i3 Verticals, Inc. Q2 FY2025 earnings call

• Greg Daily noted the divestiture of the Healthcare RCM business and focus on the public sector, with public sector vertical market revenue growing 12% in Q2 and SaaS revenue growing 23%.
• Geoff Smith discussed RemainCo's financials, the sale of the Merchant Services and Healthcare RCM businesses, balance sheet strength (net debt $4 million, cash position ~$64 million), and provided fiscal 2025 guidance for RemainCo, including removing $2.5 million in revenues due to trade friction and Manitoba contract delays.
• Rick Stanford talked about the acquisition of the Utility Billing Software Company for $9 million, which is a high-margin business and expands the company's presence in utilities.
• Paul Christians emphasized the domain-specific approach, cross-selling across public sector markets, progress in AI applications (e.g., AI service agent in transportation, automated indexing module in ERP), and the status of the i3 customer engagement e-portal and AI generative AI bots.

The Healthcare RCM business was sold. RemainCo (excluding Healthcare RCM) had second quarter 2025 revenues increase 11.6% to $54.1 million, with $4.4 million organic growth (9%) and $1.2 million from a permitting and licensing acquisition. Annual recurring revenues for RemainCo increased 9.2% to $164.5 million. 76% of revenues came from recurring sources. Adjusted EBITDA for RemainCo increased 17% to $15.8 million. RemainCo software and related services represented 70% of revenues, payments 26%, and other 4%.

• RemainCo's fiscal 2025 guidance: Revenues $207 million to $217 million, adjusted EBITDA $56 million to $61 million, appreciation and internally developed software amortization $11 million to $12 million, cash interest expense $0 to $750,000, pro forma adjusted diluted earnings per share $0.96 to $1.06.
• Removed about $2.5 million of revenues due to trade friction and Manitoba contract delays, principally in the second half of fiscal 2025.
• Expect high single-digit organic revenue growth for RemainCo and adjusted EBITDA margin improvement of 50 to 100 basis points per year.
• Revenue distribution for remaining quarters: Q3 expected to be ~48%, Q4 ~52% from a seasonality standpoint.

• Trade friction between the U.S. and Canada.
• Ongoing delays with the Manitoba contract, leading to the removal of about $2.5 million in revenues from fiscal 2025 guidance, due to a sequencing issue with the customer involving other large enterprise projects.

Q: Hi, good morning guys. Geoff, appreciate the color on the go forward kind of growth algo, more or less unchanged. Good to see 9% organic growth in the quarter. Our math suggests that the HCM divestiture is probably about 100 basis points accretive to revenue growth and overall margins. As we go into next year, how should we think about or even this year the run rate of what's left of the healthcare business?

A: So the remaining healthcare business is this piece of the healthcare statement that was focused on workflow software for providers specifically will resegment this coming quarter and it will probably not be large enough to stand on its own as a segment go forward. This growth profile should be fairly consistent with the rest of the remaining public sector business and the education business, its revenue approximately $8 million for the fiscal year roughly.

Q: Hi, good morning. Thanks for taking the questions and congrats on the sale of the RCM Business. Looks like a nice deal. And the RemainCo certainly is much more of a focused pure play. Just a couple questions on fine tuning, but the $64 million in cash at the end of this week, do you anticipate any additional taxes on either divestiture that still need to be paid? Or is that a good net number?

A: Yes, that's a net number I think you could come up with.

Q: Thanks. Hi, Geoff, just curious on the RemainCo ARR growth number that you gave. I think it was 9.6%. Any sort of compare you can give for us sequentially or otherwise, just to understand how that has trended?

A: Yes. So, I think, sequentially it's a down versus the cart floated just slightly, main culprit of that being the payments revenue. I have a much more optimistic view of payments revenue in the back half of this fiscal year. There is a few situations where we're on a pricing structure that is convenience fee and we're enduring some higher interchange rates before our price increases went into effect. And so we expect the margin to kind of tick up a little bit and that's kind of lead to a little bit better growth on the back half of the year on payments growth. So expect that to be -- it was only 4% year-over-year this quarter and expect that to be back in line with kind of the broader company growth rate by the end of this fiscal year. And we still think that most quarters the ARR growth is going to lead our normal organic growth. It's a little bit out of sync this quarter because we had such a great license quarter, but normally that would be the leader. And you can see that especially as the SaaS momentum kind of continues to grow and launch forward, that's just really going to keep carrying us and carrying further outsized kind of a pole on the overall picture.