i3 Verticals(US:IIIV)2025-05-09 13:30Financial Data and Key Metrics Changes - The company reported RemainCo revenues for Q2 2025 increased 11.6% to $54.1 million from $48.5 million in Q2 2024, reflecting $4.4 million of organic growth or 9% and $1.2 million from an acquisition in the public sector [13] - Annual recurring revenues for RemainCo increased 9.2% to $164.5 million for Q2 2025 compared to $150.6 million for Q2 2024, with 76% of revenues coming from recurring sources [14] - Adjusted EBITDA for RemainCo increased 17% to $15.8 million for Q2 2025 from $13.5 million for Q2 2024, with adjusted EBITDA as a percentage of revenues rising to 29.3% from 27.9% [15] Business Line Data and Key Metrics Changes - The public sector vertical market experienced a revenue growth of 12% and SaaS revenue growth of 23% [7] - Non-recurring sales of software licenses for RemainCo increased to $2.8 million for Q2 2025 from $1 million for Q2 2024, although software license sales are expected to be lower in the second half of the fiscal year [14] Market Data and Key Metrics Changes - The company anticipates high single-digit organic revenue growth for RemainCo, excluding the healthcare RCM business, and expects adjusted EBITDA margin improvement of 50 to 100 basis points per year [17] - The revenue distribution for the remaining two quarters is expected to be approximately 40.8% for Q3 and 50.2% for Q4, with public sector payments and software services revenues declining seasonally during Q3 [18] Company Strategy and Development Direction - The company is focused on the public sector vertical market following the divestiture of its RCM business, aiming to enhance efficiency and service delivery through better software solutions [7][8] - The recent acquisition in the utility billing space is expected to expand the company's market presence and enhance its offerings in the utilities market [20][22] - The company is committed to a domain-specific approach, leveraging tailored solutions and deep expertise to foster long-term relationships with customers [25] Management's Comments on Operating Environment and Future Outlook - Management noted that while there are opportunities emerging at the state and local levels, it is too early to determine if these represent a trend [26] - The company is optimistic about its ability to monetize software systems through various pricing models, which lowers barriers to entry and accelerates implementation timelines [27] - Management expressed confidence in the strong acquisition pipeline, focusing on smaller tuck-in deals within the public sector [48] Other Important Information - The company has a strong balance sheet with a net debt of $4 million and a cash position of approximately $64 million, with $400 million of borrowing capacity under its revolving credit facility [16] - The company expects to use cash and borrowings for acquisitions and potential stock repurchases [16] Q&A Session Summary Question: What is the size of the remaining healthcare business? - The remaining healthcare business is focused on workflow software for providers, with revenue approximately $8 million for the fiscal year [34] Question: What is the expected free cash flow conversion for RemainCo? - The free cash flow conversion is expected to be well in excess of two-thirds of EBITDA, driven by the absence of interest expense and increased investment in software development [37][38] Question: What is the revenue and margin cadence for Q3 and Q4? - Q3 revenue is expected to be about 48% of remaining revenue, with margins dipping into the mid-20s, while Q4 should see revenue at about 52% and margins recovering into the high 20s [39] Question: Is the utility billing acquisition included in the updated guidance? - Yes, the utility billing acquisition is included in the updated guidance [43] Question: What is the status of the Manitoba contract? - The revenue from the Manitoba contract has been conservatively removed from guidance due to delays and sequencing issues with the customer [49][51]