10-Q: i3 Verticals Reports Q1 2025 Results: Revenue Up 12.1% Driven by Software and Services Growth

i3 Verticals reports a 12.1% increase in revenue for Q1 2025, driven by growth in its software and related services, following the sale of its Merchant Services Business.

Summary

• i3 Verticals, Inc. reports its financial results for the first quarter of fiscal year 2025.
• Revenue increased by 12.1% to $61.7 million, compared to $55.1 million in the same period last year.
• The growth was primarily driven by software and related services, with contributions from the Public Sector and Healthcare segments.
• The company sold its Merchant Services Business on September 20, 2024, and the results are now classified as discontinued operations.
• Net income from continuing operations was $3.3 million, compared to a loss of $4.2 million in the prior year.
• The company repurchased 496,785 shares of Class A Common Stock for a total cost of $11.2 million during the quarter.
• The company effected certain recapitalization actions on January 23, 2025, to reduce excess cash.
• The company's Annualized Recurring Revenue (ARR) from continuing operations grew by 8% to $193.3 million.
• Adjusted EBITDA margin for the Public Sector segment was 39%, while the Healthcare segment's margin was 28%.

Sentiment

Score: 8

Explanation: The document presents a positive outlook with strong revenue growth and improved profitability. The company's strategic focus on specific vertical markets and its disciplined approach to acquisitions contribute to a favorable sentiment.

Positives

• Revenue increased by 12.1% to $61.7 million, indicating strong growth.
• Net income from continuing operations improved significantly, reaching $3.3 million.
• Annualized Recurring Revenue (ARR) grew by 8% to $193.3 million, demonstrating the stability of the business.
• The company is actively repurchasing shares, indicating confidence in its future prospects.
• The company's Public Sector and Healthcare segments are performing well, with healthy Adjusted EBITDA margins.

Negatives

• The company had a net loss from discontinued operations of $0.2 million, reflecting adjustments to the sale of the Merchant Services Business.
• Equity-based compensation expense decreased by $2.7 million, which could indicate a reduction in employee incentives or stock option grants.

Risks

• The company is exposed to economic conditions and political risks affecting consumer, commercial, and government spending.
• Changes in the budgets or regulatory environments of Public Sector customers could negatively impact spending.
• The company's indebtedness and ability to maintain compliance with financial covenants in its credit facility pose a risk.
• The company faces risks related to laws, regulations, and industry standards, including compliance with healthcare regulations.
• The company's ability to raise the funds necessary to settle exchanges of the Exchangeable Notes or to repurchase the Exchangeable Notes upon a fundamental change is a risk.

Future Outlook

The company expects that its cash flow from operations, current cash and cash equivalents, and available borrowing capacity under the 2023 Senior Secured Credit Facility will be sufficient to fund its cash needs for at least the next twelve months and foreseeable future.

Industry Context

The company operates in the software and payment processing industries, which are subject to rapid technological changes, increasing competition, and evolving regulatory landscapes. The company's focus on specific vertical markets like Public Sector and Healthcare allows it to tailor its solutions and potentially gain a competitive advantage.

Comparison to Industry Standards

• It's difficult to provide a precise comparison to industry standards without specific competitor data.
• However, a 12.1% revenue growth rate is generally considered healthy in the software industry, but it's important to compare this to the growth rates of companies with similar business models and target markets.
• Similarly, the Adjusted EBITDA margins of 39% and 28% in the Public Sector and Healthcare segments, respectively, should be benchmarked against the margins of comparable companies to assess their relative performance.

Legal Proceedings

• The company is involved in ordinary course legal proceedings, which include all claims, lawsuits, investigations and proceedings, including unasserted claims, which are probable of being asserted, arising in the ordinary course of business.
• The company is unable to predict the outcome of the S&S Litigation.

Related Party Transactions

• The company is party to a Tax Receivable Agreement with i3 Verticals, LLC and each of the Continuing Equity Owners that provides for the payment by the Company to the Continuing Equity Owners of 85% of the amount of certain tax benefits, if any, that it actually realizes.

Stakeholder Impact

• Shareholders will benefit from the increased profitability and the share repurchase program.
• Customers will benefit from the company's continued investment in its software and services.
• Employees may benefit from the company's growth and success.

Next Steps

• The company intends to fund the payment of amounts due under the Tax Receivable Agreement out of the cash savings that it actually realizes in respect of the attributes to which the Tax Receivable Agreement relates.
• The company will continue to execute its share repurchase program, subject to market conditions and other factors.

Key Dates