i3 Verticals, Inc. (IIIV) Q1 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call presents a mixed picture: strong SaaS revenue growth and a strategic acquisition are positive, but declining nonrecurring revenue and increased costs are concerns. The Q&A reveals uncertainties in organic growth and AI adoption. Despite some positive factors, like opportunistic buybacks and recurring revenue growth, the market may react cautiously due to high acquisition costs and lower EBITDA margins. These mixed signals suggest a neutral stock price movement in the short term.
Key Financial Performance
Revenue Revenue for Q1 2026 increased 1% to $52.7 million compared to $52.2 million in Q1 2025. The growth was driven by an 8% increase in recurring revenues, partially offset by a $3 million decline in nonrecurring professional services and software license revenues.
Recurring Revenue Annual recurring revenues increased 8% to $169.6 million for Q1 2026 compared to $156.4 million for Q1 2025. This was driven by SaaS revenue growth of 24%, transaction-based revenue growth of 12%, and payments revenue growth of 8%. Maintenance revenues declined 8% due to the emphasis on SaaS and new sales.
Adjusted EBITDA Adjusted EBITDA declined $1 million to $13.6 million for Q1 2026 from $14.6 million for Q1 2025. Adjusted EBITDA as a percentage of revenues was 25.8% for Q1 2026 versus 27.9% for Q1 2025. The decline was due to investments in justice and utility markets, higher hosting costs, and $2.6 million lower professional services revenues.
Adjusted Diluted Earnings Per Share Adjusted diluted earnings per share from continuing operations was $0.26 for Q1 2026. No year-over-year comparison was provided.
Cash and Debt As of December 31, 2025, the company had $37 million of cash and no debt.
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Operating Highlights
CourtOne offering: Rolled out new CourtOne offering, especially around case management systems and the CourtOne Jury Solution, aligning well with market demand.
i3 Marketplace: A portal providing unified access with SSO and MFA for education models, supporting students, parents, and administrators.
AI-enabled solutions: Delivered AI support upgrades to Georgia JusticeTech footprint, with plans to expand across the U.S. in 2026.
Transportation market expansion: Acquired a company specializing in insurance verification software, expanding geographic reach and positioning i3 as a vendor of choice in modernization initiatives.
JusticeTech opportunities: Increased demand at state and local levels, with new contracts like the West Virginia Supreme Court of Appeals and Arizona Department of Real Estate.
Recurring revenue growth: Recurring revenue grew 8% to $169.6 million, driven by SaaS revenue growth of 24%, transaction-based revenue growth of 12%, and payments revenue growth of 8%.
Adjusted EBITDA: Declined $1 million to $13.6 million due to investments in justice and utility markets, higher hosting costs, and lower professional services revenues.
Acquisition strategy: Acquired a transportation market company for $60 million, focusing on durable, high-growth software solutions with defensive market positioning.
AI and innovation focus: Leveraging AI to enhance product offerings and customer experience, with a focus on JusticeTech and education markets.
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Risk or Challenges
Decline in Nonrecurring Professional Services and Software License Revenues: Revenues from nonrecurring professional services and software licenses declined by $3 million, impacting overall revenue growth and adjusted EBITDA.
Adjusted EBITDA Decline: Adjusted EBITDA decreased by $1 million compared to the previous year, driven by investments in justice and utility markets, higher hosting costs, and lower professional services revenues.
Maintenance Revenue Decline: Maintenance revenues declined by 8%, reflecting a shift in focus towards SaaS and new sales, which could impact revenue stability.
Seasonality and Revenue Variability: Software license sales and professional services are highly variable and can distort revenue seasonality, making financial forecasting challenging.
Dependence on Acquisitions for Growth: The company relies on acquisitions to drive growth, as evidenced by the recent $60 million acquisition. This dependence could pose risks if future acquisitions do not perform as expected.
Decline in Nonrecurring Revenue in Utilities and Transportation Markets: Nonrecurring professional service revenue in utilities and transportation markets is expected to decline in FY 2026, potentially impacting overall financial performance.
High Acquisition Costs: The recent acquisition was made at a high valuation of 15x EBITDA, which could strain financial resources if the acquired company does not meet growth expectations.
Hosting Cost Increases: Higher hosting costs are contributing to reduced adjusted EBITDA margins, which could impact profitability.
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Guidance & Outlook
Recurring Revenue Growth: Recurring revenues are expected to grow at a double-digit rate for FY 2026, including the impact of the recent acquisition.
Nonrecurring Professional Service Revenue: A decline is expected in nonrecurring professional service revenue for FY 2026, driven by the cadence of revenue recognition on certain projects in the utilities and transportation markets. However, these markets are expected to rebound in fiscal 2027 and beyond.
Long-term Organic Revenue Growth: The company maintains a long-term expectation for organic revenue growth in the high single digits.
Revenue Distribution for FY 2026: The expected revenue distribution for FY 2026 is as follows: Q1 - 23%, Q2 - 25%, Q3 - 25%, Q4 - 27%.
Adjusted EBITDA Margin: The adjusted EBITDA margin is expected to improve for the remainder of the year, with a long-term expectation of 50 to 100 basis points improvement per year.
Acquisition Impact: The recent acquisition is durably growing at a rate above 20% with an EBITDA margin above 50%, significantly expanding the company's geographic reach in the transportation market.
AI and Technology Integration: The company plans to continue leveraging AI-enabled solutions and expanding its JusticeTech and transportation offerings throughout 2026.
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Shareholder Return Plan
opportunistic stock repurchases: We intend to use any borrowings for acquisitions and opportunistic stock repurchases.
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Key Q&A
Q:Is the FY '26 updated outlook showing a slight decrease in organic growth?
A:Yes, organic growth has ticked down modestly by $1 million to $2 million, primarily due to a decrease in professional services revenue from $40 million in FY '25 to $31 million in FY '26.
Q:Is the recurring revenue growth projection of 8% to 10% for the year still accurate?
A:Yes, the recurring revenue growth projection of 8% to 10% for the year remains accurate, with the exception of an acquisition that will slightly increase the recurring revenue.
Q:What are the company's thoughts on buybacks versus M&A, and did they buy back stock in the last quarter?
A:The company remains opportunistic with buybacks, considering their stock inexpensive and a good investment. They did buy back a significant number of shares last quarter, with more details to be provided in the 10-Q.
Q:What details were shared about the new acquisition, including its market share and revenue model?
A:The acquired company has strong customer retention and market presence, with no transactional revenue currently. The company plans to integrate the product into their offerings and explore payment opportunities. The acquisition is expected to significantly grow existing relationships.
Q:What are the drivers and sustainability of the 20%+ SaaS revenue growth?
A:The 20%+ SaaS revenue growth is driven by the company's emphasis on SaaS across various markets, including utilities, public administration, and justice. The new acquisition will further boost SaaS growth to over 30% for the fiscal year. Organic SaaS growth is expected to remain above 20%.
Q:What are the company's thoughts on AI adoption and its potential impact on GovTech?
A:The company sees AI as a tool to improve product development and customer workflows. However, adoption in GovTech is expected to be slow due to regulatory and jurisdictional challenges. They believe AI proliferation in GovTech will take time, despite its potential benefits.
Q:Why did the company pay a higher multiple for the recent acquisition, and are there more such deals in the pipeline?
A:The higher multiple was justified by the acquisition's strong growth (20%+), high margins (50%), and synergies. While the company's sweet spot is 7-10x, they are open to paying more for exceptional opportunities.
Q:Are there any changes to the company's product investment plans for FY '26?
A:No, the company is continuing its planned product investments introduced in the third quarter of last year, with no changes to the strategy.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the exact number of shares bought back during the quarter, deferring to the upcoming 10-Q for more information. Additionally, their response to AI adoption challenges in GovTech was somewhat vague, emphasizing general regulatory and jurisdictional issues without offering concrete solutions or timelines.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Chairman CEO
Clay start
Daily
FY acquisition
FY following
IFA tax
IRP IFA
Maintenance revenue
SaaS
Verticals
comment
decline service
detail
insurance verification
integration
line expectation
market state
motor carrier
motor vehicle
percentage
replay
seasonality
software license
software solution
source
term expectation
transportation market
utility
vehicle system
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The earnings call presents a mixed picture: strong SaaS revenue growth and a strategic acquisition are positive, but declining nonrecurring revenue and increased costs are concerns. The Q&A reveals uncertainties in organic growth and AI adoption. Despite some positive factors, like opportunistic buybacks and recurring revenue growth, the market may react cautiously due to high acquisition costs and lower EBITDA margins. These mixed signals suggest a neutral stock price movement in the short term.
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The earnings call presents a mixed outlook. Positive factors include revenue growth, strong recurring revenues, and a solid cash position with no debt, alongside plans for stock repurchases and M&A. However, concerns arise from declining high-margin revenues, non-recurring revenue decrease, and vague management responses. The shift to SaaS and potential risks in Justice and utility investments add uncertainty. Overall, these elements balance out, leading to a neutral stock price prediction over the next two weeks.
IIIV Slides
IIIV Report
Frequently Asked Questions
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