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i3 Verticals, Inc. (IIIV)·Q2 2025 Earnings Summary

Executive Summary

  • IIIV delivered Q2 2025 revenue of $63.1M (+8.8% YoY) and adjusted EBITDA of $17.1M (27.2% margin), with adjusted diluted EPS of $0.32; guidance was reset lower to reflect the Healthcare RCM divestiture and seasonality, while the core Public Sector business showed double-digit growth .
  • Versus Wall Street consensus, revenue modestly missed ($63.1M vs $64.1M*) while adjusted EPS beat ($0.32 vs $0.30*); adjusted EBITDA was broadly in line/slightly above ($17.1M vs $17.05M*) .
  • Strategic actions: sold Healthcare RCM business for $96M and acquired a utility billing software company for $9M; RemainCo guidance for FY25 was lowered to revenue $207–$217M and adjusted EBITDA $55–$61M from prior $243–$263M and $63–$71.5M .
  • Management highlighted a sharper Public Sector focus, accelerating SaaS momentum, and active tuck-in M&A pipeline; near-term catalysts include integration of the utility billing acquisition and progress on large public sector implementations despite Manitoba delays (-$2.5M FY25 revenue impact) .

What Went Well and What Went Wrong

What Went Well

  • Public Sector strength: RemainCo revenues grew 11.6% YoY to $54.1M, with SaaS +23% and adjusted EBITDA margin expansion (29.3%) driven by higher software sales .
  • Clean portfolio focus: Divested Healthcare RCM for $96M and reiterated intent to concentrate capital on Public Sector verticals; acquisition of utility billing platform enhances utilities presence and cross-sell potential .
  • Non-GAAP profitability: Adjusted EBITDA rose 12.7% YoY to $17.1M with margin up ~100 bps YoY to 27.2% on mix shift toward software and recurring revenue .

What Went Wrong

  • Guidance reset: FY25 RemainCo revenue cut to $207–$217M (from $243–$263M) and adjusted EBITDA to $55–$61M (from $63–$71.5M), reflecting the sale of Healthcare RCM and timing slippage (Manitoba) .
  • Revenue vs consensus: Q2 revenue missed consensus ($63.1M vs $64.1M*), impacted by seasonality and timing of one-time software license deals; management cautioned Q3 will be the seasonal low for revenue and margins .
  • Cash flow optics: YTD operating cash flow was negative due to $34.2M tax on the prior merchant sale, masking underlying conversion; management expects >2/3 EBITDA conversion in steady state given net interest income .

Financial Results

MetricQ4 2024Q1 2025Q2 2025
Revenue ($USD Millions)$60.9 $61.7 $63.1
GAAP Diluted EPS (Continuing Ops)$0.23 $0.09 $0.00
Adjusted Diluted EPS (Continuing Ops)$0.15 $0.31 $0.32
Adjusted EBITDA ($USD Millions)$16.2 $16.37 $17.14
Adjusted EBITDA Margin (%)26.7% 26.5% 27.2%
Estimates vs Actual (Q2 2025)Consensus*Actual
Revenue ($USD Millions)$64.12*$63.06
Primary EPS ($USD)$0.30*$0.32
EBITDA ($USD Millions)$17.05*$17.14
Segment Performance (Q2 2025)Revenue ($USD Millions)Adjusted EBITDA ($USD Millions)
Public Sector$52.405 $21.576
Healthcare$10.857 $1.722
Other (corporate/tech/shared)$(0.203) $(6.156)
Total$63.059 $17.142
KPIsQ4 2024Q1 2025Q2 2025
Recurring Revenue ($USD Millions)$47.04 $48.31 $49.76
ARR ($USD Millions)$188.16 $193.26 $199.05
Payments Revenue ($USD Millions)$12.23 $13.51 $14.14
Software & Related Services ($USD Millions)$45.64 $45.68 $46.22

Notes: Values with asterisks (*) are consensus estimates and actuals retrieved from S&P Global.

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue ($USD Millions)FY 2025 (RemainCo)$243–$263 $207–$217 Lowered
Adjusted EBITDA ($USD Millions)FY 2025 (RemainCo)$63–$71.5 $55–$61 Lowered
Depreciation & Internally Developed SW Amort. ($USD Millions)FY 2025$12–$14 $11–$12 Lowered
Cash Interest Expense, net ($USD Millions)FY 2025$1–$2 $0–$0.75 Lowered
Adjusted Diluted EPS (non-GAAP)FY 2025$1.05–$1.25 $0.96–$1.06 Lowered

Additional context: Q3/Q4 seasonality expected: Q3 ~48% and Q4 ~52% of 2H RemainCo revenue; ~$2.5M of FY25 revenue removed due to Manitoba sequencing and trade frictions with Canada .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2024 and Q1 2025)Current Period (Q2 2025)Trend
Portfolio focusTransition to streamlined VMS; reaffirm FY25 outlook RCM sold ($96M); pure-play Public Sector focus; tuck-in pipeline Sharpened focus
SaaS growthQ1 SaaS +16% YoY; payments +7% YoY Public Sector SaaS +23%; ARR up; 76% recurring Accelerating
AI initiativesLimited explicit prior mention in PRs AI service agent (transportation), AI indexing (ERP), generative bots across e-Portal/eIVR/CSR Expanding deployment
Macro/trade & implementationFY25 outlook reaffirmed; general macro cautions Removed ~$2.5M due to Manitoba delays and U.S.-Canada trade friction Headwind/Timing
M&A strategyDe-levered; ready for growth in 2025 Utility billing acquisition closed; focus on smaller tuck-ins Active tuck-ins
Free cash flowNot specifically quantified >2/3 EBITDA conversion expected in steady state; net interest income tailwind Improving post-tax effects

Management Commentary

  • CEO on strategy: “Looking ahead we will be completely focused on bringing the best possible enterprise software to our public sector clients… The divestiture of the RCM business primes us for additional M&A… a utility billing and accounting platform… will be a great fit with our existing utilities practices.”
  • CFO on RemainCo performance: “RemainCo revenues… increased 11.6%… Annual recurring revenues… increased 9.2%… Adjusted EBITDA… increased 17%… As of March 31, net debt stood at $4 million… we currently have a cash position of approximately $64 million.”
  • President on acquisition: Utility billing platform adds cloud/mobile capabilities, integrations (AMI/AMR), and payments/print & mail cross-sell; shifting to SaaS licensing and in-house payments to improve economics .
  • CRO on AI: Initial releases include AI service agent statewide, automated indexing in ERP, and generative AI bots with agent assist; aim to solve specific client pain points with applied AI .

Q&A Highlights

  • Remaining healthcare business: $()$8M annual revenue, margins similar to Public Sector; likely not a standalone segment post-resegmentation .
  • Free cash flow: Despite near-term tax impacts, steady-state FCF conversion expected to be well above 2/3 of EBITDA aided by net interest income .
  • Seasonality and margin cadence: Q3 revenue/margins to be seasonal low (mid-20s EBITDA margin), recovering in Q4 to high-20s .
  • Guidance inclusions: Utility billing acquisition included; expect high end of range for high-margin business .
  • M&A pipeline: Emphasis on smaller, targeted tuck-ins across Public Sector (utilities, education, justice/public safety); larger deals less likely .
  • Manitoba contract: ~$2.5M revenue removed from FY25 outlook due to sequencing and client prioritization; relationship remains constructive .

Estimates Context

  • Q2 2025 comparison: Revenue missed ($63.06M actual vs $64.12M consensus*), adjusted earnings beat (Primary EPS $0.32 actual vs $0.30 consensus*), and adjusted EBITDA was slightly above ($17.14M actual vs $17.05M consensus*) .
  • Near-term estimate revisions: Post-divestiture, FY25 RemainCo guidance was reduced across revenue and adjusted EBITDA/adjusted EPS, and management flagged Q3 seasonality and Manitoba delays—expect Street to adjust FY25/26 top-line and margin cadence to reflect mix and timing .

Notes: Values with asterisks (*) are consensus estimates and actuals retrieved from S&P Global.

Key Takeaways for Investors

  • The portfolio reset to a Public Sector pure play is strategically coherent; RemainCo shows solid organic growth (+9%) and margin expansion, supported by higher software mix and recurring revenue (76%) .
  • Guidance reset is conservative and reflects divestiture and timing headwinds; watch Q3 seasonal dip and Q4 rebound, plus traction from the utility billing acquisition .
  • Applied AI initiatives are moving from pilots to deployment—monitor AI-driven modules (transportation, ERP indexing) for incremental ARR and services efficiency .
  • Tuck-in M&A remains the growth lever; integration playbook (payments, SaaS conversion, cross-sell) should enhance acquired unit economics .
  • Cash position (~$64M post-transactions) and $400M revolver capacity provide ample dry powder; expect >2/3 EBITDA FCF conversion in steady state .
  • Near-term trading: Be sensitive to Q3 seasonal margin compression and Manitoba timing; medium-term thesis: recurring public sector software, accelerating SaaS, and disciplined M&A integration support improving growth/margin trajectory .