i3 Verticals(US:IIIV)2025-05-09 13:32Financial Data and Key Metrics Changes - The company reported RemainCo revenues for Q2 fiscal 2025 increased 11.6% to $54.1 million from $48.5 million in Q2 fiscal 2024, reflecting $4.4 million of organic growth or 9% and $1.2 million from an acquisition in the public sector [11] - Annual recurring revenues for RemainCo increased 9.2% to $164.5 million for Q2 fiscal 2025 compared to $150.6 million for Q2 fiscal 2024 [12] - Adjusted EBITDA for RemainCo increased 17% to $15.8 million for Q2 fiscal 2025 from $13.5 million for Q2 fiscal 2024, with adjusted EBITDA as a percentage of revenues rising to 29.3% from 27.9% [13] Business Line Data and Key Metrics Changes - The public sector vertical market experienced a revenue growth of 12% in Q2 fiscal 2025, with SaaS revenue growth at 23% [6] - Non-recurring sales of software licenses for RemainCo increased to $2.8 million for Q2 fiscal 2025 from $1 million for Q2 fiscal 2024 [12] Market Data and Key Metrics Changes - The company anticipates high single-digit organic revenue growth for RemainCo, excluding the healthcare RCM business [16] - The revenue distribution for the remaining two quarters is expected to be approximately 40.8% for Q3 and 50.2% for Q4, with Q3 expected to be the low point for revenue and margins [17] Company Strategy and Development Direction - The company is focused on the public sector vertical market following the divestiture of its Healthcare RCM business, aiming to enhance efficiency and service delivery through better software solutions [6][7] - 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 [18][20] - The company is committed to a domain-specific approach across targeted markets, which is expected to drive organic growth over time [25] Management's Comments on Operating Environment and Future Outlook - Management noted that the geopolitical landscape presents opportunities at the state and local levels, particularly tied to evolving efficiency requirements [24] - The company has removed approximately $2.5 million of revenues from its fiscal 2025 outlook due to trade friction and delays with a Manitoba contract, indicating a conservative approach based on customer discussions [16][49] 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 plans to use cash and borrowings for acquisitions and potential stock repurchases [14] - The company expects adjusted EBITDA margin improvement of 50 to 100 basis points per year [16] Q&A Session Summary Question: What is the size of the remaining healthcare business after the divestiture? - The remaining healthcare business is focused on workflow software for providers, with expected revenue of approximately $8 million for the fiscal year [32] Question: What is the margin profile of the remaining healthcare business? - The margin profile is expected to be consistent with the public sector, in the low-forty percent range [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 a strong balance sheet and reduced interest expenses [36] Question: What is the revenue and margin cadence expected 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 [37] Question: Is the small utility billing acquisition included in the updated guidance? - Yes, the small utility billing acquisition is included in the updated guidance [42] Question: What is the status of the Manitoba contract and its impact on guidance? - The removal of $2.5 million from guidance is based on conservatism due to delays and sequencing issues with the customer [49]