i3 Verticals(US:IIIV)2020-05-09 17:21Financial Data and Key Metrics Changes - The company reported a 25% increase in net revenue, rising to $39.3 million in Q2 2020 from $31.4 million in Q2 2019, primarily driven by growth in the Public Sector vertical [10][23] - Pro forma adjusted EBITDA increased to $10 million in Q2 2020 from $8.7 million in Q2 2019, reflecting a 14% growth [10][26] - Adjusted EBITDA as a percentage of net revenues was 25.3% for Q2 2020, down from 27.8% for Q2 2019, due to fixed costs spread over lower net revenues [27] Business Line Data and Key Metrics Changes - In the proprietary software and payments segment, net revenues grew 93% to $14.8 million for Q2 2020 from $7.7 million for Q2 2019, mainly due to acquisitions in the Public Sector and Education verticals [28] - The Merchant Services segment saw net revenues increase by 5% to $25 million for Q2 2020 from $23.8 million for Q2 2019, driven by growth in the Pace Payments business [29] - The purchase portfolios declined by 33% to $1 million, aligning with expectations [30] Market Data and Key Metrics Changes - The company experienced a 66% decline in net revenue run rate in the education sector from April 2019 to April 2020, with payment revenues down 90% [12][35] - Payment volumes for the same set of companies were down approximately 30% on a year-over-year consolidated basis as of the end of April [25] - The Public Sector and B2B customers experienced less impact on payment volumes compared to other sectors [14] Company Strategy and Development Direction - The company is focused on delivering contactless payment solutions across all verticals, responding to increased customer awareness of their needs due to COVID-19 [15] - The company has paused acquisition activity due to economic uncertainty but continues to build its acquisition pipeline [18] - The company anticipates that the COVID-19 pandemic will accelerate the migration from cash to electronic payments, particularly in the Public Sector and Education verticals [16] Management's Comments on Operating Environment and Future Outlook - Management expects a greater impact from COVID-19 in the financials for the third fiscal quarter, particularly affecting education and hospitality customers [12] - The company believes that local governance and K-12 schools will rebound to their historic activity and growth rates despite short-term budget pressures [17] - Management is optimistic about economic recovery and the potential to gain market share as states begin to reopen [20] Other Important Information - The company has a strong balance sheet, with a senior leverage ratio of 0.4 times and a total leverage ratio of 3.4 times [32] - The company executed a convertible notes offering in February, bringing in $138 million to repay borrowings under its revolving credit facility [31] Q&A Session Summary Question: What percentage of revenue will be impacted by COVID-19? - Management indicated that all revenue is currently impacted, but expects government and education sectors to bounce back 100% [49] Question: How did payment volumes trend throughout April? - Payment volumes improved sequentially throughout April, with the worst decline occurring at the end of March [50][52] Question: Is it feasible to close an M&A transaction by the end of the fiscal year? - Management expressed confidence in closing some deals by year-end and is closely monitoring market multiples [53] Question: What is the capacity for M&A in the current environment? - The company has significant capacity under its credit line and strong cash flow, allowing for strategic acquisitions [56] Question: How has the education business been impacted geographically? - Management noted that states like Ohio, Colorado, and California have a strong presence, and they expect schools to reopen on time [58] Question: What has been the impact on the healthcare vertical? - The healthcare vertical has held up well, showing resilience during the pandemic [60] Question: Have there been any changes in ISV partnerships? - There have been no changes in terms or revenue share, and the company continues to sign new ISVs [78]