk about. So there are a very large number of deals in the market and coming to the market. We have very good instrumentation relationships with both the sponsors and all the investment banker intermediaries, the bankers, pipelines are full. And so there is just a lot of stuff coming. So why is that? There was essentially not a lot of stuff for 18 or so months prior. So in the private equity world, it’s all about DPI and getting money back to the LPs. The LP pressure is mounted to the point where they want the capital return.
And so we’re just going to compress 2.5 years’ worth of deals in one year, 1.5 years. And so there’s going to be a lot of activity. Relative to the competition point, because of this, this is our belief, my belief for a window of time here that the asset class of private equity that we compete with is going to be a net seller of assets versus a net buyer here for a period of time. So Procare is an indication for what’s to come, then the competition is less. It’s not without competition, but it is less than we’ve seen for in prior periods, which leads to valuation. I mean if you look at the broker valuation, I mean that was a very high growth, very high quality business at a very reasonable price. I think it’s really a combination of the volume of deals that maybe our view on competition.
We’ll also I mean any of this — the number of deals is almost for sure going to happen. This concept of competition could change at any moment. But that’s our — that’s what’s fueling sort of our optimism. To your point about this $4 billion enough, we’re just always about the cash flow compounding of the enterprise being investment grade, using the leverage and being unbiased and disciplined in our approach. And so we’re going to stay true to that and look at every deal on a deal-by-deal basis.
Scott Davis: Very encouraging. Good answer. Thank you. I’m going to pass it on. Appreciate it, guys. Best of luck this year.
Operator: Your next question comes from Brent Thill with Jefferies. Your line is now open.
