8-K: i3 Verticals Reports Strong First Quarter 2025 Financial Results, Reaffirms Guidance

i3 Verticals, Inc. reported a 12.1% increase in revenue and a significant improvement in net income for the first quarter of fiscal year 2025, while also reiterating its full-year outlook.

Summary

• i3 Verticals, Inc. reported its financial results for the first quarter of fiscal year 2025, which ended on December 31, 2024.
• Revenue from continuing operations increased by 12.1% to $61.7 million compared to the prior year's first quarter.
• Net income from continuing operations was $3.3 million, a significant improvement from the $4.2 million net loss in the same quarter of the previous year.
• Adjusted EBITDA from continuing operations rose by 17.0% to $16.4 million, with an adjusted EBITDA margin of 26.5%.
• Diluted net income per share attributable to Class A common stock from continuing operations was $0.09, compared to a diluted net loss per share of $0.12 in the prior year's first quarter.
• Pro forma adjusted diluted earnings per share from continuing operations was $0.31, compared to $0.12 for the prior year's first quarter.
• Annualized Recurring Revenue (ARR) from continuing operations grew by 7.6% to $193.3 million.
• The company's consolidated interest coverage ratio was 3.7x, and the total leverage ratio was 0.1x as of December 31, 2024.
• i3 Verticals is reaffirming its fiscal year 2025 outlook for revenue between $243 million and $263 million and adjusted EBITDA between $63 million and $71.5 million.
• Pro forma adjusted diluted earnings per share is expected to be between $1.05 and $1.25, assuming a 25% pro forma tax rate.

Sentiment

Score: 8

Explanation: The document presents a positive outlook with strong financial results, improved profitability, and reaffirmed guidance. The management's comments are optimistic, and the company's strategic focus on recurring revenue streams is encouraging.

Positives

• The company experienced a significant increase in net income from continuing operations, turning a loss into a profit.
• Adjusted EBITDA and adjusted EBITDA margin both improved, indicating increased profitability.
• Annualized Recurring Revenue (ARR) continues to grow, providing a stable revenue base.
• The company's balance sheet is strong, as indicated by the consolidated interest coverage ratio of 3.7x and a total leverage ratio of 0.1x.
• SaaS growth saw a 16% increase over the prior year.
• Payments revenue grew 7% this quarter.

Negatives

• The 'Other' segment consistently shows negative adjusted EBITDA, impacting overall profitability.
• The company's revenue growth of 12.1% is solid, but not exceptional, and could be higher given the growth in ARR and SaaS revenue.
• The company's revenue growth of 12% is less than the 14% growth in recurring cash other costs of services and 13% growth in recurring cash SG&A expenses.

Risks

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

Future Outlook

The company is reaffirming its outlook for the fiscal year ending September 30, 2025, with revenue expected to be 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.

Management Comments

• Greg Daily, Chairman and CEO of i3 Verticals, commented, 'We are pleased to have started fiscal 2025 on a strong note and are happy to share our results with investors.'
• Greg Daily stated, 'This year, we expect to see significant improvements in our SaaS growth, which began this quarter with a 16% increase over the prior year.'
• Greg Daily noted, 'Even after divesting our merchant services business, we retained robust payment capabilities, and our ability to integrate these services with our proprietary vertical market software remains a key competitive advantage.'
• Greg Daily added, '2025 is shaping up to be a great year for our company. Our balance sheet is strong, our revenue growth is trending upward, and our margins are headed in the right direction.'

Industry Context

i3 Verticals operates in the competitive software and payment solutions market, focusing on specific verticals like public sector and healthcare. The company's strategy of integrating payment capabilities with its proprietary software is a key differentiator. The growth in SaaS revenue aligns with the broader industry trend of transitioning to cloud-based solutions.

Comparison to Industry Standards

• Comparing i3 Verticals to companies like Tyler Technologies (TYL) in the public sector software space, i3 Verticals' revenue growth of 12.1% is competitive.
• Companies like Veeva Systems (VEEV) in the healthcare software sector often have higher SaaS revenue growth rates, so i3 Verticals' 16% SaaS growth is a positive sign but has room to improve.
• In terms of EBITDA margins, i3 Verticals' 26.5% is comparable to other established software companies, but lower than some of the more profitable players in the industry.

Stakeholder Impact

• Shareholders will likely react positively to the improved financial performance and reaffirmed guidance.
• Employees may be motivated by the company's positive outlook and growth prospects.
• Customers should benefit from the company's continued investment in its software and services solutions.
• Suppliers and creditors can be reassured by the company's strong balance sheet and financial stability.

Next Steps

• The company will host a conference call on February 7, 2025, to discuss financial results and operations.
• The company will continue to focus on SaaS growth and integrating payment capabilities within its software solutions.
• The company will execute its strategy to achieve its fiscal year 2025 outlook.

Key Dates