8-K: i3 Verticals Reports Q4 and Full Fiscal Year 2024 Results, Reaffirms 2025 Outlook

i3 Verticals reports improved net income and reaffirms its 2025 outlook after a year of significant transition, including the sale of its merchant services business.

Summary

• i3 Verticals announced its financial results for the fourth quarter and full fiscal year 2024, ending September 30, 2024.
• Fourth quarter revenue from continuing operations increased by 3.9% year-over-year to $60.9 million, while full-year revenue increased by 1.4% to $229.9 million.
• The company reported a net income from continuing operations of $7.0 million for the fourth quarter, a significant improvement from a $1.2 million loss in the same quarter of the previous year.
• The full-year net loss from continuing operations was $13.3 million, compared to a $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 decreased by 1.8% to $58.3 million.
• Annualized Recurring Revenue (ARR) from continuing operations grew by 7.5% year-over-year to $188.2 million.
• The company reaffirmed its 2025 outlook, projecting revenue between $243 million and $263 million, and adjusted EBITDA between $63 million and $71.5 million.
• The sale of the merchant services business was completed on September 20, 2024, and the company now operates under two segments: Public Sector and Healthcare.

Sentiment

Score: 7

Explanation: The sentiment is positive due to improved profitability, growth in recurring revenue, and a reaffirmed 2025 outlook. However, the full-year net loss and slight decrease in adjusted EBITDA temper the overall optimism.

Positives

• The company achieved a significant improvement in net income from continuing operations in the fourth quarter, turning a loss into a profit.
• The full-year net loss from continuing operations was substantially reduced compared to the previous year.
• The company experienced growth in both revenue and adjusted EBITDA in the fourth quarter.
• Annualized Recurring Revenue (ARR) showed a healthy growth rate of 7.5%.
• The company has de-levered and is ready to capitalize on growth opportunities in 2025.
• The company is projecting high-single digit organic revenue growth and margin expansion in fiscal 2025.
• The company has streamlined its operations by selling its merchant services business.

Negatives

• 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 significantly reduced 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 forward-looking statements are subject to risks and uncertainties, including economic and geopolitical conditions, competition, and regulatory developments.
• The company's ability to achieve its 2025 outlook depends on its ability to execute its strategy and integrate acquired businesses.
• The company's future performance could be affected by decisions made by the company and its competitors.
• The company's non-GAAP financial measures may not be comparable to those of other companies.

Future Outlook

The company expects to achieve high-single digit organic revenue growth in fiscal 2025 and increase margins by more than 100 bps. The company projects revenue between $243 million and $263 million, and adjusted EBITDA between $63 million and $71.5 million 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, which is now a streamlined and scaled vertical market software provider.
• Management believes the company has de-levered and is ready to capitalize on multiple growth opportunities in 2025.
• Management expects revenue growth and margin expansion to accelerate in the next fiscal year.
• Management is focused on growing recurring revenue, which improved by 7.5% this quarter.
• Management welcomed Chad Fenner as the new Chief Product Officer.

Industry Context

The company's shift to focus on vertical market software and recurring revenue aligns with broader industry trends towards SaaS and recurring revenue models. The sale of the merchant services business indicates a strategic move to focus on core software offerings.

Comparison to Industry Standards

• While the document does not provide specific competitor data, the focus on ARR and recurring revenue is a common metric for SaaS companies like Salesforce, Adobe, and Workday.
• The adjusted EBITDA margin of 25.4% for the full year is within the range of profitability for established software companies, but the company is aiming for margin expansion.
• The company's growth rate of 7.5% in ARR is a positive sign, but it will need to be sustained to compete with high-growth SaaS companies.
• The company's transition to a streamlined vertical market software provider is similar to other companies that have divested non-core assets to focus on their core business.

Management Changes

Stakeholder Impact

• Shareholders will likely view the improved profitability and reaffirmed outlook positively.
• Employees may benefit from the company's focus on growth and product development.
• Customers will likely see improved software and services as the company focuses on its core offerings.
• Suppliers and creditors may see the company as a more stable and reliable partner due to its improved financial position.

Next Steps

• The company will focus on growing recurring revenue and achieving high-single digit organic revenue growth in fiscal 2025.
• The company will work to increase margins by more than 100 bps in fiscal 2025.
• The company will integrate its new Chief Product Officer into the team to help bring the best possible products to market.

Key Dates

Keywords

SaaS, recurring revenue, EBITDA, financial results, software, i3 Verticals, ARR, net income, revenue, payments