8-K/A: i3 Verticals Corrects Financial Statements, Reaffirms 2025 Outlook After Merchant Services Sale

i3 Verticals has amended its previous earnings report to correct an error in the allocation of net income between continuing and discontinued operations, while reaffirming its 2025 financial outlook.

Summary

• i3 Verticals has filed an amended 8-K to correct an error in the allocation of net income attributable to non-controlling interests between continuing and discontinued operations for the three months and years ended September 30, 2024 and 2023.
• The error impacted the net income from continuing and discontinued operations attributable to i3 Verticals, Inc., as well as basic and diluted earnings per share for these periods.
• The company's fourth-quarter revenue from continuing operations was $60.9 million, a 3.9% increase year-over-year, and full-year revenue was $229.9 million, a 1.4% increase.
• Net income from continuing operations for the fourth quarter was $7.0 million, compared to a net loss of $1.2 million in the prior year's quarter.
• The full-year net loss from continuing operations was $13.3 million, an improvement from the $23.7 million loss in the previous year.
• Adjusted EBITDA from continuing operations for the fourth quarter was $16.2 million, a 3.5% increase year-over-year, while full-year adjusted EBITDA was $58.3 million, a 1.8% decrease.
• Annualized Recurring Revenue (ARR) from continuing operations grew by 7.5% to $188.2 million.
• The company reaffirmed its 2025 outlook, projecting revenue between $243 million and $263 million, adjusted EBITDA between $63 million and $71.5 million, and pro forma adjusted diluted earnings per share between $1.05 and $1.25.
• The sale of the merchant services business was completed on September 20, 2024, and the company now operates in two segments: Public Sector and Healthcare.

Sentiment

Score: 6

Explanation: The sentiment is moderately positive due to the improved net income and reaffirmed 2025 outlook, but tempered by the need to correct financial statements and the decrease in full-year adjusted EBITDA.

Positives

• The company's fourth-quarter revenue from continuing operations showed a solid increase of 3.9% year-over-year.
• Net income from continuing operations improved significantly, moving from a loss to a profit of $7.0 million in the fourth quarter.
• The full-year net loss from continuing operations was reduced by approximately $10 million compared to the previous year.
• The company's ARR grew by 7.5%, indicating a healthy recurring revenue stream.
• The company reaffirmed its 2025 outlook, demonstrating confidence in future performance.
• The sale of the merchant services business has streamlined the company's operations.

Negatives

• The company had to correct an error in its financial statements, which could raise concerns about internal controls.
• Full-year adjusted EBITDA from continuing operations decreased by 1.8% year-over-year.
• The company reported a net loss from continuing operations for the full year, although it was an improvement from the previous year.
• Pro forma adjusted diluted earnings per share from continuing operations decreased for both the fourth quarter and full year.

Risks

• The company's future performance is subject to economic and geopolitical conditions, including inflation and interest rates.
• Competition in the industry and the company's ability to compete effectively pose a risk.
• Regulatory developments could impact the company's operations.
• The successful integration of acquired businesses is crucial for future growth.
• The company's ability to execute its strategy after the sale of the merchant services business is a risk.
• Future decisions made by the company and its competitors could affect performance.

Future Outlook

The company expects to achieve high-single-digit organic revenue growth in fiscal 2025 and increase margins by more than 100 bps. They project revenue between $243 million and $263 million, adjusted EBITDA between $63 million and $71.5 million, and pro forma adjusted diluted earnings per share between $1.05 and $1.25 for the fiscal year ending September 30, 2025.

Management Comments

• Greg Daily, Chairman and CEO, stated that the results reflect a significant transition for the business into a streamlined vertical market software provider.
• He also mentioned that the company has de-levered and is ready to capitalize on growth opportunities in 2025.
• Management expects revenue growth and margin expansion to accelerate in the next fiscal year.
• The company remains focused on growing recurring revenue.
• The company welcomed Chad Fenner as the new Chief Product Officer.

Industry Context

The company's transition to a streamlined vertical market software provider reflects a broader trend in the tech industry towards specialization and recurring revenue models. The sale of the merchant services business indicates a strategic shift to focus on core software offerings in the Public Sector and Healthcare verticals.

Comparison to Industry Standards

• Comparing i3 Verticals to similar vertical market software providers like Tyler Technologies (TYL) in the public sector and athenahealth in healthcare, i3 Verticals' revenue growth of 1.4% for the full year is lower than the growth rates of some of its peers.
• However, the company's focus on recurring revenue, with an ARR of $188.2 million, is in line with industry trends.
• The adjusted EBITDA margin of 25.4% for the full year is comparable to some software companies, but there is room for improvement to reach the higher margins seen in some mature SaaS businesses.
• The company's pro forma adjusted diluted EPS of $0.46 for the full year is lower than some of its peers, indicating a need to improve profitability.
• The company's guidance for 2025 suggests an improvement in revenue growth and profitability, which would bring it more in line with industry standards.

Management Changes

Stakeholder Impact

• Shareholders will be impacted by the corrected financial results and the reaffirmed 2025 outlook.
• Employees will be affected by the company's strategic shift and focus on growth.
• Customers will benefit from the company's focus on its core software offerings.
• Suppliers and creditors will be impacted by the company's financial performance and strategic direction.

Next Steps

• The company will focus on growing recurring revenue.
• The company will work to achieve high-single-digit organic revenue growth in fiscal 2025.
• The company will aim to increase margins by more than 100 bps in fiscal 2025.

Key Dates

Keywords

financial results, earnings, revenue, EBITDA, recurring revenue, software, SaaS, discontinued operations, merchant services, Public Sector, Healthcare