i3 Verticals(US:IIIV)2023-05-13 14:59Financial Data and Key Metrics Changes - Revenues for Q2 2023 increased by 20% to $93.9 million from $78.1 million in Q2 2022, driven by organic growth and acquisitions [12] - Adjusted EBITDA rose by 27% to $24.7 million for Q2 2023 from $19.5 million for Q2 2022, reflecting continued momentum in the Software & Services segment [51] - Annual recurring revenues (ARR) grew by 20% to $305.7 million for Q2 2023 compared to $254.5 million for Q2 2022 [12] Business Line Data and Key Metrics Changes - Software & Services segment revenues increased by 24% to $60.8 million for Q2 2023 from $49 million for Q2 2022, primarily due to growth in the public sector vertical [36] - Merchant Services segment revenues increased by 13% to $33.1 million for Q2 2023 from $29.2 million for Q2 2022, driven by growth in ISO, ISV, and B2B channels [52] Market Data and Key Metrics Changes - The education sub-vertical within the public sector saw a strong rebound, benefiting from organic sales to new school districts and higher fees at existing districts [36] - Over 80% of revenues in the quarter continued to come from recurring sources, indicating a stable revenue base [12] Company Strategy and Development Direction - The company is focusing on enhancing its software and services offerings, which now represent over 50% of total revenue, and aims to increase this percentage to 60-65% over the next few years [94] - The acquisition strategy remains active, with discussions ongoing for larger deals than historically pursued, targeting businesses with $10 million to $12 million in EBITDA [60][91] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the public sector's demand for technology modernization, driven by positive budget levels and the need for improved infrastructure [106] - The company anticipates that the strong first half of the fiscal year will support its guidance for fiscal year 2023, with revenues projected between $360 million and $380 million [53] Other Important Information - The company successfully upsized its revolving credit facility to $450 million, providing greater flexibility for future acquisitions [49][80] - Adjusted EBITDA as a percentage of revenues improved to 26.3% for Q2 2023 from 25% for Q2 2022, reflecting margin improvement [51] Q&A Session Summary Question: Did you disclose organic growth in the second quarter? - Yes, organic growth for the quarter was approximately 12%, benefiting from strong software license sales [86] Question: What defines larger deals in your acquisition strategy? - The company is looking at deals as high as $10 million or $12 million in EBITDA, compared to historical targets of $2 million to $5 million [60] Question: How sustainable are the strong public sector budgets? - The company sees continued demand for technology upgrades in local governments, but the sustainability may be affected by the expiration of American rescue plan dollars by the end of 2024 [106] Question: How is the integrated software and payment solutions helping win deals? - The integration of software and payment solutions is crucial for winning contracts, as local governments seek comprehensive solutions to modernize their operations [106] Question: What is the expected impact of the new unified RFP team on bookings and revenue? - The timing for new bookings can vary significantly, but the company aims to improve response times and win rates through a more structured approach to RFPs [110]