i3 Verticals(IIIV) - 2024 Q3 - Quarterly Results

Financial Performance and Corporate Developments Third Quarter 2024 Financial Highlights Q3 2024 continuing operations revenue decreased 2% to $56.0 million, with net loss widening to $13.8 million Q3 & 9M FY2024 Financial Highlights (from Continuing Operations) | Metric | Q3 2024 (USD) | Q3 2023 (USD) | % Change | 9M 2024 (USD) | 9M 2023 (USD) | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Revenue | $56.0M | $57.3M | (2)% | $169.1M | $168.1M | 1% | | Net Loss | ($13.8M) | ($10.9M) | (27)% | ($20.4M) | ($22.4M) | 9% | | Adjusted EBITDA | $12.9M | $14.5M | (11)% | $42.1M | $43.7M | (4)% | | Diluted Net Loss Per Share | ($0.49) | ($0.37) | (32)% | ($0.70) | ($0.72) | 3% | | Pro Forma Adj. Diluted EPS | $0.07 | $0.15 | (53)% | $0.31 | $0.49 | (37)% | - Annualized Recurring Revenue (ARR) from continuing operations grew by 4% to $181.3 million for the three months ended June 30, 2024, up from $174.5 million in the prior-year period[1] - As of June 30, 2024, the company's consolidated interest coverage ratio was 3.5x and the total leverage ratio was 3.6x, as defined in its 2023 Credit Agreement[1] Corporate Strategy and Developments Strategic transformation into a pure-play vertical market software company is underway, driven by a major business sale and a new acquisition Sale of Merchant Services Business i3 Verticals agreed to sell its Merchant Services Business for $440 million in cash, with closing expected by September 30, 2024 - On June 26, 2024, the company entered into a definitive agreement to sell its Merchant Services Business to Payroc for a purchase price of $440 million in cash[4] - The sale includes the Merchant Services segment and certain assets within the Software and Services segment related to the Non-profit and Property Management verticals[4] - The transaction is expected to close during the quarter ending September 30, 2024, subject to closing conditions[4] Public Sector Acquisition The company acquired a permitting and licensing business for $18.0 million cash and stock, enhancing Public Sector offerings - On August 1, 2024, the company acquired a permitting and licensing business to enhance its Public Sector product offerings[1][3] - The acquisition consideration consists of $18.0 million in cash, 311,634 shares of Class A Common Stock, and up to $22.0 million in contingent consideration[1] Share Repurchase Program The Board approved a new $50 million share repurchase program for Class A common stock, to commence post-Merchant Services sale - The Board of Directors approved a new share repurchase program authorizing the company to buy back up to $50 million of its outstanding Class A common stock[5] - The program will terminate on August 8, 2025, or when the maximum amount is expended, with repurchases not anticipated to begin until after the closing of the Merchant Services Business sale[5] CEO Commentary CEO Greg Daily emphasized the strategic shift to a pure vertical market software business, projecting high-single-digit FY2025 revenue growth - The company will become a pure vertical market software business focused on Public Sector, Education, and Healthcare after the Merchant Services sale[3] - Management expects to grow revenue in the high-single digits in fiscal 2025, with margins expected to improve as revenue scales[3] - Proceeds from the sale will be used to pay off the entire revolving credit facility, setting the stage for additional vertical market software M&A[3] Fiscal Year 2024 and 2025 Outlook New guidance for continuing operations projects FY2024 revenue between $228 million and $234 million, and FY2025 revenue between $243 million and $263 million - The company has withdrawn its previously provided consolidated-level guidance and issued a new outlook for continuing operations due to the anticipated sale of the Merchant Services Business[6] FY2024 & FY2025 Outlook for Continuing Operations | Metric | FY2024 Outlook Range (USD) | FY2025 Outlook Range (USD) | | :--- | :--- | :--- | | Revenue | $228.0M - $234.0M | $243.0M - $263.0M | | Adjusted EBITDA | $56.0M - $60.0M | $63.0M - $71.5M | | Pro forma adjusted diluted EPS | Not Provided | $1.05 - $1.25 | Financial Statements Consolidated Statements of Operations Q3 2024 Consolidated Statements of Operations show $56.0 million revenue from continuing operations and a $13.8 million net loss Consolidated Statements of Operations Highlights (in thousands) | Line Item | Three Months Ended June 30, 2024 (USD thousands) | Three Months Ended June 30, 2023 (USD thousands) | | :--- | :--- | :--- | | Revenue | $56,037 | $57,260 | | Total operating expenses | $56,706 | $61,837 | | (Loss) income from operations | ($669) | ($4,577) | | Net loss from continuing operations | ($13,846) | ($10,918) | | Net income from discontinued operations | $5,548 | $4,840 | | Net loss attributable to i3 Verticals, Inc. | ($7,545) | ($5,155) | Consolidated Balance Sheets As of June 30, 2024, the balance sheet reflects $237.0 million in current assets held for sale, with total assets at $861.7 million Selected Balance Sheet Data (in thousands) | Account | June 30, 2024 (USD thousands) | September 30, 2023 (USD thousands) | | :--- | :--- | :--- | | Cash and cash equivalents | $9,745 | $3,105 | | Current assets held for sale | $237,002 | $17,269 | | Total assets | $861,722 | $881,493 | | Long-term debt, net | $347,892 | $385,081 | | Total liabilities | $515,807 | $553,197 | | Total equity | $345,915 | $328,296 | Consolidated Cash Flow Data For the nine months ended June 30, 2024, operating cash flow increased to $33.3 million, while investing cash flow significantly decreased to $16.8 million Consolidated Cash Flow Data (in thousands) | Activity | Nine Months Ended June 30, 2024 (USD thousands) | Nine Months Ended June 30, 2023 (USD thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | $33,266 | $26,370 | | Net cash used in investing activities | ($16,755) | ($115,415) | | Net cash (used in) provided by financing activities | ($15,215) | $85,482 | Non-GAAP Financial Measures and Reconciliations Reconciliation of Net Loss to Adjusted EBITDA This section reconciles GAAP net loss from continuing operations to non-GAAP Adjusted EBITDA, reporting Q3 2024 Adjusted EBITDA of $12.9 million Q3 2024 Reconciliation Highlights (from Continuing Operations, in thousands) | Line Item | Q3 2024 (USD thousands) | | :--- | :--- | | Net loss from continuing operations attributable to i3 Verticals, Inc. | ($11,430) | | Equity-based compensation | $4,432 | | M&A-related expenses | $1,931 | | Acquisition intangible amortization | $4,788 | | Pro forma adjusted net income from continuing operations | $2,257 | | Adjusted EBITDA from continuing operations | $12,875 | - M&A-related expenses for Q3 2024 included $1.8 million in transaction costs related to the anticipated sale of the Merchant Services Business[18] Reconciliation of GAAP Diluted EPS to Non-GAAP Pro Forma Adjusted Diluted EPS This section reconciles GAAP diluted net loss per share to non-GAAP pro forma adjusted diluted EPS, showing Q3 2024 adjusted EPS of $0.07 EPS Reconciliation (from Continuing Operations) | Per Share Metric | Three Months Ended June 30, 2024 (USD) | Three Months Ended June 30, 2023 (USD) | | :--- | :--- | :--- | | Diluted net loss per share | ($0.49) | ($0.37) | | Pro forma adjusted diluted earnings per share | $0.07 | $0.15 | - The per-share impact of consolidated cash interest expense on a fully diluted basis was $0.23 for the three months ended June 30, 2024, compared to $0.18 in the prior-year period[21]