IIIV - Earnings call transcript Q3 2019

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Operator

Good day, everyone, and welcome to the i3 Verticals Third Quarter 2019 Earnings Conference Call. Today's call is being recorded, and a replay will be available starting today through August 16. The number for the replay is 719-457-0820 and the code is 6839934. The replay may be accessed for 30 days at the company's website.

At this time, for opening remarks, I would like to turn the call over to Scott Meriwether, Senior Vice President, Finance. ahead. go Please

David Meriwether

welcome for and third XXXX quarter Good Verticals. to call iX conference morning, the

to Joining call It Rick most to on information measure each release. also Clay calculated To information financial me is find this in measure extent accordance earnings directly provide is yesterday's not Whitson, with intent of and financial non-GAAP considered individual our the to to company's consolidated of with call, according our reviewing comparable CEO; discussed Chairman but prepared to a in as financial accordance GAAP. CFO; instead understanding you enhance non-GAAP by by reconciliation the and addition should be any non-GAAP information the Stanford, today's the President. of are statements our in GAAP financial Greg will in GAAP. Daily, its This measure that prepared financial

statements conference the forward-looking This the meaning Litigation performance. others, financial among including company's may Securities Act regarding expected of and Private call of statements, operating XXXX, contain within the Reform

purpose, any not forward-looking may call be that deemed made of historical For this fact during statements be statements. to statements this are

from affected hereby earnings consequently, forth actual these statements are furnished by results And SEC. reports and in or others, the to and forward-looking discussed statements. You that among results the may in in may that factors, release be important the company's materially differ cautioned set the forward-looking are operations filed

as required applicable this no to today's and undertakes date, information be obligation shared of under on except it, the Finally, is call as valid the law. update company may

Daily. and to CEO, over I'll now call turn the Greg company's the Chairman

Gregory Daily

credit will our of of good I performance facility trading morning the and and pleased public to order a fiscal important performance. am offering how was on team, our four during to and to in quarter. XXXX. enhance our quarter accomplishments daily Thanks, third We're to complete me secondary our our increase acquisitions, proud we're about volume. the you. expanded our It closed the Scott, closed and float of QX future excited offering all with We secondary of these

from We revenues section. QX $X.X in from over-performance had QX forma Sector to fueled $X.X vertical. in $XX 'XX 'XX, of detail in Clay million a these quarter. adjusted an million numbers EBITDA by in our increased QX $XX.X cover will in to million Net Public strong million his of 'XX. Pro in more increased

and and to growth continue payment organizations We to solutions delivering integrated above-market in SMBs achieve strategic seamless software markets. rates by

focus selective on will strategic to We verticals. continue to us verticals these in make that are acquisitions and

same. Our strategy remains acquisition the

of capacity strategy. have debt We support plenty that to

focused Public the software an the later. area for that believe last Sector year, Public will details enhancements Public drive Sector performance. the market. several will on to product we've During their our with for market will further Sector vertical We provide on made iX. pleased Rick for -- these continue We're acquisitions growth be

this vertical across We're starting in product as back the We're are in ramping vertical. about enhancements encouraged Education also back-to-school excited recent activity up country. our currently schools the by the

year margins and and us well QX, in improvement. payments during success. during market position up integrated from our our software-enabled volume payment results focus. growth, of was and margin us QX attrition, long-term higher achieving Integrated of XX% business confidence proportion lower of payments our proprietary fiscal payments We long-term on from acquisition the in increase XX% gives margin strategic Integrated remain greater XXXX. in growth for our organic focus believe coming integrated payments improvement The potential.

overview? financial the us give you would Clay,

Clay Whitson

to great by from fiscal the quarter. $XX quarter. third ending projects million quarter. We period month ended increased QX ahead three our companies XXXX. The pertains 'XX, which of Sure. over following which We a June from net Two XX% until XXXX, of $XX.X expecting completed XX, the million million QX to for Thanks, plan, September. to net for quarter had Greg. of software these Net XXXX revenues is were principally during $X.X $XXX,XXX not in the QX outperformed the of acquisitions, revenues driven which added revenues

Excluding acquisitions $X.X in X% Portfolios, net which revenues to Purchased and integrated declined the a business. due our decline $XXX,XXX, POS declined million

revenue our quarter leading internal a with X%. XXXX. QX QX IPOS to business, largest our XXXX growth business, was POS to for tough Excluding integrated comparison happened be our net

which have as to As sales we be three transitioning have that We're discussed, spread of headwind SaaS we $X get net to transition a XXXX. estimates currently formerly primary million for pace offering, will that not pushed and are the supplier could included of million sure for be upfront over in were years. believe $X a revenues the both XXXX short-term our market consensus and large XXXX but revenues of

over next prove be expectation and give months, we'll visibility greater in for market. our should and In the and break our to guidance clarity bake -- We report formal when XXXX from better us despite this IPOS we model long challenges into expect short-term more this run, few the to a QX. revenues profits obtain the the

It and and Please plus between in with XXXX million write-downs EBITDA the taxes from revenue amortization exclusions: million included with adjusted to from net is the grew income deferred for of compensation, reconciliation income release a essentially XX% depreciation not operations earn-out operating-related acquisitions in EBITDA. the and press for XXXX. $X.X estimates, local acquisition-related software income see taxes $X.X associated and state following expenses, changes companies. QX for equity-based QX expenses,

XXXX revenues a associated as corporate principally expenses XX% The despite net increase in public expenses. were QX a increase in of company corporate percentage for costs. XX% with was Adjusted EBITDA

'XX fiscal onetime we reminder, in with a step-up expenses fiscal in inflationary-level As have growth for future expected years. a corporate

margin margin the corporate Including has points. corporate improved the nine basis improved expenses, the for Excluding XX months. expenses, modestly EBITDA EBITDA

and amortization was capitalized developed not share cash deducts software noncash not the and earnings deducts adjusted for quarter. $X.XX of This depreciation QX internally with diluted licensing refer but this for purchased starts and adjusted intangibles amortization amortization grew per These titled with little deferred Please forma to but impact but our and the net realized press release of from measure Pro XXX% In and website supplemental acquisitions. interest a recent of is a the Texas line tax 'XX of for rate Act for Performance the Louisiana were Up-C software with growth for helped an of giving apply federal, they which to Again, connection Proprietary and go-forward rate XX%, full reconciliation. blended tax performance. and We reorganization of not $XX.X our 'XX. slide Reform in from Tax growth rate XXXX IPO. the Segment costs. financing Revenues on the please effect revenues the because top a local description to to from than reference in planned. refer state Software internal million Payments, did estimate discussion. EBITDA, $X.X million revenues QX came sooner Segment

Adjusted and factors. from and schools from revenues declined EBITDA XX% QX EBITDA our is mid-May again net mix $X.X principally acquisitions seasonality to public as XXX% XX% for XXXX percentage million, weak because due in recent reflecting Public K-XX always quarter of to close Education generally QX million to for for mid-August. in QX $X.X XXXX a in increased open a Sector vertical.

XXX are post now These employees. Public represents and our revenues the generally half, IPO, all during first March our net of Sector over almost December quarters. companies, acquired strongest and majority fiscal

During all the second have less we half, revenues. costs with the of

points. the nine XX improved basis For months, has the margin

reflected to XX% increased Merchant million Net our BXB This X% increase million, the channels. line $XX.X excluding Services expectations. sales for Portfolios and 'XX declined QX direct revenues ISO in Purchased $X.X for channel with in ISV million growth and to Portfolios our Purchased from $XX.X QX 'XX. The including for

XX% XX% QX increased Adjusted improved $X.X for 'XX EBITDA for million from from 'XX. EBITDA revenue million for Services 'XX, X% operating QX growth. QX QX 'XX from margin The for $X.X showing Merchant to leverage for to

million in million; acquisition net with Outlook. forma the $XX $XXX guidance on EPS, fiscal follows: diluted pro We adjusted issued $XX EBITDA, which $XXX as to to 'XX, reiterate X connection to $X.XX. June and Pace million $X.XX adjusted million; revenues, for adjusted was

million of available XX, under had our we've As $XXX June revolving credit.

as our was current ratio is our defined credit X.Xx. agreement in leverage constraint while X.XXx Our

is for more used a expect north into to little roughly X%. debt EBITDA of either time, or of can currently we X/X Over Our be our which acquisitions convert interest free rate repayment. cash flow,

the over activity. I'll now M&A update turn call to for on Rick an

Frederick Stanford

Thank you, Clay. Good morning, everyone.

one wanted our of within Before take integration and our I to highlight of our our recent M&A moments talk to strategic outlook, acquisitions discuss about specifically few some a efforts I verticals. to

IPO, know, since you closing extremely we've front acquisition busy time nine on the period. As our deals during that been

execute in been talented Each and technology, offers remain that organization, excited to watch our close I we these While the doubled them pleased and presence have we this be to acquire out seeing. our groups teams to benefits couldn't Public in Sector people position didn't we're and of we're add opportunistic, period. Education joint footprint All pleased have on very we many this to and of growth set specifically businesses. to past them what with unique might during iX rich state state strategy. hit acquired deals, a we we're more also our and running, tripled in year the time ground

and and deep Pace acquisition. within Pace verticals. Education a transaction potential announced of operates ISV integrated the X software partners. year, Sector the June this of fully of independent we On vendor pipeline the has Public and closing payment channel provides or ISV solutions in the Pace

worked be very ISV capabilities the already two proving we've Over Pace The months, the in on is powerful. team our to past expanding market.

partner our integration to serve potential In programs. within ISV requests fact, resources and integrated better provide partners existing used efforts combined harvesting we've in to additional from recently ISV incoming teams

our three integration. of currently XX, in now with With the acquisition Pace, ISVs total are

our and will on together and on management us strategies sales become to Public suite these implementation an vertical, further from multiple this a market. and teams visioning representatives concentrates The enterprise-wide. our vertical early past services We efficient We vertical defining This given product are defining to integrating each and duplicative allocation aligning our enable this the amongst groups design all month, areas, map any software offer entities by process better Sector code a began with initial to to road within leadership results across and compelling with eliminating states business and we acquisitions, focus visioning on in we process of to further more offered process ultimately businesses and -- able putting be continue be a and companies with and believe streamlined the of technology resource past encouraged products, vertical. vertical includes to and and prior work efforts. products multiple

remain a will successful possible M&A fit with executing -- recently strategy. for software substantial Sector and Public that our continually we business This that and acquisition customer our outlook, nonbinding nicely our companies we M&A into playbook. in identify to particular, a utility on. we gas, will fit Regarding water executed is to billing term believe We In our capabilities generate suite sheet offers seems investigate partners that product interest. and so product electric

in verticals closed activity to X and We We in hopefully, Public Sector, deal and it we closed are on the forward available. new information currently diligence year, can deals Again, to still believe share will future. near to expect that Education acquisition generate that sharing future. and, we has care this the active hope more near health we becomes X as performing look we in be per

we'll concludes my comments. the please. call This point, this at for Cam, open Q&A,

Operator

Instructions]. [Operator

question first from and George Mihalos Our from Company. Cowen comes

Georgios Mihalos

to with there off Services really payment business. The the volume Merchant start I wanted spiked.

looking think were we much by was than XX%, stronger I for. what up it

yield revenue the and declined Now year-over-year. sequentially

of out kind cause a from there happened Just wondering to can call if to those mix what perspective you happen.

Clay Whitson

Well, all thing, wasn't our just of it the channels, were up. one --

direct BXB, mainly Our up. sales, was

up. was ISO ISV and our channel Our was channel up,

to the as the pressures it, that on that because far have falls, IPOS discount higher be the And you generally has more as as lowers effect inordinate fees driving Purchased yield volume. the because without it yield, As that A secondary rate an reason have revenue would business it's as opposed a the and Portfolios that falls, lower yield. revenues yield.

Georgios Mihalos

partnerships or Okay. questions $X hardware business, then as to to Clay, as getting SaaS. And I you model it talked pushed transitions think, Two just out about $X million on relates million you'll the the potentially affect into you so going with to do when And have that? considering would you think assume starting I IPOS insight year. providers? One, calendar XXXX, are next it's other guys that.

Clay Whitson

total $X amount hope to million with The our being revenues have the of the and EBITDA fourth for risk. Well, X/X to we then XXXX, the clarity is we that report by we bake we'll it quarter, time million XXXX risk $X our consider numbers. into at of about

that. haven't any other considering decisions as are providers, We yet, regarding made but we

Operator

next Davis John Our James. question from from is Raymond

John Davis

here. to on growth just Clay, hit wanted a second organic for

deceleration think IPOS, X%. that on excluding see to we is did at that I where driving commentary Any what's from or even a modest all? X.X%

Clay Whitson

in mean particular? Well, do the IPOS you

John Davis

say said, -- you I little I'd growth, was excluding No, think X%. think it a quarter, higher. bit that, Last I organic was

anything seeing a to nothing decelerated standing little but bit call I or a of not it's and mix that's if difference, there's So there's just specific out it out there. mean huge modestly. there's

Clay Whitson

that quarter, and for point, we did what into X But quarter-to-quarter. that Yes. of get a IPOS, Well, it it's percentage varies it's was -- include X.X% last variety it's factors worth. when

John Davis

base I now think into businesses acquisitions in organic whole, kind growth are, and I you you're fact, to Well, us a these numbers. an that maybe so acquired lapping those an is kind that are a importantly, the that give now? -- internal And you've positive what of you of faster the about tailwind your start I growing? above would least the than us as directionally core post-IPO, combined rate guess, have of Okay. or more go assume that, growing at the Can businesses did as idea some give idea

Clay Whitson

acquired IPO are low Yes. our double the On digit. post businesses -- average, growing

in, as XX% growth. a use might organic for You help those as modeling. our number And blend they'll

of Our first X year. acquisition September was last

December thereafter. that more layer quarter a the quarter, see will quarter full You'll lapping each then on and of in

John Davis

just And That's one then on Okay. more IPOS business. -- on the helpful.

Or business for George's I said roughly that up year. on totality? next I Because you million business. that follow ballpark still in million just think impact you obviously, can $X to remind us to million? question, that's, size us. Is not it $X know, the But $XX the that's entire just of

Clay Whitson

this from was revenues million. $X Well, lost QX total million. last we it $X.X IPOS $X.X year, so was QX year, million,

you $XX at which think risk by consider and contracts, Now software, that -- the about if transition model. installation are business, as of half so we and service There professional a don't training of pressured million would maintenance and a services lot a for to about anticipate is SaaS. hardware that in it we SaaS being

the where the $XX of out, software, of to come up million $X million. if hardware million So of pushed we and $X that's X/X that with got

John Davis

Rick, for then second. Okay. just maybe, That's Pace clear. And talk about a

now gave you than of some being will, different there's like good Anything you you? It to you surprised you a more a closed commentary been some Any bit bit deal. synergistic, products instead going better things feels think cross-sell that of there. change It able a just little like before I tone with being are of these me to if feels the different regions. maybe little expected maybe update there? acquisitions

of So color on just Pace. helpful kind would any commentary there be

Frederick Stanford

Yes.

our I they're different team -- was time Pace, both us the but for the at reception views has much team ecstatic. and meet completed, entire surprised under they're what what had think until we pretty see wraps seen and and products, The insights, before. than been these we've keep I acquisitions to

the with pretty think much on little The dependent we're integration just slowed is schedule. on because process conversions I a have internal not bit resources. Pace

have teams to forward. for to rely have The additional ISV fabulous team the and they're us going conversions of about well, just meshed The our somewhat. going excited We be both processors is our resources. on really

customers think visioning and the So going I processes, organization going forward. this start be are, think we and that good will I process, streamlining to through for our

Operator

KeyBanc has next our question. Josh from Beck

Josh Beck

where an on. product you Sector. I wanted seems enhancements some have Public It to like ask area going about that's the

more cross-sell a as are little finding And certainly bit business grows, just color there? -- maybe could more that opportunities? provide So you you

Gregory Daily

Pre citations, collection, but Yes. and jury that's traffic imaging IPO, thing, assessor bonds, fines, a Josh, bail have that were great selection management, acquisitions our together brought on. management, tax question. IPO, record we mainly information, case of so in property and post sort

to continue do suite. products we additional in need that our we Sector pick we as up So Public acquisitions,

and we'll of continue the software I we benefits to will process think And there's that going to goes so is continue we're that acquisitions, before, one I've the try life and select without saying add that's in obviously, do and along said going is this part forward. to be going today. no more through deprecate we forward. part way. and to code Sector features as perfect, code, overlap The big And be a going our ever of it Public

Josh Beck

And SaaS, purely Great. more that benefits? to visibility accounting could should perhaps improved revenue secondary seamless this about Or change? are there thinking whether I as transition or be we benefits, mean, on secondary it's an implementation be this

Clay Whitson

think the do secondary are in SaaS model today. I why there the that's benefits, succeeding marketplace Well, and is

visibility. ERP because It revenue mentioned From lumpy more and to make business. You a sales. for you're business their -- opposed sticky that upfront businesses, as they're perspective, does helping very visible three it's year them very is for run an of these

Josh Beck

okay. helpful. or you net that, Okay, where talk maybe just see bit and could you then your range debt little of comfort a about And -- the That's kind forward? moving target levels

Clay Whitson

our Well, XX-year our I'm have $XXX business that's We available revolving a over and under leverage. million still by XX-, leverage governed and has well, always credit, talking period. supported

be with and acquisition, we for to As the comfortable helps all up able calculation. X.Xx so that. to we're using acquisition, ratio and almost know, leverage go that fund each year, the pro With currently we EBITDA of you next forma would new it

Operator

[Operator Instructions].

Huseby Alex D.A. from Davidson. from is question next Our

Alexis Huseby

Davidson. on is for Peter Alexis actually This D.A. at Heckmann

businesses processor be and a of update including could the to new us Pace Should majority done the offices? moving timing merchant integration fall, the consolidating on by of integration early the Data NET So deals? and Pace the just starting off, of of you

Frederick Stanford

Alexis. Yes,

schedule. on I relying The we're that slowed much than activity a resources, of not couple because might As I bit outside that, on more Pace said, a would think conversion is pretty months. but push

with Data, I As see efforts we're far schedule either. with on them. don't there NET issues as integration well any

Alexis Huseby

then what Great. of I the didn't And the contribution but in quarter? Purchased release, it the in was revenue see press the Portfolios

Clay Whitson

$X.X million.

Alexis Huseby

just a for quick quarter? modeling, shares good then And to fully a Okay. diluted number the fourth what's for use

Clay Whitson

use. just to Hold million XX.X would million XX on I second. a

Operator

conference Instructions]. no questions are [Operator additional for any the I'll or further there turn And appears remarks. closing Gentlemen, today. back to you it

Gregory Daily

about -- old us year especially and seven you. And how the Thank excited pieces and accomplish. pipeline, we've calls joining have for IPO. very we're business, just I'm We're to been very, nicely this given a still with come team our Again, thanks morning. future the very excited you. about able together the since what the

a everybody joining you us. nice has for day. hope So again Thank

Operator

And that participation. Thank does you today. conclude our your conference for

now You may disconnect.

i3 Verticals (IIIV) 9 Aug 192019 Q3 Earnings call transcript