Business Context and Reporting Period
Company: I3 Verticals, Inc. (IIIV)
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Three months ended December 31, 2024 (Fiscal Q1 2025)
Business Overview: I3 Verticals provides integrated software solutions and a proprietary payment facilitator platform to strategic vertical markets, primarily Public Sector and Healthcare. Following the sale of its Merchant Services Business in September 2024, the Company now reports two operating segments: Public Sector and Healthcare. The Merchant Services Business results are classified as discontinued operations.
Key Financial Metrics
| Metric (in thousands, except per share) | Q1 2025 (Ended Dec 31, 2024) | Q1 2024 (Ended Dec 31, 2023) |
|---|---|---|
| Revenue (Continuing Ops) | $61,691 | $55,054 |
| Operating Income | $2,699 | $1,485 |
| Net Income (Continuing Ops) | $3,322 | $(4,215) |
| Net Income (Total) | $3,108 | $1,536 |
| Net Income Attributable to i3 Verticals, Inc. | $2,056 | $1,098 |
| Diluted EPS (Continuing Ops) | $0.09 | $(0.12) |
| Operating Cash Flow | $11,495 | $14,405 |
| Cash and Cash Equivalents | $85,552 | $4,159 |
| Total Debt (Current Portion) | $26,223 | $26,223 |
| Adjusted EBITDA Margin (Public Sector) | 39% | 40% |
| Adjusted EBITDA Margin (Healthcare) | 28% | 24% |
Material Changes vs. Prior Period
- Revenue Growth: Revenue from continuing operations increased 12.1% to $61.7 million, driven by a $2.9 million increase in recurring revenues and $2.3 million in software license revenue. Public Sector revenue grew 12.2% and Healthcare revenue grew 13.7%.
- Profitability Improvement: Operating income increased 81.8% to $2.7 million. This was primarily due to a significant decrease in interest expense (down 89.8% to $0.7 million) following the repurchase of a substantial portion of Exchangeable Notes in January 2024.
- Discontinued Operations: The prior period included $5.8 million of net income from the Merchant Services Business, which was sold in September 2024. The current period reflects a net loss of $0.2 million from discontinued operations due to adjustments on the sale.
- Expense Reclassification: The Company reclassified certain personnel and hosting costs from Selling, General and Administrative (SG&A) to Other Costs of Services to better align with its software-focused business model post-merchant services sale.
- Contingent Consideration: A charge of $1.4 million was recorded for the change in fair value of contingent consideration, compared to a benefit of $0.2 million in the prior year.
Guidance, Outlook, Risks, and Unusual Items
- Liquidity and Capital Resources: The Company holds $85.6 million in cash and has $450.0 million available under its 2023 Senior Secured Credit Facility. It is in compliance with all financial covenants (Interest Coverage Ratio: 3.7x; Leverage Ratio: 0.1x).
- Debt Maturity: $26.2 million of 1.0% Exchangeable Senior Notes mature on February 15, 2025. The Company has the option to exchange these for cash, stock, or a combination.
- Share Repurchases: Under a $50 million program authorized in August 2024, the Company repurchased 496,785 shares for $11.2 million during the quarter. Approximately $38.8 million remains available.
- Subsequent Events: On January 23, 2025, the Company executed recapitalization actions involving a capital contribution and reverse unit split to reduce excess cash held at the corporate level, increasing its ownership in i3 Verticals, LLC to approximately 70.83%.
- Risks: Key risks include cybersecurity threats, reliance on third-party providers, potential impairment of goodwill/intangible assets, and the impact of government budget changes on the Public Sector segment. Litigation regarding a data breach in Louisiana remains pending.
Investor Verification Checklist
- Debt Refinancing: Verify the Company's plan to settle or refinance the $26.2 million Exchangeable Notes maturing in February 2025.
- Discontinued Operations Adjustments: Confirm the final purchase price adjustments related to the $438 million sale of the Merchant Services Business.
- Segment Margins: Monitor the sustainability of Adjusted EBITDA margins in the Public Sector (39%) and Healthcare (28%) segments following the business model shift.
- Tax Receivable Agreement: Review the $39.2 million liability under the Tax Receivable Agreement and the impact of future unit exchanges on cash flow.
- Contingent Consideration: Assess the volatility of earnings due to the fair value adjustments of earn-out liabilities from recent acquisitions (e.g., inLumon).