i3 Verticals - Earnings Call - Q4 2025

Executive Summary

• Q4 FY2025 revenue grew 7% year-over-year to $54.9M and 6% sequentially, with 75% recurring revenue; adjusted diluted EPS from continuing operations was $0.27 while GAAP diluted EPS was $0.04.
• Revenue and adjusted EPS exceeded Wall Street consensus: revenue $54.9M vs $53.7M*, and adjusted EPS $0.27 vs $0.242*; management cited SaaS strength (+25% YoY) and mix shifts toward recurring as key drivers.
• Adjusted EBITDA was $14.4M (26.2% margin), down ~230 bps YoY on lower high-margin license sales and higher professional services; ARR grew 9% to $165.3M, outpacing revenue.
• FY2026 outlook introduced: revenue $217–$232M, adjusted EBITDA $58.5–$65.0M, adjusted EPS $1.06–$1.16; recurring revenue growth expected at 8–10% while non-recurring professional services decline near-term, particularly in Q1.
• Strategic catalysts: statewide West Virginia CourtOne™ case management win (estimated eight-figure revenue over six years) and continued investments in JusticeTech and Utilities expected to support durable recurring revenue growth.

What Went Well and What Went Wrong

• What Went Well
  • Recurring revenue strength: 75% of Q4 revenue was recurring; SaaS grew 25% YoY; payments +11% YoY; ARR +9% YoY to $165.3M.
  • Strategic win: expanded West Virginia Supreme Court partnership to deliver CourtOne statewide; management: “We look forward to a long partnership…with our court management solution”.
  • Balance sheet optionality: cash ~$67M and no debt, with $400M revolver availability, enabling M&A and opportunistic buybacks.
• What Went Wrong
  • Margin compression: adjusted EBITDA margin 26.2% vs 28.5% prior year on mix (lower software licenses, higher professional services).
  • Maintenance revenue declined ~8% YoY amid shift to SaaS; non-recurring license sales fell $1.9M YoY, pressuring gross profit mix.
  • Professional services cadence lighter in FY2026, with Q1 particularly soft; Manitoba project delays and U.S.–Canada trade friction impacted 2H FY2025 guidance earlier in the year.

Transcript

Speaker 1

Welcome to the i3 Verticals Q4 2025 earnings conference call. Today's call is being recorded, and a replay will be available starting today through November 25. The number for the replay is 855-669-9658, and the code is 8288708. The replay may also be accessed for 30 days at the company's website. At this time, for opening remarks, I would like to turn the call over to Clay Whitson, Chief Strategy Officer. Please go ahead, sir.

Speaker 3

Good morning and welcome to the Q4 2025 conference call for i3 Verticals. Joining me on this call are Greg Daily, our Chairman and CEO; Rick Stanford, our President; Geoff Smith, our Chief Financial Officer; and Paul Christians, our Chief Revenue Officer. To the extent any non-GAAP financial measure is discussed in today's call, you will also find a reconciliation to the most directly comparable GAAP financial measure by reviewing yesterday's earnings release. It is the company's intent to provide non-GAAP financial information to enhance understanding of its consolidated GAAP financial information. This non-GAAP financial information should be considered by each individual in addition to, but not instead of, the GAAP financial statements. This conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements, among others, regarding the company's expected financial and operating performance.

For this purpose, any statements made during this call that are not statements of historical fact may be deemed to be forward-looking statements. You are hereby cautioned that these forward-looking statements may be affected by the important factors, among others, set forth in the company's earnings release and in reports that are filed or furnished to the SEC. Consequently, actual operations and results may differ materially from those discussed in the forward-looking statements. Finally, the information shared on this call is valid as of today's date, and the company undertakes no obligation to update it except as may be required under applicable law. I will now turn the call over to the company's Chairman and CEO, Greg Daily.

Speaker 6

Thanks, Clay, and good morning to all of you on the call. At the end of 2025, it's worth reflecting on how much we've accomplished over the last two years. Divesting our merchant services and our healthcare revenue cycle management businesses has turned a new chapter in i3 Verticals' public sector. i3 provides transformational solutions in a range of government functions, including courts, public safety, public administration, utilities, transportation, and schools. We have streamlined our businesses and narrowed our investment to that end, and the returns are only beginning to accrue. In 2025, results show that our revenue growth was strong. In fiscal Q4, we grew 7% over a prior year tough comp. For the fiscal year, we grew at 11%, and 8% of that growth was organic. Our ability to grow our recurring revenue is the best predictor of our long-term growth prospects.

To highlight that point, our ARR grew over 9% in Q4, outpacing revenue. Geoff will discuss further, but we expect similar growth rates in ARR in 2026. While our non-revenue will likely take a step backwards, last quarter we highlighted the importance of investing in new products and markets. We are excited that projects are underway in all of our markets, but our justice and utility investments continue to represent an outside portion of our investment, and we expect these to accelerate in 2026. We have conviction about our revenue opportunities attached to these costs. Many of the impacts will be manifest in the form of durable recurring revenue growth over the long term. We previously announced a win in the state of West Virginia is a perfect example. We look forward to a long partnership serving courts and citizens of West Virginia with our court management solution.

Those who know our M&A history are probably surprised we have $85 million in cash on hand with no debt. We will continue to thoughtfully deploy our capital in ways that enhance our ability to bring great solutions to our customers. This includes internal development and M&A. I will now turn the call over to Geoff, and he will provide you more details on our financial performance. When Rick is done, and then when he's finished, Rick will address the M&A pipeline, and Paul will then discuss revenue.

Speaker 1

Thanks, Greg. The following pertains to the Q4 of our fiscal year 2025, which is the quarter ended September 30, 2025. Please refer to the slide presentation titled Supplemental Information on our website for reference with this discussion. As a recap, we sold our healthcare RCM business in May 2025. That sale followed the sale of our merchant services business in September 2024. We are now a pure-play software solutions provider for the public sector operating in a single segment. For financial reporting purposes, when you look at our earnings release or later our 10-K, continuing operations and Remainco, refer to our results exclusive of the merchant services and healthcare RCM businesses.

Revenues for the Q4 of fiscal 2025 increased 7% to $54.9 million from $51.3 million for Q4 2024, reflecting organic growth of 4.5% and $1.3 million of inorganic revenues from a permitting and license acquisition in August 2024 and utility billing acquisition in April 2025. Organic revenue growth for the year was 8.4%. Recurring revenues increased 9% to $41.3 million for Q4 2025 compared to $37.8 million for Q4 2024. 75% of our revenues in the quarter came from recurring sources. SaaS revenues grew a healthy 25%, more than offsetting an 8% decline in maintenance. Transactional-based revenues and recurring software services grew 10%, while payments revenue grew 11%. Non-recurring sales of software licenses declined $1.9 million, reflecting the ongoing shift to SaaS. Professional services revenue increased $1.8 million, partially offsetting the decline in software and license sales.

Software and related services represented 70% of total revenues for Q4, with payments 25% and other 5%. At this time last year, we introduced a new metric, net dollar retention, which we will disclose annually. It applies to all recurring revenue line items, but last year excluded payments. This year, we've included the payments revenue in this metric, and the net dollar retention for fiscal 2025 was 104%. Adjusted EBITDA declined slightly to $14.4 million for Q4 2025 from $14.6 million for Q4 2024, principally reflecting a decrease in non-recurring sales of software licenses to high margin and an increase in lower margin professional services. Adjusted EBITDA as a percentage of revenues was 26.2% for Q4 2025, which is 28.5% for Q4 2024. It improved for the year to 27% for fiscal 2025 from 26.4% for fiscal 2024.

The improvement was driven mainly by lower corporate expenses following the two divestitures. The 60 basis point improvement for the year was on the lower end of our long-term expectations of 50-100 basis points improvement per year because of our previously mentioned investment in our justice products, and that will continue into 2026. Adjusted diluted earnings per share from continuing operations was $0.27 for Q4 2025 and $1.05 for the fiscal year. These numbers exclude discontinued operations. Again, please refer to the press release for a full description and reconciliation. Our balance sheet is strong and well-positioned for the future. As of September 30th, we had $67 million of cash and no debt. We still have $400 million of borrowing capacity under the revolving credit facility with a 5x leverage constraint. We intend to use the cash and any borrowings for acquisitions and opportunistic stock repurchases.

The following sets forth guidance for continuing operations for FY 2026. The outlook does not include acquisitions that have not yet closed or transaction-related costs. Revenues: $217 million-$232 million. Adjusted EBITDA: $58.5 million-$65 million. Depreciation and internally developed software amortization: $10.5 million-$12.5 million. Adjusted diluted earnings per share: $1.06-$1.16. Currently, we expect recurring revenues to grow at a rate similar to fiscal 2025 in the range of 8%-10%. However, we currently expect a decline in our non-recurring professional services driven by the cadence of revenue recognition on certain projects in our utilities and transportation markets. This will be particularly true in Q1. Despite the lower outlook for those markets in fiscal 2026, they are well-positioned to rebound in fiscal 2027 and beyond. Our long-term expectation for organic revenue growth remains high single-digit.

While we are now a single operating segment, we would like to provide some detail regarding the size and relative contributions to revenues by our core markets. Justice is our largest market, representing approximately 25% of revenues. Utilities, transportation, education, and public administration are all roughly equally weighted. From a seasonality standpoint, software license sales and professional services represent the most variable line items to forecast and can distort seasonality in a given quarter. We currently expect our revenue distribution to approximate the following: Q1, 23%; Q2, 25.5%; Q3, 24.5%; Q4, 27%. I'll now turn the call over to Rick for updates on the M&A pipeline.

Speaker 0

Thank you, Geoff. Good morning, everyone. I'll briefly address M&A, and then I'll hand the call off to Paul. This past quarter has presented various opportunities to assess potential acquisition targets. Our interest in some of these companies remains strong, and discussions are ongoing. Acquisition philosophy remains steady. We will pursue opportunities that align with our strategic goals while maintaining a disciplined approach to pricing. Additionally, each potential acquisition must fit well within our operational framework, ensuring compatibility. We remain optimistic as our acquisition pipeline is constantly churning and continually filled with promising opportunities. Our primary focus remains on strengthening our public sector vertical, where we see significant potential for growth and innovation. I'll now turn the call over to Paul for final comments.

Speaker 2

Thank you, Rick. i3 Verticals is structured into five primary markets: justice tech, transportation, public administration, education, and utilities. Because we intentionally structured our organization in a market-centric model to remain as close to the customer as possible, intramarket cross-selling naturally progressed into solution bundling. As solutions have evolved, some are applicable cross-market. Given that, leadership is actively identifying synergistic opportunities across markets, further accelerating revenue and deepening customer engagements. Governments are prioritizing the modernization of legacy systems to enhance user experience and improve transparency for constituents. The combination of modernization needs and scope expansion creates a unique market opportunity for i3 Verticals to address the gap by providing solutions that include ancillary modules such as payments and other revenue-cycle activities that may reduce costs of systems modernizations. Additionally, i3 is positioned to address the needs of all sides of the state and local government agencies.

Our solution's architecture and service delivery model allows us to scale from a single agency to an entire state system, broadening our addressable market. Recently, i3 Verticals announced the expansion of our partnership with the West Virginia Supreme Court to deliver the i3 Court One case management solution to the state's circuit, family, and magistrate courts. With the new contract, i3 provides ancillary value-added services designed to maximize efficiency and offset project costs for West Virginia's unified judicial system. An expanded platform will empower citizens to gain greater access to aggregated public court data, while the revenue-cycle management module will streamline financial processes and improve court case disposition rates. We are experiencing a heightened awareness and demand for technology-forward platform solutions across the public sector. Platform offerings support decision-makers' ability to manage results versus managing assembly of multiple systems, vendors, and ongoing maintenance.

Recent evidence of market platform orientation includes a higher number of RFPs, an increase in the scope of the solutions covered, unified data structure for analytics, and ongoing systems evolution and maintenance requirements. The shift from traditional licensing and capital expenditure models to SaaS introduces a new budgeting paradigm for government clients. One of our differentiators is that i3 is organized both in solution bundling and delivery structure to scale implementation from a single agency to statewide deployment. To address evolving platform market trends, we bundle ancillary services to reduce upfront costs and deliver integrated modular solutions that deliver modernization with extended scope and enable rapid rollout of additional modules. As referenced earlier, we're observing increased RFP activity alongside continued pipeline growth. This momentum, in part, reflects increased recognition of i3 as a trusted platform provider and the enhanced market visibility achieved through our brand unification over the past year.

This concludes my comments, Drew. At this time, we will open the call for Q&A, please.

Speaker 5

We will now begin the question-and-answer session. To ask a question, you may press star then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. Again, it is star then one to ask a question. At this time, we will pause momentarily to assemble our roster. The first question comes from John Davis with Raymond James. Please go ahead.

Speaker 4

Good morning, guys. Geoff, just wanted to dive into the 2026 organic growth outlook. Our math is about 5%. I heard 8%-10% recurring and professional services down. Is that a function of you're no longer selling those professional services, or maybe you're not putting things like Manitoba in the guide because they're lumpy and you don't know if they can, if they're going to hit or when they're going to hit? Just trying to get a sense for the level of conservatism and also how much you expect professional services to be down on a year-over-year basis.

Speaker 1

Yeah. Thanks for the question, JD. It is absolutely true that we are leaning into recurring revenue any chance we get. When it comes to negotiations like the West Virginia deal we just did, or any opportunity where we can push and lean on the SaaS and defer or opt for the recurring sources instead of the professional services implementation sources in contract negotiations, we are absolutely doing that at each turn. That being said, the professional services, we do not expect that to go away. We do not think that what we have a clear line of sight on in 2026 is reflective of any kind of long-term trend necessarily. There are a number of things: the West Virginia deal, utilities pipeline. They look really strong on the professional services and implementation front further out.

It's just true that for 2026, we think that the cadence and timing of some of those things is going to be a little bit lighter. We expect to see that line drop off a little bit here. It was strong in Q4. Some of that was a little bit of pull forward, but most of it is kind of things that we just think that the actual performance obligation fulfillment, the cadence of when we get to rubric on these is further back, end of 2026 or slipping into 2027.

Speaker 4

Okay. Thanks. I just wanted to drill down a little bit on that dollar retention. I think you called out 104% for the year. How much of that was price, and how should we think about kind of the pricing tailwind going forward?

Speaker 1

We've addressed this a little bit with the market, but just to kind of recap some of these things, the company has been extremely conservative on price increases historically. I'm going to say that we are—this isn't like a pendulum swing to the opposite end of the spectrum at all, but we're much more bought in and have been working through the contracts and the expectations to make sure we kind of get to more of a 3%-5% price increase range on a consistent basis with our customers. We've kind of guided that you might expect if price increases were historically contributing 1% plus, that that would maybe inch up by about a percent a year for the next several years. The 2025 contribution from price increase, you're still in that vicinity of that 1%-2% kind of range.

Looking ahead, we're probably getting closer to 1.5%-3% range for 2026 in our expectations. So modest incremental increases there. We don't think we're at our final destination in terms of the contribution from price increases.

Speaker 4

Okay. Jeff, one more, and I got one bigger picture for Greg. Just on the margin front, what was the justice tech investment in the quarter? Was it bigger than you thought it was going to be, in line? Just remind us what you're expecting for incremental investments in justice tech in 2026.

Speaker 1

Yeah. To recap, that primarily consists of its bodies, to put it simply, bodies to accelerate the development of our core package, bodies to accelerate the implementation of our core package. It's all things that we think we're going to get a great return on. West Virginia is just one of kind of the sources where that's going to kind of come from. We're really excited about that deal. The cost is, I'd say it's relatively in line with where we thought it was going to be for Q4, but these are people who are going to be with us for the foreseeable future here. And that's kind of that elevated cost is going to continue into this next fiscal year here.

Speaker 4

Okay. And then, Greg, $85 million cash balance on the balance sheet here. How do we think about buyback versus M&A? And just remind us how much you have on the buyback. It looks like this year is going to be a little bit of a transition year, at least on the revenue front. Just how are you thinking about that M&A versus buyback here? Remind us how much you guys have authorized left.

Speaker 1

Regarding buybacks, I don't know that Greg hit M&A, but the buybacks, we just refreshed the approval to $50 million. Not a lot of activity in this current period. We'll see, obviously, the detail in our 10K. That's something that the emphasis is on being opportunistic. We'll do it when we think we get a good return, and we're not going to chase it when we don't think that we're a given.

Speaker 6

On the M&A, we've worked in our pipeline for 13 years, and I think you'll see some activity sooner than later. We've done a couple of small ones that we really don't talk a lot about. I think we'll still do those, but I think there'll be a couple of meaningful ones that we could have done in 2026.

Speaker 4

Greg, when you say meaningful, more tuck-in but deals that are big enough that you're going to announce them versus maybe some that are just immaterial and not even worth kind of press releasing or talking about?

Speaker 6

Exactly.

Speaker 4

Nothing transformative?

Speaker 6

Yeah. Nothing transformative, but they're larger. We say our sweet spot is $2 million-$5 million of EBITDA, and we pay 10 times. We could get a little bit above that, but nothing dramatically.

Speaker 4

Okay. Appreciate it. Thanks, guys.

Speaker 5

Again, if you have a question, please press star then one. This concludes our question-and-answer session. I would like to turn the conference back over to Greg Daily for any closing remarks.

Speaker 6

Thank you. We do appreciate your interest. We're here if you need to talk, discuss. We do appreciate your support. Thank you. Have a good day.

Speaker 5

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.