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i3 Verticals(IIIV) - 2025 Q3 - Earnings Call Transcript
2025-08-08 13:30
Financial Data and Key Metrics Changes - In Q3 2025, RemainCo revenues increased by 12.4% to $51.9 million from $46.2 million in Q3 2024, reflecting organic growth of 8% and approximately $2 million of inorganic revenues from acquisitions [11] - Annual recurring revenues for RemainCo rose by 12% to $160.8 million for Q3 2025 compared to $143.6 million for Q3 2024, with 77% of revenues coming from recurring sources [11] - Adjusted EBITDA for RemainCo increased by 18% to $12.7 million for Q3 2025 from $10.8 million for Q3 2024, with adjusted EBITDA margin improving to 24.5% from 23.3% [12] Business Line Data and Key Metrics Changes - SaaS revenue grew by 24%, payments revenue by 11%, and transaction-based revenue by 9% in Q3 2025 [11] - Non-recurring sales of software licenses increased to $1 million in Q3 2025 from $400,000 in Q3 2024 [11] - RemainCo software and related services accounted for 70% of revenues, payments for 25%, and other for 5% in Q3 2025 [12] Market Data and Key Metrics Changes - The company is focusing on public sector software solutions, having divested its healthcare revenue cycle management and merchant services businesses [6][10] - The company is seeing strong sales activity across strategic markets including transportation, justice tech, public safety, public administration, ERP, education, and utilities [21] Company Strategy and Development Direction - The company aims to enable state and local governments to serve constituents effectively through a lineup of mission-critical enterprise software products [7] - Continued investment in government technology and strict discipline in M&A processes are planned, with a focus on new product development [8] - The company is implementing AI initiatives to enhance product features, improve service efficiency, and streamline product development [17][20] Management's Comments on Operating Environment and Future Outlook - Management expects high single-digit organic revenue growth for RemainCo over the next several years, with adjusted EBITDA margin improvement of 50 to 100 basis points per year [14] - The company anticipates that increased costs from talent investments will begin to impact Q4, with revenue effects expected in FY 2026 [15] - Management expressed confidence in all sub-verticals, highlighting strong performance in education, utilities, and transportation [37] Other Important Information - The company has a strong balance sheet with $55 million in cash and no debt, along with $400 million of borrowing capacity under its revolving credit facility [12][13] - The company plans to use cash and borrowings for future acquisitions and opportunistic stock repurchases [13] Q&A Session Summary Question: Guidance for Q4 and organic revenue growth - Management confirmed that the midpoint of the guidance should be the focus, with organic revenue growth expected to decelerate due to the prior strong license quarter [28][30] Question: Incremental investments in Justice Tech - Management indicated that the investments were not previously contemplated in the guidance and would compress margins slightly in Q4, but are expected to drive revenue growth in the long term [32][35] Question: Exciting growth areas for the company - Management expressed enthusiasm for all sub-verticals, particularly education, utilities, and transportation, anticipating significant growth in FY 2026 [37] Question: Partnerships for deals - The company typically handles most aspects of deals independently, with integration partners used in about 1 out of 5 cases, primarily for enterprise-level deals [41] Question: Role of procurement consultants - There has been no significant change in the role of procurement consultants, with steady relationships maintained in the utility space [42]