i3 Verticals (IIIV)·Q1 2026 Earnings Summary
i3 Verticals Falls 4% Despite Guidance Raise as Margins Compress
February 5, 2026 · by Fintool AI Agent
i3 Verticals (NASDAQ: IIIV) reported fiscal Q1 2026 results today with revenue of $52.7 million (+0.9% YoY) and adjusted EPS of $0.26, both in-line with guidance. The company raised full-year FY2026 guidance following a $60 million acquisition of a motor vehicle insurance verification software company. Despite the guidance raise, shares fell 3.9% to $19.92—hitting a new 52-week low—as investors focused on margin compression and a 22% decline in operating income.
Did i3 Verticals Beat Earnings?
Management characterized Q1 results as "in line with expectations and market guidance." The quarter showed mixed signals:
The key concern: Adjusted EBITDA margin compressed to 25.8% from 27.9% in the prior year, a 210 basis point decline. Other costs of services increased 13% YoY while revenue grew only 1%, indicating cost pressures are outpacing revenue growth.
Ask Fintool AI AgentWhat Did Management Guide?
i3 Verticals raised FY2026 guidance across all metrics, primarily driven by the January 1, 2026 acquisition:
Street consensus for FY2026: Revenue ~$215.6M, EBITDA ~$58.5M, EPS ~$1.05.* The revised midpoints of $228.5M revenue and $63.75M EBITDA sit comfortably above consensus.
The guidance raise is almost entirely attributable to the motor vehicle insurance verification software acquisition—the company's practice is to exclude future acquisitions from initial guidance.
What Changed This Quarter?
1. Strategic Acquisition ($60M + $20M Earnout)
Effective January 1, 2026, i3 Verticals acquired a driver and motor vehicle insurance verification software company for $60 million in cash, plus up to $20 million in performance-based earnouts.
Acquisition Terms & Profile:
- Valuation: ~15x EBITDA—above the typical 7x-10x sweet spot
- Growth: Organically growing north of 20%
- Margins: EBITDA margin above 50%
- Retention: Has never lost a customer
- Revenue model: Primarily SaaS (not transactional)
CFO Geoff Smith described it as "a unicorn" given the combination of high growth, exceptional margins, and perfect strategic fit.
CEO Greg Daily highlighted:
"Our best deals tend to be the ones we source ourselves, and this is the latest example. It is a perfect fit within our transportation market... Helping states early detect uninsured motorists is only possible because of thoughtful, well-executed software business solutions like this."
The product features real-time verification, continuous insurance lapse updates, direct connections with insurance carriers, and integration with every possible motor vehicle system in use by states today.
2. ARR Growth Remains Strong (+8.4%)
Annualized Recurring Revenue reached $169.6 million, up from $156.4 million in the prior year—an 8.4% growth rate that exceeds total revenue growth. This marks four consecutive quarters of 20%+ SaaS growth.
Updated SaaS Outlook: Management expects SaaS growth to remain north of 20% organically, and north of 30% including the acquisition, for the remainder of FY2026. The acquisition is primarily monetized through SaaS with opportunities to add other revenue streams.
3. New $60M Share Repurchase Program
The Board approved a new $60 million buyback program, replacing the exhausted prior authorization. This signals confidence in the stock at current levels ($19.92) and provides downside support.
4. Product & Market Updates
- CourtOne rollout: Uptick in opportunities at state and local levels, especially around case management and jury solutions
- i3 Marketplace: Education portal with unified access, SSO, and MFA for students, parents, and administrators
- AI enhancements: Delivered AI support upgrade to Georgia justice tech footprint, with plans to expand across U.S. throughout 2026
- Transportation expansion: Now live in 30 states and 4 Canadian provinces with motor carrier/vehicle software
5. Margin Pressure Persists
Despite revenue stability, profitability metrics declined:
- GAAP Net Income: $0.9M vs $3.1M (-70% YoY)
- Operating Income: $1.6M vs $2.1M (-22% YoY)
- Adjusted EBITDA Margin: 25.8% vs 27.9% (-210 bps)
Management attributed the margin decline to investments in justice and utility markets, higher hosting costs, and lower professional services revenue with associated costs lagging. Long-term expectation remains 50-100 bps margin improvement per year.
How Did the Stock React?
IIIV shares fell 3.9% to $19.92 following the report, hitting a fresh 52-week low. The stock is now:
- Down 41% from the 52-week high of $33.97
- Down 19% from the 50-day moving average of $24.74
- Down 28% from the 200-day moving average of $27.69
Context: The stock has reacted negatively to 5 of the last 7 earnings reports, with the largest decline being -8% after Q3 FY2025 results.
Ask Fintool AI AgentKey Performance Indicators
Cash declined from $66.7M to $37.5M as the company utilized capital for the $60M acquisition (closed Jan 1, 2026) and share repurchases.
Capital Allocation
i3 Verticals is deploying capital across three priorities:
- M&A ($60M acquisition + potential $20M earnout)
- Buybacks (new $60M authorization, prior program exhausted)
- Organic Investment (investments in courts and utilities solutions)
The company exited the quarter with $37.5M cash and no debt, providing financial flexibility.
Risks and Concerns
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Margin Compression: Adjusted EBITDA margin has fallen from 28% to 26% over the past year, with operating costs growing faster than revenue.
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Professional Services Decline: Management lowered professional services outlook from $33M to $31M for FY2026. Combined with the strategic shift away from non-recurring revenue, this contributes to headline revenue appearing flat despite strong recurring growth.
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Acquisition Integration Risk: The $60M+ acquisition represents a significant deployment. Management noted the target "has never lost a customer," but integration into the transportation vertical will be critical.
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Stock at 52-Week Low: Shares trading at multi-year lows despite raised guidance suggests the market is skeptical of the growth trajectory.
Forward Catalysts
FY2026 Revenue Seasonality: Management expects revenue distribution of Q1 23%, Q2 25%, Q3 25%, Q4 27%—implying back-half weighted results.
Ask Fintool AI AgentWhat Did Analysts Ask About?
Key themes from the Q&A session:
1. Professional Services Headwinds (Raymond James) Madison Schardt noted organic growth appeared to tick down modestly. CFO confirmed professional services outlook was lowered from $33M to $31M for FY2026—a $2M reduction driven by revenue recognition timing on utilities and transportation projects.
2. Acquisition Valuation (KeyBanc) Alex Markgraff questioned the 15x EBITDA multiple being above the 7x-10x "sweet spot." Management defended the premium given the target's >20% growth and >50% EBITDA margin: "It's a unicorn. We feel lucky to have it." They confirmed the current pipeline is "back in our sweet spot" at lower multiples.
3. AI Disruption in GovTech (Stephens) Charles Nabhan asked about AI disruption potential. President Rick Stanford provided a measured view:
"State, local, and municipal agencies will need to create frameworks of processes, functions, structures, laws before creating engineering and security protocols. Initially, policies are going to be rigorous and hyper-controlled for the fear of AI itself... It's going to be a good bit of time away from this concept of proliferation of AI within GovTech being a real working asset."
Management noted they're using AI to accelerate product development internally, while customer adoption will proceed at a slower pace due to regulatory requirements.
4. Market Expansion Opportunity (D.A. Davidson) Peter Heckman asked about the acquisition target's market share. Management emphasized strong growth prospects and noted the company retains its very first customer. i3 now has some portion of its Transportation Platform live in 30 states and 4 Canadian provinces.
The Bottom Line
i3 Verticals delivered an in-line quarter with modest headline beats but clear margin headwinds. The 210 basis point EBITDA margin compression overshadowed:
- Strong recurring revenue growth (+8%)
- Accelerating SaaS momentum (+24%)
- A strategic acquisition expanding the transportation vertical
- Raised FY2026 guidance across all metrics
The market's 4% selloff reflects concerns that margin pressure will persist even as the company reinvests in its government software platform. With shares at 52-week lows and a new $60M buyback in place, the risk/reward may be improving for patient investors willing to bet on the recurring revenue transition.
*Values retrieved from S&P Global.
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