i3 Verticals, Inc. (Nasdaq: IIIV) (“i3 Verticals” or the “Company”) today reported its financial results for the fiscal third quarter ended June 30, 2023.
Highlights for the fiscal third quarter and nine months ended June 30, 2023 vs. 2022
- Third quarter revenue was $93.9 million, an increase of 16.6% over the prior year's third quarter. Revenue for the nine months ended June 30, 2023, was $273.8 million, an increase of 17.7% over the prior year's first nine months.
- Third quarter net loss was $6.1 million, compared to net loss of $4.7 million in the prior year's third quarter. Net loss for the nine months ended June 30, 2023, was $6.1 million, compared to a net loss of $18.8 million in the prior year's first nine months.
- Third quarter net loss attributable to i3 Verticals, Inc. was $5.2 million. Net loss attributable to i3 Verticals, Inc. for the nine months ended June 30, 2023, was $5.4 million.
- Third quarter adjusted EBITDA1 was $25.3 million, an increase of 26.0% over the prior year's third quarter. Adjusted EBITDA1 for the nine months ended June 30, 2023, was $73.6 million, an increase of 27.3% over the prior year's first nine months.
- Third quarter adjusted EBITDA1 as a percentage of revenue was 26.9%, compared to 24.9% in the prior year's third quarter. Adjusted EBITDA1 as a percentage of revenue for the nine months ended June 30, 2023, was 26.9%, compared to 24.9% in the prior year's first nine months.
- Third quarter diluted net loss per share available to Class A common stock was $0.22, compared to diluted net loss per share available to Class A common stock of $0.17 in the prior year's third quarter. Diluted net loss per share available to Class A common stock was $0.23 in the nine months ended June 30, 2023, compared to diluted net loss per share available to Class A common stock of $0.62 in the prior year's first nine months.
- Third quarter pro forma adjusted diluted earnings per share1, which gives pro forma effect to the Company's tax rate, was $0.38 compared to $0.37 for the prior year's third quarter. Pro forma adjusted diluted earnings per share1 for the nine months ended June 30, 2023, was $1.12 compared to $1.09 for the prior year's first nine months.
- Annualized Recurring Revenue ("ARR")2 for the three months ended June 30, 2023 and 2022 was $311.4 million and $266.7 million, respectively, representing a period-to-period growth rate of 16.8%.
- Software and related services revenue3 as a percentage of total revenue was 50.3% for the three months ended June 30, 2023.
- As of June 30, 2023, consolidated interest coverage ratio was 4.31x and total leverage ratio was 4.00x. These ratios are defined in the Company's 2023 Credit Agreement.
1. | Represents a non-GAAP financial measure. For additional information (including reconciliation information), see the attached schedules to this release. | |
2. | Annualized Recurring Revenue (ARR) is the annualized revenue derived from software-as-a-service (“SaaS”) arrangements, transaction-based software-revenue, software maintenance, recurring software-based services, payments revenue and other recurring revenue sources within the quarter. This excludes contracts that are not recurring or are one-time in nature. The Company focuses on ARR because it helps i3 Verticals to assess the health and trajectory of the business. ARR does not have a standardized definition and is therefore unlikely to be comparable to similarly titled measures presented by other companies. It should be reviewed independently of revenue and it is not a forecast. It does not take into account seasonality. The active contracts at the end of a reporting period used in calculating ARR may or may not be extended or renewed by our customers. | |
3. | Software and related services revenue includes the sale of subscriptions, recurring services, ongoing support, licenses, and installation and implementation services specific to software. |
Greg Daily, Chairman and CEO of i3 Verticals, commented, “The third quarter of our fiscal year 2023 was excellent and we are proud to share the results. As each quarter goes by, we have improved our position with recurring revenue sources, such as software as a service revenue, which grew 20% year over year. Overall, revenue from recurring sources grew 17%.
“We continue to weigh strategic M&A opportunities, but are keeping our standards very high in this market. At the same time, we have been laser focused on many internal optimization projects, finding ways to share resources, and best practices across our excellent portfolio of products. Professionalization of our enterprise RFP response team has allowed us to compete for larger opportunities. To illustrate the potential, we are proud to announce two new state-level wins from our Justice Tech and Transportation divisions of the Public Sector. We have never been better positioned to compete in many more similar processes. Whether it is centralizing professional services, bringing new software solutions to market, capitalizing on the plethora of cross-selling opportunities, or transitioning customers from on-premise to cloud-based solutions, best practices are winning the day and we are excited about the direction and continued potential of our business."
2023 Outlook
The Company's practice is to provide annual guidance, excluding future acquisitions and transaction-related costs.
The Company is reaffirming its outlook for the fiscal year ending September 30, 2023:
(in thousands, except share and per share amounts) | Outlook Range | ||||
Revenue | $ | 360,000 | - | $ | 380,000 |
Adjusted EBITDA (non-GAAP) | $ | 97,000 | - | $ | 103,000 |
Depreciation and internally developed software amortization | $ | 8,000 | - | $ | 9,000 |
Cash interest expense, net | $ | 22,000 | - | $ | 23,000 |
Pro forma adjusted diluted earnings per share(1)(non-GAAP) | $ | 1.46 | - | $ | 1.56 |
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1. | Assumes an effective pro forma tax rate of 25.0% (non-GAAP). |
With respect to the “2023 Outlook” above, reconciliation of adjusted EBITDA and pro forma adjusted diluted earnings per share guidance to the closest corresponding GAAP measure on a forward-looking basis is not available without unreasonable efforts. This inability results from the inherent difficulty in forecasting generally and quantifying certain projected amounts that are necessary for such reconciliations. In particular, sufficient information is not available to calculate certain adjustments required for such reconciliations, including changes in the fair value of contingent consideration, income tax expense of i3 Verticals, Inc. and equity-based compensation expense. The Company expects these adjustments may potentially have a significant impact on future GAAP financial results.
Conference Call
The Company will host a conference call on Wednesday, August 9, 2023, at 8:30 a.m. EDT, to discuss financial results and operations. To listen to the call live via telephone, participants should dial (844) 887-9399 approximately 10 minutes prior to the start of the call. A telephonic replay will be available from 11:30 a.m. EDT on August 9, 2023, through August 16, 2023, by dialing (877) 344-7529 and entering Confirmation Code 5255024.
To listen to the call live via webcast, participants should visit the “Investors” section of the Company’s website, www.i3verticals.com, and go to the “Events” page approximately 10 minutes prior to the start of the call. The online replay will be available on this page of the Company’s website beginning shortly after the conclusion of the call and will remain available for 30 days.
Non-GAAP Measures
This press release contains information prepared in conformity with GAAP as well as non-GAAP information. It is management’s intent to provide non-GAAP financial information to enhance understanding of the Company's consolidated financial information as prepared in accordance with GAAP. This non-GAAP information should be considered by the reader in addition to, but not instead of, the financial statements prepared in accordance with GAAP. Each non-GAAP financial measure and the most directly comparable GAAP financial measure are presented for historical periods so as not to imply that more emphasis should be placed on the non-GAAP measure. The non-GAAP financial information presented may be determined or calculated differently by other companies.
Additional information about non-GAAP financial measures, including, but not limited to, pro forma adjusted net income, adjusted EBITDA and pro forma adjusted diluted EPS, and a reconciliation of those measures to the most directly comparable GAAP measures is included in the financial schedules of this release.
About i3 Verticals
The Company delivers seamless integrated software and services to customers in strategic vertical markets. Building on its broad suite of software and services solutions, the Company creates and acquires software products to serve the specific needs of its customers. The Company's primary strategic verticals are Public Sector (including Education) and Healthcare.
Forward-Looking Statements
This release contains forward-looking statements that are subject to risks and uncertainties. All statements other than statements of historical fact or relating to present facts or current conditions included in this release are forward-looking statements, including any statements regarding the Company's fiscal 2023 financial outlook and statements of a general economic or industry specific nature. Forward-looking statements give the Company's current expectations and projections relating to its financial condition, results of operations, guidance, plans, objectives, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “anticipate,” “estimate,” “expect,” “project,” “plan,” “intend,” “believe,” “may,” “will,” “should,” “could have,” “exceed,” “significantly,” “likely” and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events.
The forward-looking statements contained in this release are based on assumptions that we have made in light of the Company's industry experience and its perceptions of historical trends, current conditions, expected future developments and other factors we believe are appropriate under the circumstances. As you review and consider information presented herein, you should understand that these statements are not guarantees of future performance or results. They depend upon future events and are subject to risks, uncertainties (many of which are beyond the Company's control) and assumptions. Factors that could cause actual results to differ from those expressed or implied by our forward-looking statements include, among other things: future economic conditions, including the impact of inflation and rising interest rates, competition in our industry and the Company's ability to compete effectively, and regulatory developments, the successful integration of acquired businesses, and future decisions made by us and our competitors. All of these factors are difficult or impossible to predict accurately and many of them are beyond our control. For a further list and description of these and other important risks and uncertainties that may affect our future operations, see Part I, Item 1A - Risk Factors in our most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission, which we may update in Part II, Item 1A - Risk Factors in Quarterly Reports on Form 10-Q we have filed or will file hereafter.
Any forward-looking statement made by us in this release speaks only as of the date of this release and we undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.
i3 Verticals, Inc. Consolidated Statements of Operations | |||||||||||||||||||||
(Unaudited) | |||||||||||||||||||||
($ in thousands, except share and per share amounts) | |||||||||||||||||||||
Three Months Ended June 30, | Nine Months Ended June 30, | ||||||||||||||||||||
2023 | 2022 | % Change | 2023 | 2022 | % Change | ||||||||||||||||
Revenue | $ | 93,931 | $ | 80,553 | 17 | % | $ | 273,832 | $ | 232,612 | 18 | % | |||||||||
Operating expenses | |||||||||||||||||||||
Other costs of services | 20,532 | 19,749 | 4 | % | 59,531 | 52,890 | 13 | % | |||||||||||||
Selling, general and administrative | 55,426 | 47,775 | 16 | % | 163,633 | 142,878 | 15 | % | |||||||||||||
Depreciation and amortization | 9,158 | 7,506 | 22 | % | 26,849 | 21,823 | 23 | % | |||||||||||||
Change in fair value of contingent consideration | 6,183 | 8,254 | (25 | )% | 9,905 | 24,684 | (60 | )% | |||||||||||||
Total operating expenses | 91,299 | 83,284 | 10 | % | 259,918 | 242,275 | 7 | % | |||||||||||||
Income (loss) from operations | 2,632 | (2,731 | ) | n/m | 13,914 | (9,663 | ) | n/m | |||||||||||||
Interest expense, net | 6,725 | 3,767 | 79 | % | 18,414 | 10,298 | 79 | % | |||||||||||||
Other income | (92 | ) | — | n/m | (295 | ) | — | n/m | |||||||||||||
Total other expenses | 6,633 | 3,767 | 76 | % | 18,119 | 10,298 | 76 | % | |||||||||||||
Loss before income taxes | (4,001 | ) | (6,498 | ) | (38 | )% | (4,205 | ) | (19,961 | ) | (79 | )% | |||||||||
Provision for (benefit from) income taxes | 2,077 | (1,810 | ) | n/m | 1,896 | (1,154 | ) | n/m | |||||||||||||
Net loss | (6,078 | ) | (4,688 | ) | 30 | % | (6,101 | ) | (18,807 | ) | (68 | )% | |||||||||
Net loss attributable to non-controlling interest | (923 | ) | (960 | ) | (4 | )% | (742 | ) | (5,178 | ) | (86 | )% | |||||||||
Net loss attributable to i3 Verticals, Inc. | $ | (5,155 | ) | $ | (3,728 | ) | 38 | % | $ | (5,359 | ) | $ | (13,629 | ) | (61 | )% | |||||
Net loss per share attributable to Class A common stockholders: | |||||||||||||||||||||
Basic | $ | (0.22 | ) | $ | (0.17 | ) | $ | (0.23 | ) | $ | (0.62 | ) | |||||||||
Diluted | $ | (0.22 | ) | $ | (0.17 | ) | $ | (0.23 | ) | ||||||||||||
