i3 Verticals(US:IIIV)2020-08-11 17:54Financial Data and Key Metrics Changes - The company reported net revenue of $31.6 million for Q3 2020, a decline of 12% compared to $36.0 million in Q3 2019 [26][41] - Adjusted EBITDA decreased by 27% to $7.1 million for Q3 2020 from $9.7 million for Q3 2019, with an adjusted EBITDA margin of 22.3% compared to 26.9% in the prior year [28][41] - Payment volume saw a significant recovery after hitting a low in April, with May increasing by 29%, June by 19%, and July by 4% [23][41] Business Line Data and Key Metrics Changes - Proprietary Software and Payments segment net revenues were flat at $10.5 million for Q3 2020 compared to Q3 2019, with adjusted EBITDA declining 24% to $2.7 million [30][31] - Merchant Services segment net revenues declined 16% to $21.5 million for Q3 2020 from $25.5 million in Q3 2019, with adjusted EBITDA also down 24% to $6.6 million [36][37] - Software and related services revenues accounted for 26% of total revenues for Q3 2020, up from 5% in fiscal year 2017 [25][26] Market Data and Key Metrics Changes - The education sector was the hardest hit due to school closures, with expectations of lighter payment volumes in the fourth quarter [11][12] - Public Sector vertical showed signs of recovery with increased demand for modern solutions as local governments seek to digitize services [16][43] - The company noted that card-not-present transactions represented over 50% of total transactions, although this declined slightly due to the absence of school revenues [71] Company Strategy and Development Direction - The company has restarted its acquisition strategy after pausing due to COVID-19, closing two acquisitions in July, one in Public Sector and another in Nonprofit [19][55] - The focus remains on increasing software revenues, which have proven more resilient during the pandemic [25][84] - The company aims to become a one-stop shop for Public Sector customers by expanding its unified product offering [48] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the recovery trends in payment volume and the potential for growth in software revenues despite the challenges posed by COVID-19 [9][20] - The company does not anticipate Q4 2020 results to approach the levels seen in Q4 2019 due to ongoing uncertainties [41] - Management highlighted the importance of digitization in the Public Sector and Education sectors as a long-term growth opportunity [84] Other Important Information - The company implemented cost-cutting measures that saved nearly $3 million in Q3 2020, allowing corporate expenses to remain steady despite lower revenues [29] - The balance sheet remains strong, with $35 million borrowed under a $275 million revolver and a total leverage ratio of 3.7x [39] Q&A Session Summary Question: Is revenue tracking closely with volume changes? - Management indicated that while volumes are recovering, revenue may not deviate materially from volume growth [60] Question: Can you provide examples of increased demand in the Public Sector? - Management noted a shift towards SaaS models and online solutions, with increased interest from government entities [62] Question: What is the revenue impact of delayed implementations? - Management mentioned a specific $250,000 job that was pushed, indicating a broader impact across the company [63] Question: What is the expected contribution from recent acquisitions? - The acquisitions are expected to contribute between $1 million to $1.5 million of EBITDA [70] Question: How are card-not-present transactions trending? - Card-not-present transactions represent over 50% of total transactions, with expectations for growth over time [72] Question: What is the outlook for the Education sector? - Management estimates that they might see about 50% of normal payment revenues for the fall semester [79] Question: Will the recent acquisitions affect M&A activity? - Management confirmed that they will continue to pursue acquisitions while managing leverage ratios [99]