i3 Verticals(IIIV) - 2026 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Revenue for Q1 2026 increased by 1% to $52.7 million from $52.2 million in Q1 2025, reflecting an 8% growth in recurring revenues, partially offset by a $3 million decline in non-recurring professional services and software license revenues [8][10] - Annual recurring revenues rose by 8% to $169.6 million for Q1 2026 compared to $156.4 million for Q1 2025, with 80% of revenues coming from recurring sources [8][10] - Adjusted EBITDA declined by $1 million to $13.6 million for Q1 2026 from $14.6 million for Q1 2025, with adjusted EBITDA as a percentage of revenues at 25.8% for Q1 2026 versus 27.9% for Q1 2025 [9][10] Business Line Data and Key Metrics Changes - SaaS revenue led with over 24% growth, marking four consecutive quarters of over 20% growth [4][8] - Transaction-based revenue grew by 12%, while payments revenue increased by 8% [8] - Maintenance revenues declined by 8%, reflecting a shift towards SaaS and new sales [8] Market Data and Key Metrics Changes - The company operates in the transportation market and has expanded its geographic reach through a recent acquisition, enhancing its position in ongoing modernization initiatives [12][13] - The company is currently active in 30 states and four Canadian provinces within the transportation market [13][17] Company Strategy and Development Direction - The company remains focused on recurring revenue sources and disciplined capital deployment, with expectations for continued growth in 2026 [4][6] - The recent acquisition is expected to significantly enhance the company's offerings in the transportation market, particularly in insurance verification [12][13] - The company is also investing in AI-enabled solutions to enhance its product offerings and improve customer engagement [17][18] Management's Comments on Operating Environment and Future Outlook - Management noted that while recurring revenue sources are strong, there are headwinds in professional services revenue, which is expected to decline [20][22] - The long-term expectation for organic revenue growth remains high single-digit, with recurring revenues expected to grow at a double-digit rate for FY 2026 [11][22] - Management expressed optimism about the future, citing strong demand for technology solutions in justice tech and transportation markets [16][17] Other Important Information - The company has a strong balance sheet with $37 million in cash and no debt, and it has a $400 million revolving credit facility available for acquisitions and stock repurchases [10][11] - The company expects adjusted diluted earnings per share to be in the range of $1.08-$1.16 for FY 2026 [11] Q&A Session Summary Question: Update on FY 2026 outlook and organic growth - Management confirmed that organic growth has slightly ticked down, primarily due to professional services revenue [20][21] Question: Recurring revenue growth expectations - Management affirmed that recurring revenue growth is expected to remain in the 8%-10% range for the year [22] Question: Capital allocation strategy regarding buybacks and M&A - Management indicated that they have been opportunistic with buybacks and believe their stock is undervalued [23][24] Question: Details on the new acquisition's market share and revenue model - Management highlighted the acquisition's strong market presence and potential for growth, noting it is not currently transactional but has opportunities for integration with payments [27][28] Question: Drivers of SaaS revenue growth and sustainability - Management expects organic SaaS growth to remain above 20%, driven by various market segments [34][35] Question: Thoughts on AI adoption and its impact on GovTech - Management acknowledged the slow adoption of AI in GovTech due to regulatory concerns but sees potential for growth in AI-enabled solutions [38][39]