10-Q: i3 Verticals Reports Q3 2026 Results: Revenue Up, SG&A Down

i3 Verticals, Inc. announced its third-quarter fiscal year 2026 financial results, showcasing a 2.2% increase in revenue to $53.1 million and a significant 12.6% reduction in selling, general, and administrative expenses.

Summary

• For the three months ended June 30, 2026, i3 Verticals reported revenue of $53.1 million, a 2.2% increase compared to $51.9 million in the same period last year.
• Selling, general, and administrative (SG&A) expenses decreased by 12.6% to $28.9 million, primarily due to lower M&A-related expenses.
• Net income from continuing operations was $5.9 million, a significant improvement from a net loss of $1.0 million in the prior year's quarter.
• However, net income attributable to i3 Verticals, Inc. decreased by 73.0% to $3.5 million, largely due to a substantial gain on the sale of the Healthcare RCM Business in the prior year's quarter.
• For the nine months ended June 30, 2026, revenue increased by 3.2% to $163.3 million.
• Operating income from continuing operations more than doubled to $4.5 million.
• Net income attributable to i3 Verticals, Inc. for the nine-month period decreased by 63.3% to $5.4 million, impacted by the prior year's gain on the Healthcare RCM Business sale.

Sentiment

Score: 6

Explanation: StockSavvy.ai views this filing as moderately positive, with revenue growth and improved operational efficiency, though net income was impacted by significant one-time gains in the prior year and ongoing investments.

Positives

• Revenue increased by 2.2% to $53.1 million for the three months ended June 30, 2026, driven by a $3.3 million increase in recurring revenues.
• Selling, general, and administrative expenses decreased by 12.6% to $28.9 million for the three months ended June 30, 2026, mainly due to lower M&A-related expenses.
• Net income from continuing operations improved significantly, turning a loss of $1.0 million in Q3 2025 to a profit of $5.9 million in Q3 2026.
• Operating income from continuing operations for the nine months ended June 30, 2026, increased by 93.8% to $4.5 million.
• The company maintained compliance with its debt covenants, with a consolidated interest coverage ratio of 13.5x and a total leverage ratio of 1.9x as of June 30, 2026.
• Annualized Recurring Revenue (ARR) grew to $174.1 million for the three months ended June 30, 2026, an 8.3% increase year-over-year.

Negatives

• Net income attributable to i3 Verticals, Inc. for the three months ended June 30, 2026, decreased by 73.0% to $3.5 million, primarily due to the absence of a significant gain on the sale of the Healthcare RCM Business recorded in the prior year's quarter.
• Net income attributable to i3 Verticals, Inc. for the nine months ended June 30, 2026, decreased by 63.3% to $5.4 million, also impacted by the prior year's gain on the Healthcare RCM Business sale.
• Interest expense increased by 125.8% to $1.8 million for the three months ended June 30, 2026, reflecting a higher average outstanding debt balance.
• Cash flow from operating activities decreased from $22.3 million in the prior year's nine-month period to $8.8 million in the current period, largely due to the prior year's gain on sale of the Healthcare RCM Business.
• The company repurchased a significant amount of its Class A common stock, totaling $137.9 million for the nine months ended June 30, 2026, which reduces cash available for other purposes.

Risks

• The company faces cybersecurity risks and potential liability from unauthorized disclosure or disruption of services.
• There are technical, operational, and regulatory risks associated with information technology systems and third-party providers.
• The company's ability to manage intellectual property and potential impairment charges on assets like goodwill and intangibles is a risk.
• Competition in the industry and consolidation in the banking and financial services sector pose challenges.
• Supply chain disruptions could lead to shortages or price increases for hardware.
• Economic and geopolitical conditions, including inflation and interest rate fluctuations, create uncertainty.
• Changes in the budgets or regulatory environments of public sector customers could negatively impact spending.
• The company is subject to litigation, including the ongoing PaySchools and S&S litigation, with uncertain outcomes.

Future Outlook

The company expects its cash flow from operations, current cash, and available credit facility capacity to be sufficient for its needs over the next twelve months and foreseeable future. Growth strategy includes acquisitions funded by cash, credit facility, and equity/debt issuance. Potential future payments under the Tax Receivable Agreement are expected to be substantial.

Management Comments

• The Company's mission is to enable state and local governments and related agencies to serve their constituents in an effective and efficient manner.
• With thousands of software installations across all 50 states and Canada, i3 Verticals is a leader in the public sector vertical.
• We consistently have positive cash flow provided by operations and expect that our 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 our cash needs as described above for at least the next twelve months and foreseeable future.

Industry Context

StockSavvy.ai notes that i3 Verticals operates in the public sector software solutions market, a segment often characterized by long sales cycles and stable, recurring revenue streams. The company's focus on mission-critical enterprise software for government functions positions it within a resilient sector, though subject to government budget constraints and evolving technological demands.

Comparison to Industry Standards

• The filing does not provide direct comparisons to specific industry benchmarks or competitors' financial results.
• However, the company's reported ARR growth of 8.3% for the quarter can be assessed against general SaaS industry growth rates, which can vary significantly by sub-sector.
• The company's focus on public sector clients may lead to different revenue recognition patterns and sales cycles compared to private sector software companies.

Legal Proceedings

• PaySchools Litigation: A class action complaint alleging unlawful practices related to fees for school lunch services. Claims were dismissed by the court, with leave to amend.
• S&S Litigation: Lawsuit concerning alleged inadequacies in cybersecurity practices and network remediation costs related to software services provided to Louisiana law enforcement districts. The case is in the discovery phase, with class certification hearing rescheduled.

Related Party Transactions

• Tax Receivable Agreement: An agreement with i3 Verticals, LLC and Continuing Equity Owners providing for payments of 85% of certain tax benefits realized by the company from future redemptions or exchanges of LLC units. As of June 30, 2026, the total amount due was $32.4 million.
• Recapitalization Actions (January 2025): The company contributed $21.4 million in cash to i3 Verticals, LLC in exchange for common units, followed by a reverse unit split and retirement of Class B shares to manage excess cash and maintain ownership ratios.

Stakeholder Impact

• Shareholders: Continued share repurchases may reduce outstanding shares, potentially increasing EPS. The company's financial performance and strategic execution will impact shareholder value.
• Employees: Equity-based compensation expense is recognized, impacting net income. The company aims to attract, recruit, retain, and develop key personnel.
• Customers: The company provides mission-critical software solutions, aiming for effective and efficient constituent service. Changes in public sector spending or regulatory environments could impact customer demand.
• Creditors: The company is subject to covenants under its 2023 Senior Secured Credit Facility, which could restrict certain actions.

Next Steps

• Continue to fund working capital requirements, capital expenditures, and technology infrastructure investments.
• Pursue strategic acquisitions to augment existing solutions and capabilities.
• Manage and service outstanding indebtedness, including principal and interest payments.
• Make tax distributions to members of i3 Verticals, LLC and payments under the Tax Receivable Agreement.
• Continue share repurchases under the May 2026 Share Repurchase Program.

Key Dates

Recommendation

The company shows revenue growth and improved operational efficiency with reduced SG&A. However, the significant decrease in net income attributable to the company, driven by the absence of a large one-time gain from the prior year, and increased interest expense due to higher debt levels, warrant a cautious approach. While the core business appears stable and growing, the impact of past divestitures and ongoing debt obligations suggest a 'hold' rating until further clarity on sustained profitability and strategic growth without relying on one-off gains.

Keywords

software solutions, public sector, payment facilitator, enterprise software, revenue cycle management, merchant services, acquisitions, credit card processing