IIIV Q3 2024: Permitting Acquisition to Fuel Double-Digit FY25 Growth
- Acquisition-Driven Growth: The company’s newly announced permitting and licensing acquisition is expected to deliver double-digit growth in fiscal '25, adding significant revenue and EBITDA momentum.
- Reversal of Temporary Headwinds: Management highlighted that current revenue headwinds are temporary (e.g., issues tied to the SaaS transition) and anticipated to reverse, paving the way for high single-digit organic growth and improved margins.
- Robust Cross-Sell Opportunities: The firm's deep vertical market expertise supports profound cross-sell potential across its integrated software offerings, which can drive additional recurring revenue.
- Revenue Headwinds: The company faces approximately $12 million of revenue headwinds in fiscal '24—from Manitoba ($3M), SaaS transition ($5M), and Education ($4M)—which may pressure organic growth and margin performance.
- Uncertain Revenue Recognition from Delayed Projects: The Manitoba project, expected to contribute roughly $7 million in revenue over two fiscal years with only partial visibility, introduces uncertainty for near-term financial performance.
- Execution Challenges amid Internal Transitions: The distractions from executing the pending Merchant Services sale and internal realignment could impede the smooth transition to a pure-play software focus, potentially delaying growth improvements.
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EBITDA Headwinds
Q: What are the EBITDA headwinds this year?
A: Management explained that Manitoba ($3M), the SaaS transition ($5M), and Education ($4M) combine for about a $12M headwind this year, which they do not expect to repeat next year. -
Organic Growth
Q: How will organic growth trend in FY25?
A: They expect organic revenue growth to return gradually, with historical strength in Q4 and improvements once the current headwinds reverse. -
Acquisition Growth
Q: What growth is expected from the acquisition?
A: The new permitting and licensing acquisition is projected to deliver double-digit growth in fiscal '25, building on its strong recent performance. -
Margin Outlook
Q: Will high-margin license sales boost margins?
A: Management noted that their license and software sales remain high-margin, supporting modest expansion in EBITDA margins even as revenue grows. -
M&A Pipeline
Q: Will valuation multiples change for new M&A deals?
A: They expect to remain in their normal multiple range while remaining flexible for targets with higher growth or SaaS characteristics. -
Integration Timelines
Q: What is the timeline for integrating acquisitions?
A: Integration is already underway with the Public Sector team coordinating well to enable smooth monetization of payments in the near term. -
Manitoba Project
Q: When will Manitoba revenue be recognized?
A: The Manitoba project, valued at around $7M, is anticipated to be recognized gradually—roughly half this fiscal year and half next—based on percent-complete milestones. -
Cross-Sell Potential
Q: What is the expected cross-sell contribution?
A: Management described the cross-sell opportunities as profound for expanding revenue, though specific quantitative contributions were not provided. -
Competitive Edge
Q: How does competitive positioning compare?
A: They stressed that their competitive strength lies in consistent execution, product delivery, and deep domain expertise, maintaining their edge in the market. -
American Rescue Funds
Q: Will American Rescue funds drive end-year spending?
A: Management indicated that the impact of American Rescue funds has largely been seen already, with no significant flush expected at year-end.
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