Release Date: August 09, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- i3 Verticals Inc (IIIV, Financial) announced a strategic acquisition that fits well with their existing business and offers significant growth potential.
- SaaS and transaction-based software revenues grew by 8%, and payments revenues increased by 9% in Q3 2024.
- Over 80% of the company's revenues in the quarter came from recurring sources, providing a stable revenue base.
- ARR increased by 4% to $181.3 million for Q3 2024, compared to $174.5 million for Q3 2023.
- The company has a strong balance sheet with a consolidated leverage ratio of 3.6 times, well within the constraint of 5 times under their $450 million revolving credit facility.
Negative Points
- Revenues for Q3 2024 declined by 2% to $56 million from $57.3 million for Q3 2023, reflecting a decrease in non-recurring sources.
- Adjusted EBITDA declined by 11% to $12.9 million for Q3 2024 from $14.5 million for Q3 2023.
- Professional services revenues declined by $1.1 million due to delays in project implementation caused by external factors.
- The company faced significant headwinds in 2024, including a $3 million impact from the Manitoba project delay, a $5 million drag from the SaaS transition, and a $4 million headwind in the education sector.
- The sale of the merchant services business has not yet closed, creating uncertainty in the financial outlook for fiscal year 2024.
Q & A Highlights
Q: Can you provide more details on the EBITDA outlook for this year and next year, considering the headwinds mentioned?
A: Clay Whitson, CFO: The headwinds include $3 million from Manitoba, $5 million from the SaaS transition, and $4 million from education, totaling $12 million. These headwinds should not repeat next year, which supports the expectation of 10% organic EBITDA growth.
Q: What is the growth profile of the recent acquisition closed on August 1?
A: Clay Whitson, CFO: We expect double-digit growth from the acquired company in fiscal year '25. Historically, it has shown comfortably double-digit growth and has the potential to win larger contracts, which can boost growth rates in any given year.
Q: How should we think about the margin expansion in the guide for 2025?
A: Clay Whitson, CFO: The implied margin expansion is about 150 basis points. This is driven by revenue growth at the mid-point of 9.5% while expenses grow around 7%, reflecting the effects of internal realignment.
Q: What is the overlap and integration timeline for the new acquisition in the public sector?
A: Paul Christians, CRO: There is some overlap with our existing products, and we are planning to transition to the new product offering. The cost structures and support mechanisms for the new acquisition are more favorable, and we are already working on marketing activities to our expanded customer base.
Q: What is the growth opportunity around cross-selling, and what could it represent annually?
A: Paul Christians, CRO: The cross-sell opportunities are significant. We have been refining our market offerings and expanding our positions. While the exact numbers are still being assessed, the potential is profound.
Q: Can you provide more details on the Manitoba project and its impact on revenue?
A: Geoffrey C. Smith, SVP Finance: Approximately $7 million remains to be recognized from the Manitoba project. We expect about half of that in the coming fiscal year and the rest the following year. The revenue will come in gradually as the project progresses.
Q: What are the underlying tailwinds driving demand in your markets?
A: Paul Christians, CRO: Cybersecurity concerns and the need for modernization are significant drivers. Our focus on utilities and public sectors provides durability, and we are seeing increased RFP activities and customer engagement for modernizing their systems.
Q: How does the competitive environment look now that you are solely a software-focused company?
A: Paul Christians, CRO: The competitive environment remains consistent. Our focus on verticals and sub-verticals allows us to be more responsive and ensure execution. Our key differentiator is our ability to execute and deliver on our promises.
Q: What do you need to happen beyond the headwinds rolling off to get back to high-single-digit organic growth?
A: Clay Whitson, CFO: Beyond the headwinds reversing, the internal realignment of our sales organization and the completion of the carve-out transaction will refocus our efforts on growing the software and services business.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
