i3 Verticals, Inc. Q1 FY2025 earnings call

• Revenue up 12% Y/Y, adjusted EBITDA up 17%, SaaS revenue up 16%. - Most recent acquisition exceeded expectations; M&A process focuses on speed to market, external expertise, and cross-sell. - Introduced new technology modules in Justice Tech and ERP subverticals; i3 portal recognized by J.D. Power; utility customer payments integration progressing. - Changed cost of services and hosting costs presentation for better alignment with software peers.

Revenues for the first quarter of fiscal 2025 increased 12% to $61.7 million from $55.1 million for Q1 2024, reflecting organic growth of 10% and approximately $1 million from acquisition. Annual recurring revenues increased 7.6% to $193.3 million. 78% of revenues came from recurring sources. Public sector vertical revenues were $48.8 million, up 12%, with adjusted EBITDA $19.2 million, up 11%. Healthcare segment revenues were $13.2 million, up 14%, with adjusted EBITDA up 34%. Software-related services represented 74% of total revenues, payments 22%, other 4%.

• FY 2025 guidance: Revenue $243M - $263M, adjusted EBITDA non-GAAP $63M - $71.5M, depreciation/amortization $12M - $14M, cash interest expense net $1M - $2M, pro forma adjusted diluted EPS non-GAAP $1.05 - $1.25. - High single-digit organic revenue growth, adjusted EBITDA margin improvement 50-100 basis points/year. - Revenue seasonality: Approximate distribution - Q1 24.4%, Q2 25.3%, Q3 24.6%, Q4 25.7%.

• Forward-looking statements may be affected by factors in earnings release and SEC filings. - Software licenses are variable and can distort seasonality.

Q: Good morning, guys. Nice to see the improvement in health care accelerated to 14%, I think it was down 3% last quarter. So anything to call out? Any lumpiness? How should we think about that for the rest of the year?

A: Most of the onetime software license sales were in the health care segment. JD, we still expect low single-digit growth for health care this year.

Q: Based off of the change in kind of revenue cadence for the year that Geoff laid out, it looks like maybe about $1.8 million was the license pull forward from 2Q to 1Q. Is that fair?

A: Yes, yes, that's pretty close.

Q: Geoff, maybe I appreciate the help on the revenue cadence throughout the year. Good to see margins up about 110 basis points year-over-year in the first quarter. Anything to call out as far as margin expansion in the balance of the year, any particular quarter that should be stronger or weaker, I think the full year calls around 120 basis points of improvement?

A: Yeah. The full year guidance kind of holds on the margin. As you're looking at like cadence within that, Q3 has historically kind of been our low point for margin. I think you'd see that last year, and I would anticipate similar this year, barring any onetime revenue kind of tweaking that. Primary reason for that is schools being out of session, and that hit us hardest in that quarter.

Q: Any update on the large utility customer and how that project is progressing?

A: Our utility customer? That's progressing well. We kind of guided that revenue on that would stairstep up from approximately $3 million to $5 million-ish this year. And that would continue to track in terms of kind of what's going on under the hood there. We've gone live on the payments with that customer. So that's a big piece of the payments growth we're really excited about. And it's a great kind of proof of concept and what kind of we can do or what size of scale. The revenues from the rest of the implementation of the software will be steady, but they'll accelerate significantly in 2026 and 2027. So it's helpful this year. It's on track, but it gets a lot more exciting as you go further out.

Q: Hey, good morning. Thanks for taking the question. Just wanted to follow on the last. Can you talk a little bit about what you see in terms of the longer-term opportunity with larger utilities? What does the competitive landscape look like? And in terms of like when you think you'll be in a good position to start participating in some RFPs for work there?

A: The landscape is generally quite positive there. It's really driven by software, but need to continue to evolve and upgrade legacy software that's been in place in some cases for 10 or 20 years. We see that accelerating. And we touch upon that with a number of products and services. It's particularly like as I mentioned, in the portal component, we're very actively involved in that today. We see the demand continuing to get higher. It's very new responsive technology, and we see that improving. How that manifests itself down through other technologies that we can bring to bear within the utility to aid in customer service and billing components also is gaining a high degree of interest. So I think you'll see a steady ramp up in that arena, and we're actively engaged in it today and really not constrained at this point.

Q: Good morning. Appreciate all the color around the M&A environment and your strategy there. But curious if you're seeing any differences between larger and smaller opportunities, within your pipeline? And if you could touch on your willingness to do maybe more smaller deals versus larger deals. If you have any preference or just generally what you're seeing in the market?

A: So let me define small and large. Historically, we've -- look, our sweet spot has been between $2 million and $5 million in EBITDA. We do look at deals a little larger than $5 million, we tend to not look at deals or pass on deals below $1 million in EBITDA. That really hasn't changed that dynamic. We're seeing both our sweet spot and a little larger. There's been no uptick in a competitive environment, and we're looking at the same number of deals every quarter than we were a year ago.

Q: Hi, everyone. Thanks for taking my questions. First, maybe for Greg or Paul. Just Greg, I think at the outset of the call, you made some comments on opportunities to further integrated payments product. Can you just sort of expand on that and what that's in reference to, if it's more around the existing customer base or just as you look at the pipeline?

A: It's -- we typically -- this is Paul. We typically present payments where the use case demands it, where there's some type of a transaction that has to facilitate it with some type of a fee or some mechanism that they need to complete that cycle. That's integrated into virtually all of our software where that is the case. We do find that government agencies, in particular are happy to take a look at that because it provides a very high level of certainty of execution and continuity. And if they're doing it in conjunction with our software, then the reconciliation processes are superior versus exterior programs that they have to find. So we are -- if it's applicable, we are including those opportunities in our presentations. And we do have an active effort to go back and assess our existing product portfolio where we do not -- software portfolio where we do not have payments covered and approach customers to see if they would like to pursue a deeper integration in that.

Q: This is Shefali Tamaskar on for James. Thanks for taking my questions. So just a quick one on the high single-digit organic growth guide. So just wondering if you could provide a little bit more of a detailed picture of the drivers and makeup of this high single-digit organic growth this year. How much is new versus existing projects and for the new ones, how much visibility do you have into those new projects in that pipeline?

A: Sure. We published a net dollar retention number last quarter, and we'll do that annually, but it was 100%. It does not include payments when we are able to include payments in that number. We think it will be 2% or 3% higher. Inflation has not historically contributed to that 100%. In other words, price increases, but in the future, we expect it might contribute a point or 2. And then that would leave the remainder for new logos. So that's kind of a general algorithm, but big elephant customers can swing that one way or the other, and we've seen that in the last couple of years.