I3 Verticals Earnings Call Highlights Growth and Strategy

I3 Verticals ((IIIV)) has held its Q2 earnings call. Read on for the main highlights of the call.

The recent earnings call for I3 Verticals painted a picture of robust growth and strategic maneuvering, despite some challenges. The sentiment was largely positive, with the company demonstrating strong performance in its public sector endeavors and maintaining a solid financial footing. However, concerns were raised regarding trade friction and seasonal revenue declines, which could pose challenges in the near term. Overall, I3 Verticals appears well-positioned for future growth, focusing on strategic acquisitions and public sector expansion.

Public Sector Revenue Growth

I3 Verticals reported a 12% increase in second-quarter revenue for its public sector business, with SaaS revenue growing by an impressive 23%. This growth underscores the company’s strong performance and strategic focus in this area, highlighting its commitment to expanding its public sector footprint.

Strong Adjusted EBITDA Growth

The company’s RemainCo division saw a 17% increase in adjusted EBITDA, reaching $15.8 million. Margins improved to 29.3% from 27.9%, driven by higher software sales with high margins. This reflects the company’s ability to enhance profitability through strategic sales initiatives.

High Cash Position and Strong Balance Sheet

Following the divestiture of its RCM Healthcare Business, I3 Verticals boasts a cash position of approximately $64 million and $400 million in borrowing capacity under its revolving credit facility. This strong financial position provides the company with the flexibility to pursue further growth opportunities.

Successful Divestiture and Focus on Public Sector

The sale of the Healthcare RCM Business for $96 million has allowed I3 Verticals to streamline its focus on the public sector vertical market. This strategic move is expected to enhance the company’s ability to capitalize on growth opportunities within this sector.

Acquisition of Utility Billing Software Company

I3 Verticals’ recent acquisition of a utility billing software company expands its business in various states, enhancing its offerings in the utilities market. This acquisition, costing $9 million, is expected to contribute high-margin business, aligning with the company’s strategic goals.

Revenue Impact from Trade Friction

Trade friction between the U.S. and Canada, along with delays in the Manitoba contract, led to a $2.5 million reduction in revenue from the fiscal 2025 outlook. This highlights the challenges posed by international trade dynamics on the company’s revenue projections.

Seasonal Decline in Q3 Revenue and Margins

I3 Verticals anticipates a seasonal decline in Q3 revenue, expecting it to be the low point at 48% of the remaining revenue, with margins dipping into the mid-20s. This seasonal trend is a typical challenge for the company, impacting short-term financial performance.

Payments Revenue Growth Lag

The company reported a modest 4% year-over-year growth in payments revenue this quarter, which lagged behind the broader company growth rate. This indicates a potential area for improvement as the company seeks to enhance its payments segment.

Forward-Looking Guidance

Looking ahead, I3 Verticals has provided updated guidance for fiscal year 2025, projecting revenues between $207 million and $217 million and adjusted EBITDA of $56 million to $61 million. The company expects high single-digit organic revenue growth for its RemainCo operations and anticipates adjusted EBITDA margin improvement of 50 to 100 basis points annually. Despite conservative adjustments due to trade friction, the company remains optimistic about its growth trajectory, supported by a strong balance sheet and strategic focus on public sector vertical markets.

In summary, I3 Verticals’ earnings call reflected a positive outlook, with significant growth in the public sector and strategic acquisitions bolstering its market position. While challenges such as trade friction and seasonal declines were noted, the company’s strong financial footing and strategic focus suggest a promising future. Investors and stakeholders can look forward to continued growth and expansion in the coming quarters.