Business Context and Reporting Period
Company: I3 Verticals, Inc. (IIIV)
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Quarter and six months ended March 31, 2026
Business Overview: I3 Verticals provides mission-critical enterprise software solutions to public sector customers (courts, transportation, utilities, schools). Following the divestiture of its Healthcare RCM and Merchant Services businesses, the Company operates as a single reportable segment focused on public sector software and payment facilitation.
Key Financial Metrics
| Metric (in thousands) | Three Months Ended Mar 31, 2026 | Six Months Ended Mar 31, 2026 | Six Months Ended Mar 31, 2025 |
|---|---|---|---|
| Revenue | $57,518 | $110,189 | $106,356 |
| Net Income (Continuing Ops) | $2,194 | $3,279 | $5,113 |
| Net Income Attributable to i3 Verticals, Inc. | $1,464 | $1,948 | $1,902 |
| Diluted EPS (Continuing Ops) | $0.07 | $0.09 | $0.12 |
| Operating Cash Flow | N/A | $24,150 | $(15,627) |
| Cash and Cash Equivalents | $7,142 | $7,142 | $7,749 |
| Long-Term Debt | $81,000 | $81,000 | $0 |
| Annualized Recurring Revenue (ARR) | $183.5M | N/A | N/A |
Note: Net income includes non-controlling interest. Net income attributable to i3 Verticals, Inc. excludes non-controlling interest.
Material Changes vs. Prior Period
- Revenue Growth: Revenue increased 6.2% ($3.4M) for the quarter and 3.6% ($3.8M) for the six months compared to the prior year periods. Growth was driven by an increase in recurring revenues, partially offset by a decrease in non-recurring revenues.
- Profitability Decline: Net income from continuing operations decreased 5.6% for the quarter and 35.9% for the six months. This was primarily due to higher operating expenses (SG&A and D&A) and a reduction in other income (transition services and interest income) compared to the prior year.
- Operating Expenses: Total operating expenses increased 9.6% for the quarter and 5.6% for the six months. SG&A rose due to increased personnel costs (including stock compensation) and professional fees. Depreciation and amortization increased due to new capitalized software releases and acquired intangible assets.
- Debt Position: The Company has $81.0 million outstanding under its 2023 Senior Secured Credit Facility as of March 31, 2026, compared to zero long-term debt in the prior year-end period. Interest expense increased 155.8% for the quarter due to higher average outstanding debt balances.
- Cash Flow Improvement: Net cash provided by operating activities turned positive at $24.2 million for the six months ended March 31, 2026, compared to a use of $15.6 million in the prior year period. This improvement was driven by changes in net operating assets and liabilities, specifically the timing of tax payments related to the prior year's Merchant Services divestiture.
Guidance, Outlook, Risks, and Unusual Items
- Acquisitions: The Company completed a $60.0 million acquisition of a transportation market business in January 2026, with up to $20.0 million in contingent consideration. This acquisition contributed $2.2 million in revenue and $0.3 million in net income for the six months ended March 31, 2026.
- Share Repurchases: The Company expended the full $50.0 million authorization of its August 2025 Share Repurchase Program and the full $60.0 million authorization of its New Share Repurchase Program (approved Feb 2026) by March 31, 2026. Total repurchases in the six months ended March 31, 2026, were approximately $89.3 million for 3.7 million shares.
- Liquidity: As of March 31, 2026, the Company had $7.1 million in cash and $319.0 million in available borrowing capacity under its credit facility. The Company is in compliance with all financial covenants (Interest Coverage Ratio: 16.2x; Leverage Ratio: 1.2x).
- Legal Proceedings:
- PaySchools Litigation: A class action complaint filed in May 2025 regarding fees charged for school lunch services. The Company is unable to predict the outcome but does not currently believe it will have a material effect.
- S&S Litigation: A lawsuit filed in 2021 by Louisiana state officials and sheriffs regarding cybersecurity practices and network remediation costs. The case is in the discovery phase with a class certification hearing scheduled for June 2026.
- Tax Receivable Agreement: The Company has a liability of $32.4 million related to a Tax Receivable Agreement, representing 85% of estimated future tax benefits from unit exchanges. Payments are expected over the next 22 years.
Investor Verification Checklist
- Debt Covenants: Verify continued compliance with the 2023 Senior Secured Credit Facility covenants (Interest Coverage > 3.0x, Leverage < 5.0x) given the increased debt load.
- Share Repurchase Status: Confirm that both the August 2025 and New Share Repurchase Programs are fully expended and no longer active as of the filing date.
- Acquisition Integration: Monitor the performance of the January 2026 transportation market acquisition against the $20.0 million contingent consideration targets.
- Legal Exposure: Track the status of the PaySchools and S&S litigation, specifically the June 2026 class certification hearing for the S&S case.
- Recurring Revenue: Validate the 11.6% year-over-year growth in Annualized Recurring Revenue (ARR) to $183.5 million as a key indicator of sustainable growth.