John Davis

John Davis from Raymond James inquired about i3 Verticals' 2026 organic growth outlook, specifically the projected 5% overall growth, the 8%-10% recurring revenue growth, and the anticipated decline in professional services. He sought clarification on whether this decline reflects a strategic shift away from selling professional services or a conservative guidance approach, and the expected year-over-year reduction in professional services. Additionally, he asked about the 104% net dollar retention for fiscal year 2025, seeking to understand the specific contribution from price increases and the company's forward-looking strategy for pricing tailwinds. Davis also questioned the magnitude of i3 Verticals' justice tech investment in Q4 2025, asking if it met expectations and what incremental investments are planned for fiscal year 2026. Finally, he questioned i3 Verticals' strategy for deploying its $85 million cash balance, specifically regarding the balance between share buybacks and M&A, and requested an update on the remaining buyback authorization.

Answer

CFO Geoff Smith explained that i3 Verticals is strategically prioritizing recurring revenue, opting for SaaS over professional services in contract negotiations. While professional services are not expected to disappear, the lighter cadence and timing of project fulfillment in 2026, with some projects shifting to late 2026 or 2027, contribute to the anticipated decline. He noted strong future pipelines for professional services in areas like West Virginia and utilities. Regarding net dollar retention, Smith stated that i3 Verticals, historically conservative on pricing, is now targeting a consistent 3%-5% price increase range, with price increases contributing 1%-2% to 2025 net dollar retention and expected to rise to 1.5%-3% in 2026. For justice tech, Smith clarified that the investment primarily involves increasing personnel to accelerate development and implementation, confirming Q4 2025 costs were in line with expectations and these elevated costs would continue into fiscal year 2026. On capital allocation, Smith noted the share buyback authorization was refreshed to $50 million, with activity being opportunistic. Chairman and CEO Greg Daily indicated that while small tuck-in acquisitions will continue, he anticipates 'meaningful' (larger, but not transformative) M&A activity sooner rather than later in 2026, targeting companies with $2M-$5M EBITDA at around 10x multiples.

John Davis of Raymond James Financial inquired about the Q4 2025 guidance, the drivers of the implied organic growth deceleration, and the rationale behind the incremental investments in the Justice Tech vertical.

Answer

CFO Geoff Smith confirmed the guidance midpoint is the correct focus and attributed the Q4 organic growth slowdown to lapping a strong software license quarter in the prior year. He noted the Justice Tech investment is a recent decision to capture new revenue opportunities expected in FY 2026. CSO Clay Whitson quantified the incremental Q4 expense at approximately $700,000. CEO Greg Daily added that all verticals are performing well and he is optimistic about FY 2026.

John Davis inquired about the financial profile of i3 Verticals' remaining operations (RemainCo) after recent divestitures, specifically asking about the growth and margin of the remaining healthcare business, the expected free cash flow conversion, and the revenue and margin cadence for the upcoming third and fourth quarters.

Answer

CFO Geoffrey Smith clarified that the remaining healthcare business has approximately $8 million in annual revenue with a margin profile similar to the public sector. He stated that RemainCo's free cash flow conversion should be well above two-thirds of adjusted EBITDA, aided by lower interest expense. For cadence, Smith projected Q3 revenue would be the seasonal low point, representing about 48% of the second half's revenue with margins in the mid-20s, while Q4 would see the remaining 52% with margins recovering to the high 20s.

John Davis of Raymond James inquired about the drivers behind the Healthcare segment's 14% growth, the magnitude of the license revenue pull-forward, the expected cadence of margin expansion for the remainder of the year, and the progress of the large utility customer project.

Answer

Executive Clay Whitson clarified that the Healthcare growth was due to onetime software license sales and that full-year expectations remain in the low single-digits. He confirmed the license pull-forward was approximately $1.8 million. CFO Geoffrey Smith added that full-year margin guidance holds, with Q3 typically being the low point due to seasonality. He also noted the large utility project is on track, with payments now live and revenue expected to ramp from ~$3 million to ~$5 million this year before accelerating further in 2026 and 2027.

John Davis asked about the slight Q4 revenue miss, the components of the 100% Net Dollar Retention (NDR) metric, and the long-term growth outlook for the Healthcare segment.

Answer

CFO Geoffrey Smith stated that no significant revenue pushed out of Q4 and the expected $2 million license fee was received. Executive Clay Whitson clarified that the FY25 high single-digit organic growth target implies new logo growth on top of the 100% NDR. Smith added that the NDR calculation currently excludes payments revenue, which would likely increase the figure, and that they aim to improve it via cross-selling and tactical pricing. Whitson projected continued low single-digit growth for the Healthcare segment in the medium term.

John Davis from Raymond James asked for a reconciliation of the fiscal 2026 revenue outlook, which is below normalized growth, against positive trends like winning larger banks, questioning if there's added conservatism. He also asked about selling Banno outside the core base and the drivers of the Complementary segment's growth.

Answer

President & CEO Greg Adelson attributed the softer outlook to the timing of M&A impacts and large renewals, not structural changes or a change in guidance philosophy. He noted revenue from larger wins will materialize more in the back half of the year. He also confirmed plans to begin selling Banno outside the core base by the end of the calendar year, with beta clients expected in the latter part of the fiscal year.

John Davis asked for a way to correlate the asset size of new core wins to annual contract value (ACV), the margin implication of non-strategic revenue runoff, and clarification on the Q4 free cash flow outlook.

Answer

CEO Greg Adelson explained that correlating assets to ACV is difficult due to deal-specific nuances like product mix and client focus. CFO Mimi Carsley stated that non-key revenue generally has a lower-margin mix. Regarding free cash flow, she affirmed the full-year guide of 65-75% conversion is on track and that an annual view is more appropriate than a quarterly one for this metric.

John Davis of Raymond James questioned the pricing dynamics and net revenue impact of the high volume of core renewals and asked about the expected cadence of revenue acceleration in the second half of the fiscal year.

Answer

President and CEO Greg Adelson explained that while renewals can involve some price compression, this is typically offset by bundling additional products, and all such dynamics are factored into the existing guidance. CFO Mimi Carsley added that while revenue is expected to accelerate throughout the year, with Q4 growth higher than Q3, the company is not providing specific quarterly guidance and directs investors to the full-year outlook.

John Davis asked for the key drivers behind the implied ~100 basis point margin expansion in the second half of the fiscal year. He also questioned if Banno for Business is a significant contributor to the 20% year-over-year growth in Banno users.

Answer

CFO Mimi Carsley explained that second-half margin expansion will be driven by accelerating revenue growth and overcoming first-half headwinds, such as tougher comps on software usage and headcount growth from prior year departures. CEO Greg Adelson clarified that while Banno Business is a contributor, the 20% user growth is primarily driven by the retail platform as more clients are implemented.

John Davis questioned the long-term strategy for the slow-growing Lodging segment, asking if Corpay would consider divesting it to redeploy capital. He also asked about the balance sheet priorities over the next twelve months, specifically the appetite for M&A versus share buybacks.

Answer

President, Chairman & CEO, Ronald Clarke, was direct, stating the Lodging business 'either gets fixed and it gets growing or it goes,' as every segment is expected to meet a 10% organic growth floor. On capital allocation, he confirmed M&A remains the first priority for attractive, growing businesses. However, he added that at the current stock price, Corpay would also be buyers of its own stock if liquidity allows, aiming for a balanced approach.

John Davis asked about the Lodging segment's stagnant growth, questioning if Corpay would consider divesting it if it cannot be reaccelerated. He also inquired about the company's capital allocation priorities, specifically the balance between M&A and share buybacks, given the pro forma leverage post-acquisitions.

Answer

President, Chairman & CEO Ronald Clarke was direct, stating that businesses must meet the company's 10% organic growth floor. He said the Lodging segment 'either gets fixed and it gets growing or it goes.' On capital allocation, Clarke reiterated that the first priority is always attractive M&A. However, he noted that at the current stock price, Corpay is also a buyer of its own stock, and future deployment will be a balanced function of liquidity, the M&A pipeline, and the stock price.

John Davis of Raymond James Financial inquired about the drivers behind the early producer agreement extension with AmTrust, whether the positive profit share Change in Estimate (CIE) signals an end to negative adjustments, and the reasons for the Q3 certified loan guidance deceleration.

Answer

Jessica Buss, CEO of Open Lending, explained that AmTrust initiated the early contract extension, signaling strong partner confidence. She noted the positive CIE was driven by lower claim frequency and higher used vehicle values, but cautioned that minor volatility could still occur. Buss attributed the lower Q3 cert guidance to a deliberate reduction in higher-risk OEM business to improve portfolio quality, stating that credit union demand remains strong and the company is positioning for growth in 2026.

John Davis asked for clarification on the $900,000 negative Change in Estimate (CIE) for the quarter, questioning why there was another negative revision after the large one in Q4, especially with used car values rising. He also sought to understand the level of conservatism in the profit share per loan, given the company is booking at a 72.5% loss ratio but expects a 65% loss ratio.

Answer

CEO Jessica Buss explained that the small negative CIE was the net result of movements across multiple vintages, with some being positive and others negative. She specified that the 2021 and 2022 vintages were the primary drivers of the negative adjustment due to claims frequency, which was partially offset by positive severity impacts from higher used car values. Regarding profit share, Buss confirmed the company is intentionally booking new business at a more conservative 72.5% loss ratio to reduce future volatility and increase the likelihood of positive, rather than negative, future CIE adjustments.

John Davis of Raymond James Financial, Inc. asked about the profitability of Open Lending's insurance carriers, any risk to the 72% profit share agreement, the outlook for profit share per loan, and the potential net impact of automotive tariffs on the business.

Answer

CEO Jessica Buss affirmed that the carriers' long-term profitability is strong and there are no discussions about changing the 72% profit share split. Both Buss and Interim CFO Charles Jehl explained that the recent ~$300 profit share per loan is a constrained figure due to performance issues, and they expect corrective actions to eventually return it to the historical ~$500 level. Buss also noted that tariffs would likely benefit the back book by increasing collateral values but could require pricing adjustments on new loans to account for affordability challenges.

Speaking on behalf of John Davis, an analyst asked for an update on the profit share revision, questioning if the peak claim period for the 2021-2022 vintages is still expected to pass soon. They also inquired about the composition of the record 21 new client signings, specifically regarding credit unions versus banks and their asset size.

Answer

CEO Charles Jehl acknowledged that the 2021-2022 vintages are the worst-performing in recent history and that claims are lingering longer than the typical 18-24 month peak. However, he noted they are beginning to see delinquencies trend down. Regarding new clients, Jehl stated that all 21 signed in the quarter were credit unions, with 10 or 11 of them being institutions with over $1 billion in assets, attributing the success to strategic changes in the go-to-market team.

John Davis asked for clarification on the full-year guidance, questioning why it wasn't raised more significantly after a strong Q2 and noting the implied lower incremental margins in the second half of the year.

Answer

CFO Cosmin Pitigoi explained that the guidance considers a pull-forward of some Australia education revenue into Q2, offset by cautiousness around U.S. education weakness. He confirmed that assumptions for other verticals like B2B, healthcare, and travel have not materially changed. Regarding margins, Pitigoi attributed the second-half moderation to the timing of investments and a continued disciplined approach to OpEx, especially heading into the peak Q3.

John Davis asked for clarity on the drivers behind the Q2 revenue guidance slowdown and the implied reacceleration in the second half of the year, and also questioned if macro uncertainty around international students was impacting university sales cycles.

Answer

CFO Cosmin Pitigoi explained that the second-half reacceleration is driven by the lapping of Canada's headwinds, easier Q4 comps, and the ramp-up of new healthcare and SFS clients. He also stated that client acquisition remains strong as universities seek Flywire's technology to improve efficiency, and noted that demand for international education remains resilient as a long-term goal for families.

John Davis asked for clarification on Flywire's long-term growth algorithm, reconciling the 'Rule of 40' commitment with the goal to double revenue in several years. He also inquired about capital allocation priorities between M&A and share buybacks.

Answer

CEO Michael Massaro highlighted that the company's current ~26% growth includes a significant headwind from Canada, implying stronger underlying performance. CFO Cosmin Pitigoi affirmed the Rule of 40 commitment, with expected annual EBITDA margin expansion of 300-600 bps. Regarding capital allocation, Massaro noted the significant Q3 investment in the Invoiced acquisition and buybacks, stating the company is positioned to continue pursuing organic growth, strategic M&A, and opportunistic share repurchases.

John Davis asked for an explanation of the year-to-date decline in gross margins and the outlook for free cash flow conversion in 2026, considering the integration of Global Blue.

Answer

CFO Nancy Disman advised that Q2 gross margin trends are a good proxy for the rest of the year and noted that purchase price amortization from Global Blue will be a factor. For 2026 free cash flow, she cautioned that Global Blue has significant seasonality and deferred providing specific guidance, pointing to higher cash interest and taxes as known future impacts.

John Davis of Raymond James Financial sought clarification on the CEO's comment about becoming a 'multibillion dollar revenue' company and its implications for the medium-term growth outlook. He also asked about the strong year-to-date free cash flow.

Answer

CEO Dushyant Sharma clarified that the 'multibillion dollar' remark reflects a long-term vision based on market trends like agentic AI, not a change to the company's established 20%+ revenue growth CAGR model. Regarding free cash flow, Sharma provided a framework for forecasting it (Adjusted EBITDA less taxes, capex, plus interest income) but noted that working capital remains a significant variable, making precise prediction difficult.

John Davis questioned the drivers behind the record Q1 free cash flow and sought guidance on modeling it for the rest of 2025. He also asked about the implied narrowing of the growth spread between gross revenue and contribution profit in the second-half guidance.

Answer

Sanjay Kalra (Executive) attributed the strong free cash flow to high adjusted EBITDA and favorable working capital changes, including a reduction in DSO. He advised looking at cash flow on an annual basis rather than extrapolating from a single quarter. He also confirmed that the gross revenue guide is more conservative than the contribution profit guide due to the unpredictable outperformance of new, lower-margin large enterprise clients. Dushyant Sharma (Executive) added that bringing more interchange dollars onto the P&L is a long-term strategy.

John Davis from Raymond James Financial, Inc. inquired about the drivers behind the recent success with large enterprise billers, which verticals are seeing the most traction, and the company's M&A strategy.

Answer

Founder and CEO Dushyant Sharma attributed the enterprise success to clients' growing need for sophisticated workflow automation that they cannot build in-house, combined with the unique reach of Paymentus's platform and IPN ecosystem. He confirmed this success is broad-based across all verticals. Regarding M&A, Sharma stated that with a strong balance sheet and no functional gaps, the company can be highly selective and opportunistic, focusing on potential deals that are accretive to the top or bottom line.

John Davis asked for a breakdown of the drivers behind the 2024 revenue growth acceleration and inquired about the company's long-term adjusted EBITDA margin potential, given the significant expansion seen this year.

Answer

CEO Dushyant Sharma attributed the growth to accelerated market share capture and earlier-than-expected large client implementations. CFO Sanjay Kalra advised using the initial 2024 growth guidance as a baseline for 2025 modeling. Regarding margins, Kalra highlighted the focus on profitable growth and economies of scale but cautioned against modeling the current high performance indefinitely, while Sharma reiterated the goal of building a 'perpetual growth engine' that requires ongoing investment.

John Davis from Raymond James Financial sought confirmation that the Cynquia business growth rate is back to desired levels. He also asked why the full-year guidance was raised by more than the Q2 beat and questioned the company's M&A capacity and focus, particularly regarding the potential for larger deals.

Answer

President & CEO Mac Schuessler confirmed that Cynquia's performance exceeded expectations for the quarter and is back on its desired growth trajectory. EVP & CFO Joaquin Castrillo-Salgado noted the guidance raise reflects continued strength in LatAm and a slight FX improvement. On M&A, Mr. Schuessler stated that while a large transformational deal is not the focus, the company has a strong balance sheet and an active pipeline for deals similar in size to past acquisitions.

John Davis asked for a deeper explanation of the 510 basis point year-over-year margin expansion in the Merchant Acquiring segment and its expected trend. He also sought clarity on the timing of a key client's attrition and an update on the impact of hurricane relief funds in Puerto Rico.

Answer

Chief Financial Officer Joaquin Castrillo attributed the margin growth to lapped pricing actions, a favorable mix of card-not-present transactions, and lower interchange costs. He cautioned that margins are not expected to expand further. He clarified the client attrition would impact about two-thirds of Q2 and confirmed that Puerto Rico relief funds are flowing through and are reflected in the resiliency of the local payments business.

John Davis asked for a breakdown of the Merchant segment's strong growth, specifically the contribution from pricing versus other factors, to help calibrate models for 2025. He also followed up on capital allocation, asking about the M&A pipeline in Latin America and whether the recent pace of acquisitions would continue.

Answer

CFO Joaquin Castrillo confirmed the Merchant segment's growth was entirely organic and explained that while Q4 was skewed toward pricing, the full-year contribution was more evenly split between pricing, volume, and non-transactional fees. CEO Mac Schuessler addressed M&A, stating that while the large Sinqia deal required significant focus, the company maintains a good pipeline and will continue to pursue smart, growth-oriented deals, likely similar in size to the recent tuck-in acquisitions.

John Davis of Raymond James & Associates asked for a breakdown of the Merchant Acquiring segment's strong growth, specifically the contribution from pricing versus volume, to help calibrate 2025 models. He also inquired about capital allocation, the M&A pipeline in Latin America, and if the recent pace of acquisitions would continue.

Answer

CFO Joaquin Castrillo clarified that Q4 growth was skewed towards pricing, but for the full year, growth was driven roughly equally by pricing, volume, and non-transactional fees. He expects this to normalize in 2025 as pricing initiatives are anniversaried. CEO Mac Schuessler stated that while the Sinqia integration was a major focus, the company maintains a good M&A pipeline and will continue to pursue smart, diversifying tuck-in acquisitions.

The analyst asked for clarification on the revised revenue guidance, questioning if the change was solely due to FX headwinds offset by the Grandata acquisition. He also asked for more details on the newly mentioned client churn in Latin America and inquired about the company's capital allocation strategy, particularly regarding the remaining share buyback authorization.

Answer

Executives confirmed the guidance change is almost entirely due to FX headwinds, with the Grandata contribution being very small. The new client churn in LatAm was described as anomalous (e.g., a customer taken over by regulators) and not a persistent trend. On capital allocation, the company will continue to be opportunistic with buybacks, as they were in the quarter, balancing them with M&A while maintaining a strong balance sheet, but will not commit to a specific buyback schedule.

John Davis asked for clarification on the guided Q2 deceleration in the Capital Markets segment and requested details on the pro forma Banking segment after the TSYS acquisition.

Answer

CEO Stephanie Ferris explained the Capital Markets guide reflects a tough comparison, as Q1 benefited from a large, non-recurring renewal timing benefit that will not repeat in Q2. For the pro forma Banking segment, CFO James Kehoe noted the Issuer Solutions business adds $2.5 billion in revenue, increasing the segment's scale by approximately 35%. He highlighted its durable nature, with 80% recurring revenue and an average client tenure of 25 years, which enhances cross-sell opportunities.

John Davis questioned why the 2025 share buyback wasn't larger given the 2024 M&A underspend, and asked about the risk of implementation slippage for the deals expected to drive the back-half banking acceleration.

Answer

CFO James Kehoe clarified that the $1.2 billion buyback for 2025 represents a $400 million increase from the initial plan, effectively returning the M&A underspend from 2024. CEO Stephanie Ferris expressed high confidence in the revenue acceleration, stating it's a 'Q2 story' driven by a large pipeline of signed deals from record 2024 wins, providing strong visibility.

John Davis inquired about the CapEx outlook, asking if the elevated 9% level is temporary, and questioned if upcoming international tax changes like Pillar 2 would impact FIS's tax rate guidance.

Answer

CFO James Kehoe clarified that the 9% CapEx level is a temporary pressure expected to last 12-18 months, driven by supplier price hikes and strategic investments, with the long-term target remaining 7-8%. He emphasized that capital returns are not at risk. On taxes, Kehoe stated there is 'absolutely no risk' to the company's 12-13% guided tax rate for the next few years based on current legislation.

John Davis asked about the long-term margin outlook following a guided decline in 2025 and sought details on growth expectations for the non-travel portion of the Corporate Payments segment.

Answer

CFO Jagtar Narula explained that after the 2025 investment year, margins are expected to accrete upward over time. CEO Melissa Smith added that the strategy for non-travel corporate payments is to grow the direct business, which carries a higher rate and will become a more meaningful contributor to growth over time.

Asked if the strategic non-replacement of lower-performing game cabinets was a one-time event and inquired about the outlook for Fintech cash-to-floor volumes and yields for the rest of the year.

Answer

The company clarified that optimizing the installed base is an ongoing process, but the significant Q1 impact was concentrated on two customers and not a widespread trend. For Fintech, after a soft January, volumes recovered and showed strong growth in April and early May, with expectations for continued low-to-mid-single-digit growth for the year.

Sought more detail on the 2024 CapEx outlook, the reasons for the 2023 EBITDA guidance reduction (macro vs. micro), and confirmation of the expectation for EBITDA growth in 2024.

Answer

2024 CapEx is expected to be flat year-over-year, as savings from 2023's one-time projects will be reinvested into new customer equipment. The 2023 guidance reduction is attributed more to the company's internal product transition than to macro headwinds. The company confirmed it expects to achieve EBITDA growth in 2024.