IIIV

Business Context and Reporting Period

Company: i3 Verticals, Inc. (IIIV)
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Quarter and nine months ended June 30, 2026
Business Overview: i3 Verticals provides mission-critical enterprise software solutions to public sector customers (courts, transportation, utilities, schools). Following the divestiture of its Merchant Services and Healthcare RCM businesses, the Company now operates as a single reportable segment focused on public sector software and proprietary payment facilitation.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Revenue increased 2.2% quarter-over-quarter and 3.2% year-over-year (nine months), driven by an $11.4M increase in recurring revenues, partially offset by a decline in non-recurring revenues.
• Profitability: Net income from continuing operations attributable to i3 Verticals, Inc. increased 129.7% year-over-year for the nine-month period ($5.4M vs. $2.5M). This improvement is largely due to the absence of the significant gain on the sale of the Healthcare RCM Business in the prior year ($26.0M gain) and lower M&A-related expenses.
• Discontinued Operations: The prior year included significant income from discontinued operations ($18.2M for nine months ended June 30, 2025) related to the sale of the Healthcare RCM Business. The current period reflects a net loss of $0.4M from discontinued operations due to adjustments on that sale.
• Debt & Liquidity: The Company drew $114.3M on its revolving credit facility to fund acquisitions and operations, compared to zero debt at the prior period end. Cash and cash equivalents decreased significantly from $66.7M to $2.6M.
• Other Income: Other income increased significantly due to a $9.9M unrealized gain on a minority equity investment revaluation in the current quarter.

Guidance, Outlook, and Risks

• Acquisitions: The Company completed a $60M acquisition of a transportation market business in January 2026, with up to $20M in contingent consideration. Management continues to pursue a disciplined acquisition strategy.
• Share Repurchases: The Company has been aggressively repurchasing shares. During the nine months ended June 30, 2026, it repurchased 6.1M shares for approximately $137.9M. The May 2026 Share Repurchase Program authorizes up to $100M in repurchases.
• Liquidity Position: As of June 30, 2026, the Company had $2.6M in cash and $285.7M in available borrowing capacity under its $400M Senior Secured Credit Facility. The Company is in compliance with financial covenants (Interest Coverage: 13.5x; Leverage: 1.9x).
• Risks:
  • Litigation: Ongoing class action litigation regarding PaySchools fees (dismissed with leave to amend) and S&S cybersecurity claims in Louisiana (in discovery phase).
  • Tax Receivable Agreement (TRA): The Company has a liability of $32.4M under the TRA, requiring payments to Continuing Equity Owners for 85% of tax benefits realized from unit exchanges.
  • Macroeconomic Factors: Risks related to government spending budgets, inflation, and interest rates.

Investor Verification Checklist

• Cash Burn vs. Debt: Verify the sustainability of the current cash balance ($2.6M) against the $114.3M debt draw and ongoing share repurchase commitments.
• Recurring Revenue Quality: Confirm the composition of the $174.1M ARR and the stability of public sector contracts amidst potential government budget constraints.
• Discontinued Operations Adjustments: Review the specific adjustments to the gain on the Healthcare RCM sale that resulted in the current period loss from discontinued operations.
• Contingent Consideration: Monitor the performance targets for the recent $60M acquisition to assess potential future cash outflows for the $20M earn-out.
• Litigation Exposure: Track the status of the S&S cybersecurity litigation in Louisiana, as damages sought have materially exceeded initial estimates.