i3 Verticals(US:IIIV)2024-05-10 17:27Financial Data and Key Metrics Changes - Revenues for Q2 '24 increased 1% to $94.5 million from $93.9 million for Q2 '23, reflecting organic growth from recurring sources, partially offset by declines in nonrecurring sources [56] - Pro forma adjusted diluted earnings per share was $0.34 for Q2 '24 compared to $0.38 for Q2 '23, driven by higher interest expense following the repurchase of exchangeable notes [35] - Adjusted EBITDA increased 4% to $25.8 million for Q2 '24 from $24.7 million for Q2 '23, with adjusted EBITDA as a percentage of revenues improving to 27.3% from 26.3% [58] Business Line Data and Key Metrics Changes - SaaS and transaction-based revenue grew 10%, while recurring software services grew 6% [33] - Payments revenues increased 6%, with revenues in the Merchant Services segment rising 6% to $35.1 million for Q2 '24 from $33.1 million for Q2 '23 [60] - Software & Services segment revenues declined 2% to $59.5 million for Q2 '24 from $60.8 million for Q2 '23, primarily due to lower one-time sales of software licenses and professional services [59] Market Data and Key Metrics Changes - ARR increased 6% to $322.5 million for Q2 '24, compared to $305.7 million for Q2 '23, with over 80% of revenues coming from recurring sources [34] - Payments revenues as a percentage of payments volume improved slightly to 71 basis points for Q2 '24 from 70 basis points for Q2 '23 [58] Company Strategy and Development Direction - The company is focused on achieving sustainable growth with enterprise software, particularly in public sector, health care, and education verticals [42] - The initiative called Unified Product Offering (UPO) aims to provide coordinated software solutions across various government sizes [41] - The company plans to make additional strategic hires in product development to enhance web-native configurable applications [67] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the long-term potential of new projects, despite short-term revenue recognition delays [31] - The company expects RemainCo to resume high single-digit revenue growth beginning in fiscal year '25, driven by several identified tailwinds [40] - Management noted that the competitive environment has remained steady, with no significant changes in demand or project extraction [78] Other Important Information - The company has approximately $4 million in earn-out payments remaining from past acquisitions, and selling the Merchant Services business would significantly reduce remaining debt [38] - The balance sheet remains strong, with total leverage ratio at 3.5 times and cash interest expense projected between $27 million to $29 million for fiscal year '24 [61] Q&A Session Summary Question: What is the confidence level on license revenue in fiscal fourth quarter? - Management indicated that they expect $1 million for Q3 and $3 million for Q4 in software license sales, with the bulk coming from a large utility customer [63] Question: How is the competitive environment changing? - Management noted that the competitive environment has been relatively constant, with no significant changes in demand or project extraction [78] Question: What is the outlook for the public sector demand? - Demand in the public sector has been steady, with no significant macro issues affecting RFPs [81] Question: What is the timing for the potential divestiture of the Merchant Services business? - Management stated they are not in a position to comment on timing until a transaction is finalized [76]