IIIV - Earnings call transcript Q1 2020

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Operator

Good day, everyone, and welcome to the i3 Verticals First Quarter 2020 Earnings Conference Call. Today's call is being recorded, and a replay will be available starting today through February 18. The number for the replay is 719-457-0820 and the code is 8962025. The replay may also 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, Chief Operating Officer. sir. ahead, go Please

Scott Meriwether

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

on call Rick me Clay Joining this Whitson, and our our CEO; Chairman CFO; and Stanford, President. are our Greg Daily,

release. extent intent according you enhance also to to reviewing call, the GAAP the in that comparable to directly earnings reconciliation will any is by find measure To discussed It financial financial company's today's most of understanding a is the measure non-GAAP measure yesterday's prepared of, calculated to addition its consolidated GAAP. provide non-GAAP accordance as information non-GAAP not be the in of financial information prepared in each with in This instead financial statements to, but individual with GAAP. accordance financial considered information should by

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

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

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

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

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

Greg Daily

all of you. Scott Thanks, good morning to and

performances XXXX delivering first with look pleased of throughout forward strong our are XXXX. We and quarter to fiscal

will start little results strong more quarter Clay detail is Our to financial the a a fiscal later. the first cover year.

million in EBITDA at strong revenue company. million sector of Pro adjusted revenue and increase increased public vertical forma from $XX.X QX XX% to million XXXX. XXXX, QX internal QX XXXX of and $X.X of million One the in growth XXXX $XX.X net from driven primarily our to net in $XX.X was by highlight in QX of increased in throughout

growth software in delivering market vertical above achieve and markets. rates to to integrated SMB’s continue payment seamless by We organizations and strategic solutions

continues QX from Our Integrated volume QX XXXX. and payment integrated in payments during in margins up XX% potential. of attrition, results to of market payments our of XXXX was greater higher grow. XX% volume growth integrated lower

deploying within We education public particularly focus verticals, continue payment our well our to technology, on as and technology sector new and existing as platform. streamlining

from we Our sales future help drive teams increased it and anticipate momentum these are will offerings experiencing our technology growth.

leverage offering our is But believe momentarily. we very note distribution We have and leverage speak will software further strong. our that our will I our channels assets. opportunities platform can continue within M&A we for to to technology to our Rick pipeline payment

Our focus remains public primarily education sector verticals. and on

other software-driven acquisitions target have provide to In and verticals opportunities continue strategic addition, payments. will to we that

would you provide financial please overview? Clay, the

Clay Whitson

for acquisitions QX The year Sure. which million year Net from XX, strong $XX.X growth fiscal verticals. by QX sector XXXX, to of following $XX.X the a XXXX. education our principally increased quarter XX% million with revenues and started for XXXX December quarter. pertains period public three-month is We in first organic ended to XXXX the and strong driven the

presentation supplemental presents as network quarter, shows face revenues income XXXX, fees in interchange ASC of the decline segment to growth of QX a of the presents last on From fees. apples-to-apples in revenues discussed comparison, of the of XXXX please revenue the and filing. adopting and network net QX As call X-K contained statement yesterday's refer result an XXX, a interchange

You can it Presentations. also & Events access under website on our

grew for XX% strong organically. Acquisitions business, and XXXX. benefitted growth contributed million growth net IPOS our $XX.X $X.X the public from for quarter. revenues education, Excluding to ISO. QX to $XX.X for Adjusted sector, million revenue X% net We QX in XXXX purchase million EBITDA from portfolios grew and BXB the

Please press XX.X% reconciliation our as in for a segment decline software The a which offsetting Adjusted net decline for resulted QX lower between as a X.X% was XXXX. margin for percentage net percentage I proprietary EBITDA the from XXXX. adjusted and discussion, segment XXXX of unpack from from improved QX to EBITDA. and income XX.X% X.X% release of QX a down for will see revenues XXXX, expenses the corporate net QX partially this for revenues

press and full the step-up please first earnings Again the to diluted reconciliation. following costs year for refer The IPO. share the in public improvement and per were a was description Adjusted quarter. our the expected release for following company $X.XX

Segment Performance in and XXX% Payment reflecting performance, QX from grew Software In Segment for segment, please discussion. proprietary million website our with to refer to for acquisitions our titled revenues for on XXXX million XXXX our $XX.X and organic verticals. the reference net education sector $X.X supplemental QX and growth this slide public

million EBITDA net our reflecting vertical. acquisitions XXXX principally sector XX% QX in for a XX% was EBITDA for XXXX. $X.X $X.X from QX percentage as Adjusted recent public XX% to versus increased of revenues million

the fluctuate custom can mix vary was seasonal significantly companies, factors of software year on will ago and revenue based are steady quarter-to-quarter. while builds double perpetual a license and sales margins segment revenues payments the This size, is SaaS streams, and it and continue revenues to

net might sector, such bill public utility carry might as to while X% tickets X% be yields the X%. products some revenue Within traffic the

month happen On the flipside, utility infrequent. while bills tickets traffic are every

volume and love bills. utility with the consistency we So,

web-based Its is billing XX% a utility product time Our margins over but acquisition, range currently latest software. company are grows. its will grow the in proprietary with AVR, as refueled

which for million the This XXXX $XX.X increase Services in Merchant from to channel million our and purchase QX BXB growth portfolios ISP including from for reflected Pace. direct includes our revenues and growth sales $XX.X QX continued XXXX. for increased XX% double-digit excluding ISO segment Net channels

other we While customers sector include Merchant the verticals, ISPs. with we Pace mainly own public in the partner our because signs Services education not we them and in segment do software,

with we communicated XXXX taking transition adjustments guidance. for that are still SaaS timing is $X.X declined quarter and business, portfolios the last XX% expectations. line purchase the our hold The baked our million revenues to into in IPOS net to In

segment increased for at our XX% QX XX% the June XXXX $X.X XXXX. conversion million was which should QX for margin EBITDA the costs from Merchant for Adjusted reflecting million QX XXXX $X finished QX XXXX for of for end versus The to EBITDA Pace Services XX% be by quarter.

sheet. Balance

million of As $XXX had XXst, December we credit. revolving under available our

is Our agreement, in as leverage while X.XX was credit defined constraint ratio, times. current our times X.X our

rate interest is X.X%. around Our currently

to connection start be year to or gives repayment. us debt fiscal time, into the EBITDA roughly our which free flow looking for two-thirds in forward, our for following complements strong guidance more purchase we fiscal Over diluted acquisitions deferred $XXX $X.XX accounting. and transaction-related to used revenues either acquisitions XXXX. costs expect pro $XXX adjust of million Adjusted can the convert $X.XX. EPS with cash Outlook, It to million and excludes million, and of $XX EBITDA forma revenues future in $XX adjusted to software write-downs million for

for by unless have intend issued adjusted changes interest EPS. EBITDA transition business net the the for adjusted our forma revenues for year We that million, outstanding to previously to We IPOS guidance and material amortization, diluted range recognizing expense, raised guidance occur. diluted our cash shares maintain during pro We will and SaaS to do not $X update fully fully time our the depreciation or implement. take and

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

Rick Stanford

morning, Thank everyone. you, Clay. Good

about outlook, first to talk the want you the call. to Before M&A few I information a on our updates give I quickly provided relative last

process verticals. customers our First, That sector offering verticals, each pursue in a is a comprehensive are going and of towards those we our continuing in of we are and more public moving to and unified suite education robust well offering extremely product products. rapidly

of ISC we the conversion begun business. non-integrated conversion have to we acquisition, relative and process non-integrated now Pace integrated the hope business completed We the piece have completed summer. Second, for the the by to the a have end of

people We opportunities at continue with the table. and be the to to the Pace bring they impressed

decision of acquisition throughout merge the subs allowing today a for teams, access ISV and level us salespeople the to winner to type offer. have to here Pace The enterprise proving little engage both to this the at be company to and us iX no and and other to is the

at in ISV our our is on of quarter Third, of XX. the first integrated number fiscal fund ISV total front, end the the

been very M&A, since a part deals having a operations, stride. I'm finance, our hitting new and M&A, nurturing team group, acquisitions it's is year. post-close success our potential stronger cohesive team that legal regarding includes to diligence, potential closing overall pleased is to each half to pipeline This one in from than today for our IT the Lastly, functioning and support. say as

point, we are sheets process flow, To two for have the natural regard executed busy four to quarters that activity. While been especially have us has in last acquisition and M&A process. we ebb optimistic with the and term currently a

sheets various with term are be that these non-binding To stages these clear, them we no there's each of are assurance and and of close we will of ultimately diligence all due in of our and BXB the from these we with that deals. like is Each of and spot, public presents. sprinkling sector ISVs to a sweet them of deals education, opportunities in each

some with these a little our and potential to others pipeline deals, mixed addition on with public education emphasis in. In a heavy sector general populated is

can where executing deals that we year. believe While generate strategy new and nine our will as in this saw more we or year M&A remain anomaly close we successful believe an last we we acquisitions, five still

we'll time, it up This Q&A, concludes Rochelle. my this for open At comments, please.

Operator

[Operator we’ll our Raymond today question Instructions] hear from James. Davis with first And John

John Davis

X% to Clay, sequentially Glad ex-IPOS. XXX organic basis off hear start of growth. on to points salary just wanted your

that there, year specific of I anything number to you but still full there in that. So out business a to and well, any call baked any just wanted confirm just single-digit high performed the have assume guide commentary kind

Clay Whitson

Well, can't I confirm.

year, the our maybe the for on strong ISO channel, of in for digits education was to to channel. the single remainder high-single government but board year. expect our average It really quarter from the BXB across every even We ISP not

John Davis

X the also sequentially. improved And basis points then yield

Is XXX rest Just that net should the the year? ago. proprietary about points integrated? think under set basis Is the year model I out yield XXX that we more software? is of more to we versus think revenue how as that a

Clay Whitson

software has Well, segment doubled more with the software size. revenues. come in And that proprietary

software our up from range I maybe this of That's at was the of IPO. the as revenues of think our XX%. a in total quarter percentage that half revenues

the was happens, what higher. second as our yield part it that blend And question? So, your of revenue takes

John Davis

No.

about think - first in of about you kind of quarter thinking how anomaly, your specifically was the it an any just the rest and rest that for reason Just that the high year. it the of

Clay Whitson

No. think was there I no anomaly. don't

John Davis

give the have leverage $XXX nearly Rick, And million I four terms in deals, you combined think, the of us Okay. anything suggests capacity help can of to just of you the us frame, anything kind size math then, of year. my into based

think we're four deals, how glad think I to but So, about I issue, very to those. think trying to that's an size but just hear

Rick Stanford

fair Yes, we but that's yet accurate stages, an various a a question, don't we're of to give these to enough we're in measurement data at have and John. us stages, deals good you on definitive of any size. give measurement early Unfortunately, the

also Size, factors early. timing, that too have be There's of lines parties. as it's far consents multiple code third into total go from As reviewed, timing: that to

So, I can't are close. deals those you tell going when at either this to point

think we have I capacity. the

So, able right know. sooner know to don't but don't detailed now, than give you I'll hopefully, information what be later we more we

Operator

Next, I’ll with Mihalos Cowen. move George to

George Mihalos

the Congrats accelerated growth. on

you that kind the as on have possibility be know streams past faster higher said entire across certainly what we're revenue little the choppy trends inorganic where to more business? point, you’re to just maybe So, remainder these based year organic, go that there the off seeing for. could starting you're quarter-over-quarter on rates off of a in the could year a of bit and the we through and double-digit going growth looking go quarter the the like, growth than growing but that we start the I is of the

Greg Daily

single A possibility remains is our digit. think always I but expectation there, high

George Mihalos

And that's what's Okay. embedded clear? be just in to outlook, the

Greg Daily

Yes.

George Mihalos

potential point the quarter? first headwind to for in know on quarter, first was had of the in million impact year, million said, side any impact the $X of there I $X there you Was the sale any

Greg Daily

full but is huge SaaS-based the new products pretty a January, was Essentials. now. There in deals product it impact. The In from XX% wasn't MCR of Essentials were has which is swing - our

We now longer started it took we're for think very a would that’s than in. pleased to we're this excited competitive so but and we started, with a get good getting it And lot product thought that it how about it. it's fell -

George Mihalos

year-over-year to if last think That's and as some basis, helpful. is expense the we little you will, on we at continued on there's margins for of And right bit just on about way a that question an going year-over-year? could the offset, corporate compression a software it forward the look me, line side the have

Greg Daily

of it I lower to XX we margin, they think on hope margins. a because they’re guidance standalone continue George, where issue because for can do the range were we fall, AVR a but depends people in mix but us have they improve is company. that we

double-digit with public better sector grow over of our I can a time. so, into lot And margins growth, think companies

Operator

Next, we to D.A. Davidson. move with on Heckmann Peter

Alexis Huseby

This is Congratulations Pete. quarter. great Alexis on a for on

So us growth in back how could on the transition, just you touching for the quarter? IPOS organic that affected quantify

Clay Whitson

but would growth in it if been been, organic have great growth have by the amount. include Well, would organic smaller we calculation, not a

X, was and $X clearly $X October it of gave million at to not started has million happened. that I year beginning impact revenue which all think the the of assuming we

million million the that is carry of revenue not original $X estimate IPOS is million conservative to from estimate, $X of A we good of So excess into it. proving that and but a $X to portion be guidance. all

Alexis Huseby

thanks, you mix give should how shift That’s a shift about in on in an Okay, then, quarter-to-quarter we thinking to any could really update public basis us be sectors? Clay. this And helpful. seasonality on

Clay Whitson

quarter Well, pay shutdowns have in pay schools. the coming bigger in this Public now also are is quite education's was just strong a it collections June-July now in government and the we school quarter. impact a In coming that school pay Sector QX, But that's quarter because but weak good for of it's before us. specifically usually

Alexis Huseby

if So on say Education, relatively combine Sector which had quarters seasonality Public and would the new weaker versus are together you impact the from you to stronger with acquisitions?

Greg Daily

because and for other our third quarters You the of quarter. know basis still of no relatively than are one months. we've revenues a three virtually strong consolidated people on I’d say impact feel got all all we That is on the two Education the

from But that's the been companies always And in know. case the the payments is weak. non-integrated business, you January-February other

So it have a January-February. weakness government to in helps that counterbalancing overall

Alexis Huseby

give in Thank Okay. just you growth us could you. force? an sales direct And then update in

Clay Whitson

We’re consistent and XXX between changed hasn't XXX today, much. with

Operator

to Next, Instructions] I’ll Beck KeyBanc. [Operator Josh move with

Josh Beck

pretty ask to been wanted more to in happy I about out work with certainly like It Anything the synergy had Pace. seems call to terms you've as with you've time a opportunities there. of bit team them? little

Greg Daily

their sales a to about how us and us able ISPs, upgraded taught been for it how of to sell accounts. - channels. to in now, roll when them that have crazy we're They our they’ve that. distribution more like comes being when really feel I lot trying new through productive to to and harvest out It’s comes it to,

pleased. So, we're very

on And I say not lot think to we're it's we're other. when a did say hoping still best made I the I think by was learning we've the about note deal we're that midyear but XXXX ever done. I track each deal that to we -

Josh Beck

within of verticals. you and Maybe education you're that or for of to terms that understand us build think building some benefit those you're help I the the you are a public behind-the-scenes making a changes business and what just bit about customer then, out? hoping talked ultimately, as platform platforms little unified in Rick, are benefit either sector

Rick Stanford

Good Josh. question, Yes.

we take the an we have public products. from, So, the sector business brought In acquisitive let's example. overlapping the for together IT salespeople, ours, like CEOs, folks

on need good. product is so vertical. which not some and products bring to that determined are with public we suite We gap a group, we Some are And and forward all wanted good, took to market. the a move then did sector we total to analysis what products we that under

this how and that How those did focused in do back-end. So do product each how sales other? with And communicate on on the sell, it the hands? we underway. of decided suite, we price we get do people's and are discussions we’re we Once we all how

do our are subs. So we sales competition. something subs really a We offering multiple team at is which They're other of excited. across cross-pollination working unified What we provide as goal. they're providing? seeing ultimate and this look product that And our got to people not product some need that's our now is

So being out that people I for better can’t sector best breed to with within about, go than us. products suite one are things excited that of public imagine

Josh Beck

That's your couple either BXB to you out great I to of opportunities? growing called or times. you you is you remind exposure when think opportunity M&A had organic there? could an a that about when that Maybe the noticed hear. us of future just out And maybe of area look

Greg Daily

a it's grower. strong Organically,

I M&A think space, valuations BXB from the equity, market are an with private are some love high standpoint, in BXB. the in

acquisition that not to XX% hopeful we’ve one BXB it’s be continues we business our might it grow. but I’m so magnitude - all and large. order the continues a It and to about got, of And it love of

when our growth a So growth. large good organic that company helps has

Clay Whitson

Josh, their And, the of four and companies answer now. say this sheets. They and core into focus BXB that's and mode mentioned that moved then one education in I’ll under I a term started that the morning as

up bring after So we compelled found that I a BXB weren't felt it we to but today, group. type acquisition this it's operate when a going since place we

Josh Beck

but that if of industry I'm interchange the and just Okay. too helpful. there's of certainly Maybe early, that's and they more And changes some to not plan some the sure coverage Visa question it's make.

discuss? read any just I'm that's So read things too or - if it's potential on those of wondering to that impacts any on there's if maybe early one from early

Greg Daily

slight and positive at to us. looked net, a it We've we company-wide think

it of it's So deal not big but not positive. it's be it a - will so that a is negative,

Operator

closing Greg to Daily question-and-answer the conclude I for back time, like any would At And that will this session. or additional over remarks. call the turn to

Greg Daily

to have the well growth. come year all we encourage I things in the We've feel of had XXXX, exciting our last stay Thanks everybody. together we're that and very on a working team, love Thank tuned. soon. to able you, hopefully, update to they you. lot you got Thank the amazing great a start of be you like I and to we'll

Operator

will for today's We that participation. thank call. conclude you And your

i3 Verticals (IIIV) 11 Feb 202020 Q1 Earnings call transcript