i3 Verticals(IIIV) - 2023 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Total revenue for Q3 2023 increased by 17% to $93.9 million from $80.6 million in Q3 2022, reflecting organic growth and acquisitions [22][19] - Adjusted EBITDA rose by 26% to $25.3 million for Q3 2023 from $20.1 million for Q3 2022, with adjusted EBITDA as a percentage of revenues increasing to 26.9% from 24.9% [23][19] - Annual Recurring Revenue (ARR) totaled $311.4 million for Q3 2023, a growth rate of 17% compared to $266.7 million for Q3 2022 [139] Business Line Data and Key Metrics Changes - Revenues in the Software and Services segment increased by 23% to $58.9 million for Q3 2023 from $47.8 million for Q3 2022, driven by growth in Public Sector and Healthcare verticals [51] - Merchant Services segment revenues increased by 7% to $35.0 million for Q3 2023 from $32.7 million for Q3 2022, with adjusted EBITDA for this segment increasing by 16% to $10.2 million [131] Market Data and Key Metrics Changes - Public Sector continues to dominate the pipeline, representing over 50% of total revenue, with a shift in focus from 80% Public Sector to a more balanced 60-40 split with Healthcare [8][19] - The education sub-vertical showed strong recovery, benefiting from organic sales to new school districts and increased fees, despite a decrease in federal and state lunch subsidies [52] Company Strategy and Development Direction - The company is focused on aligning departments and sub-companies under a unified i3 Verticals model to enhance operational efficiency and service delivery [29][30] - A cloud-first approach is being adopted, with strategic partnerships with AWS and Microsoft to enhance technology delivery and customer solutions [31][32] - The company aims to continue its acquisition strategy while streamlining operations and reducing debt, emphasizing a disciplined approach to M&A [35][114] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the pipeline, noting a resurgence in Healthcare activity and a robust outlook for future acquisitions [8][35] - The company anticipates continued organic growth in the high single digits for fiscal 2024, with a focus on maintaining margins despite investments in cloud migration and technology upgrades [44][97] Other Important Information - The balance sheet remains strong, with a total leverage ratio of approximately 4.0 times as of June 30, 2023 [25] - The company has completed 48 acquisitions since going public in June 2018, with a focus on integrating and optimizing operations across verticals [56][133] Q&A Session Summary Question: How is the pipeline for large deals looking? - Management noted that the sweet spot for EBITDA deals remains between $1 million to $5 million, with a positive outlook on the pipeline activity in recent months [66] Question: What are the expectations for fiscal 2024 growth? - Management indicated a preliminary thought of high single digits for organic growth in fiscal 2024, consistent with previous guidance [44][97] Question: How is the transition to cloud impacting margins? - Management acknowledged that while the transition to cloud may present short-term headwinds for margins, it is expected to significantly benefit margins in the long run [78][89] Question: What is the strategy for introducing payments to the Healthcare vertical? - The company is actively working on integrating payment solutions into the Healthcare vertical, with plans to enhance sales personnel to accelerate this initiative [82][83] Question: Are there any pockets of weakness in the business? - Management reported no significant weaknesses, with Healthcare showing increased activity and overall business performing as expected [80][81]