IIIV - Earnings call transcript Q2 2020

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Operator

Good day everyone, and welcome to the i3 Verticals Second Quarter 2020 Earnings Conference Call. Today's call is being recorded and a replay will be available starting today through May 15th. The number for the replay is 719-457-0820 and the code is 8694705. 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. second 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 pandemic. the regarding and Company's operating call meaning Reform the potential contain the expected Litigation Securities and of conference of the among of COVID-XX Private may XXXX statements and performance Act forward-looking within expected financial including the This impact

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

the that filed cautioned the including forth earnings differ these COVID-XX the in operations risk results and from uncertainties actual Company's and statements that affected by may hereby may to statements. materially the others important the are You results release reports associated with in set or forward-looking be in furnished factors are among forward-looking and discussed SEC pandemic. Consequently, the

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

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

Greg Daily

delivered all fiscal to morning the results second good strong impact quarter of and of you. despite Scott, We COVID-XX. Thanks,

extremely many in and by to they've of call, first flexible proud been crisis, our this this of our focused, I'm call. I supporting employees, inspired their and start we are dedication response employees' this listening As to to whom customers. our address want I'm

year QX year quarter million -- a net from to fiscal of was in revenue, Public forma primarily past in $XX highlight million QX in XX% fiscal from adjusted XXXX of as in X.X revenue to of XX.X increased of XXXX XXXX. XXXX, million revenue million net the QX vertical. QX Sector the in One growth increase in $XX.X EBITDA Pro from increased and

XX% integrated to Our from XXXX, payments up fiscal fiscal payment was during of volume QX QX continues integrated our grow, during volume of XXXX. XX% year year

throughout to COVID-XX. we crisis see the half The the use quarter phrase when these to March, Company of describe The began year. would any school common this business times. orders, or to momentum unprecedented of impact the economic imagine had great a for in current second time until the closures, I the K-XX not down mandate remainder do when a of stay there at be us is, shutting think home of schools government

We greater fiscal our of our anticipate a impact third financials quarter. of in COVID-XX

net revenue Our XX%. the education in impact. total run XX%. revenue rate of The down and education our XXXX was XXXX, in payments hospitality net -- April of customers had revenue net to April rate was greatest From run the down education have

model software in to decline offset helped SaaS Our the blend the payments XX%. related revenue sharp

allowed Payment customers traffic and to in decreases. as hotel restaurant significant were they customers. volume slowed. fell saw was restaurants, Our also hotel not The host

March, of hotels restaurants from and Our fell in as mid-month. COVID-XX revenue hit XX% net the month

sales both system in continued new weakness payment and volume throughout saw POS We April.

and impact less customers Sector volumes. an payment Public in experienced BXB Our of

recovery. market of impact serve verticals any our well Our performance, as anticipate diversification the have in one reduced we overall also on the this diversification sector multiple will in

intense our payments delivering normal. anticipated current our on for providing in COVID-XX with solutions. platforms, customer's awareness their solutions iX and businesses has solutions three our will customers in an the that new omni-channel contactless of enable forward, enhanced verticals. needs that on provide an across environment focus We've Going focused responded is all

lead historically One slower have to been upgrade to checking adopt their two verticals integrated ability electronic these Education push be payments lasting two a COVID-XX from will with of software believe of electronic acceptance We and platforms. further will cash particular migration will Verticals constituents' markets needs. impact payments. electronic to through accelerate Public payments, Sector technology and their from meet These in COVID-XX to

and We Education budget Public the in Verticals Sector will believe also have pressures short-term.

of payment issues. and many solution will Our SaaS these platforms alleviate

payment and these volume local schools verticals two out been in our governance business. have impacted, While go of K-XX don't

activity growth to rebound their verticals to and two these rates. expect historic We

I about visibility will the greater into activity uncertainty we COVID-XX. of on to paused put economic impacts environment, and briefly wanted our on acquisition touch to there's the until Rick We M&A momentarily. deals hold. several speak strategy. Due all

Despite economic continues current pipeline acquisition last our the over build the several environment, to weeks.

balance have We sheet. strong a

note us provides of convertible recent Our activity. for offering with our plenty ammunition acquisition

stronger volume we payment to entered. are We with April States than open. beginning exited

anticipate are positioned rebound. grow pick We simply we up M&A economic our weather months, see short-term well the we for we we up, again. but both in pause heating like few As activity the a to feel hit activity and crisis

solutions customers' We have meet that needs. our technology

forward share As economic are performances. the to strong confident ability May and our of begins, market in deliver continued gain future we We signs economy recovery and see payment look in our to volume. improvement and

provide please financial you would Clay, overview?

Clay Whitson

the fiscal following month pertains we have quarter The adjusted XXXX, of solid March EBITDA net with Despite the of revenues XXXX. the a ended million second million. period to quarter is COVID-XX $XX.X year and $XX which downturn, XX, of three Sure.

XXXX, and driven Verticals. million in acquisitions approximately million $X contributed Net by Public Acquisitions Education revenues the increased quarter. XX% for XXXX Sector $XX.X for in our principally QX QX from

to XXX net QX XXX defined revenues. divided by payment software for XXXX as basis for improved increasing Our volume revenue revenues reflecting net 'XX, points yield from points QX basis

revenues interchanges revenues fees net XXXX presents interchange QX As the the statement in network XXX. the -- fees. gross XXXX result discussed gross ASC last quarter, and a presents presents decline a of of on revenue of income while adopting shows face network call revenues as of QX and

an to the supplemental For please comparison, apples-to-apples in presentation contained yesterday's filing. refer segment X-K

quarter. business, a growth. growth X% two stay closures, government companies, consolidated flat our was school We with and on particularly the March, April. for took IPOS purchase toll at during But growth, XX% the organic the April on closures, for approximately weeks and organic the basis. portfolios volumes orders home mandated organic a exited for pace of business payment of March and Excluding entered last a continued on same through set We year-over-year our down

sectors open to grew up. million the of expect net and reconciliation XXXX we release between X.X from XX XX% areas, million several Adjusted the has week predictably and as for resume see press May further first of to economic economy QX in XXXX. income EBITDA Please has as and more begun for adjusted EBITDA. more activity The improved for QX improvement

from have In per instituted reflecting for the Adjusted EBITDA to XXXX, QX April impact, quarter. margin we was million over COVID-XX impact. this revenues EBITDA down costs that of XX.X% our as cost approximately would the of the improve X for expected than absence 'XX, saved savings XX.X% QX lower to quarter. a we spread previously COVID-XX net Effective revenues fixed disclosed Xst, percentage net anticipated due

software an segment $X.XX to and full X.X our release our were performance, to discussion. grew share exhibit on the for refer as reconciliation. reference to yesterday's to Segment for and for X-K from please reflecting and QX segment, net filing slides this performance description for Verticals. the payments in In press with QX Sector per for our proprietary Education XX.X the Public XX% 'XX, revenues million and please earnings XXXX million diluted website quarter. titled Adjusted Again, refer acquisitions supplemental

up Adjusted for XX% versus reflecting Sector EBITDA principally for the increased absence Services works XX for in million QX in XXXX, net vendors, million XX% X.X XX% school excluding to and Merchant recent our QX with held have million well XX.X EBITDA as from environment. Sector growth 'XX, mainly Net was X.X million, percentage to vertical. Public the to utilities, of exposure a reflecting portfolios of XXXX, business, at payment 'XX, Payments Pace reflecting closures for revenues QX increased which which COVID-XX revenues. the with our for purchase principally QX associated revenues our principally software segment, good acquisitions X% Public

XX% for the margin was EBITDA declined for X% segment Adjusted with declined X.X QX expectations. our Services 'XX, 'XX. higher EBITDA to the for which decline QX in million XXXX margins. reflecting million purchase from XX% portfolios versus The purchase QX QX The line XX% X.X to Merchant X portfolios, XXXX carry for million for in

we balance to facility. strong The our sheet. offering $XXX notes in in borrowings convertible was Balance used million, February have credit revolving which under brought executed sheets, repay a we

$XXX we XXst, resolver million As our $XX a facility. had of which million only borrowed March under is

leverage ratio low was our senior times. X.X Consequently,

notes for convertible revolver EBITDA the times the or X%, current interest roughly for acquisitions which is used notes two-thirds repayments. convertible times. X.X leverage Our free we can either the the which for currently includes total into be Overtime, ratio, The the while X.X while cash convert of are rate expect X%. to interest around was flow, rate is constraint debt

time. significant in reasonably is ending any at economy the output which XX, the difficult Therefore, results Company's year the extent September not Outlook, the to future uncertainty this COVID-XX pandemic XXXX. providing Company financial has the to estimate COVID-XX for created impact and the is fiscal will

do estimated representatives run vertical of prior rate mix by a However, COVID-XX, with we to understanding basis a in this not currently update plan the give to to better our business net on revenues future.

XX%. Public restaurant that's and XX%, hotel. other care BXB and XX%, Education nonprofit hospitality represented XX%, both vertical Our retail Sector health XX%, XX%, X% XX%,

and Greg in As impact pandemic the our hospitality seen education greatest mentioned, we've verticals. the from

were During April, revenues education payment net XX%. down

SaaS net down rates software run declines education revenues so the which have April. total XX% revenues were We in the cushioned for

after for Labor hospitality. to Greg K-XX expectation the schools current in Our decline reopen discussed is Day.

have service our lower us not Governments recovery. do and we an will grow Our BXB schools over diversification out seen business, well is care go and other and health positions impacts believe time. essential that for verticals of

customers away payments providers. from our have offer cash other and differentiated Digitization through software and check to solutions we leading will integrated software our of and payment continue,

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

Rick Stanford

Clay. Good Thank morning you, everyone.

information. Before I want regarding our about few quickly additional updates a on new talked provided to give information status, first last M&A and I the some call you

and product a suite work First, products to vertical. we're in robust intend comprehensive together unified Sector of in our that offering a on vertical seamlessly. more our this offering customers pursue We continuing Public

we Second, It to the a looks now planned. opening summer. relative to the as completed end goal start be is will we midsummer, if piece one businesses completed non-integrated caveat conversion, as have by ourselves that for set of Pace the the

that second on of process are with more likely implementing Third, integration. number at of products many and choice verticals. like front, and payments with signed our educational our contactless, ISVs methods fiscal we've with be end in-app Four, quarter of the discussing consumers three online of to payments the XX total communications integrated ISV our new is around been and existing

customer we expectations in and those COVID-XX meet is to intend expectations. areas, changing these

with products our deploying pleased front. and on We methodologies are the are business that this leaders

regarding those this time, M&A, QX sheets having term of and the Lastly, have new recent is downturn preparing the still part has our interested we pipeline we that to The affected not still as were and very in to during pipeline the add continued at are team. pipeline. for deals full

opportunities fact, of couple the new have past months. arisen In over

Strong decision making business. a driver a acquiring our organic been growth about always in has key process

if to added now normal. or likely partner the was by COVID-XX understanding around diligence of We level potential acquisition whether, how the have business new is in and the grow affected and an when extra

term of Mid-March, restart pandemic we with understood these made We Without the full on ready acquisition in potential call, and process. to the stay mentioned stand for and diligence, exception, impact QX a of all tensile each those executed diligence sellers have sheets the decision seeing the industry four circumstances and we preparations closing of on go trends. to their process deals.

the the there are start world, future, acquisitions vertical an a in we Public effort in guarantees strategy four hope completing COVID-XX ramping and education particularly no near to to in in towards Sector. these our up Although accelerate

some with successful pipeline in general an M&A Public in. will start Education remain deals strategy with on executing emphasis mixed Our and again. closing we Sector We healthcare nonprofit our believe once that we populated is and

call the concludes This open for Lauren. my we'll questions. comments, At time, this up

Operator

[Operator from Mihalos you. question Instructions] Our with first Thank comes Cowen. George

Allison Jordan

BXB, verticals, your your around key about, example, commentary and What which we and be ultimately impacted across percentage first for for really diversify My questions you iX's George This to on being revenue Sector business from you unique Thank glad heard for more COVID-XX? my given think insulated. do strategy everyone. will by you taking Allison hear and question is to of the is Public

Greg Daily

Well, there, I Long-term, well to think will other customers those of to expect verticals. government currently, on and market because we've bounce back attrition go some think don't all out we declines share seen of we but it technologies and I XXX% education side -- impacted Hospitality the different with is see positioned business. gain we're our different

Allison Jordan

you curious, exited in you if May. about the cadence week volumes Clay, volume then improved the I'm I first April talk can you're little And and XX% of a of seeing. payment mentioned that down heard the bit

I think I'm how peers? to in April. you've of I throughout similar got just that if your volume commentary trended of mid-April some month right. from that payments declines curious experienced And peak the

Clay Whitson

areas. opening economy continued the of all to May. first April had up market week in as across was certain a the sequentially the And improves and May It of improve week back first improvement

Allison Jordan

-- hear, go great. That's to good last then ahead. just Okay, one sorry, and

Clay Whitson

was improved and then has again. worst, Well, end of the improved April March and probably May the

Allison Jordan

And then And are would in, pipeline, me, transaction close respect just also you lastly, have environment trending? with by then the this think one do seen a feasible how given of be last from to M&A fiscal you the year? multiple we to end it

Greg Daily

able Yes, be end. year close think deals by definitely we'll to some that I

tuned As far in and the we're appropriately. very as multiples, we'll respond market to

Operator

John Next with James. from Davis comes question Raymond

John Davis

to on kind leverage would appreciate And close about COVID year? this So deals capacity question. Rick, just on think should later willing take I M&A, maybe be other comments in the how we the do you maybe we're side the leverage following where What fiscal maybe, this of of world, sort the of or but last have?

Rick Stanford

of cash would then, flow. those all, in first. environment, out are borrowed current deals of XX of first lot Well, then have line, are we we probably address And those most small credit our of well we the would under in our strong that a and And ones the XXX. trending be capacity only April, have

size. how see And we those believe acquisitions between smaller currently some things, make so, we strategic ability but have the we'll it are goes, to that

we're covenant Our is leverage currently X.X and X.X. at

John Davis

Okay, limits that. I the upper would Is going that fair? not environment, this you're to push in assume to

Rick Stanford

That's fair.

John Davis

And school Clay of going about or who it And Greg ease the to a the was mix maybe are bit little what the fall? and talk we business, maybe think kind biggest. as likely school back just geographic reopened education then states of about in

Greg Daily

I nice Ohio, more Colorado, California impacted are and businesses a California, they a a little and three, Colorado. mean but we California do think group may be than of have Jersey, New I a bit Ohio and to

going states, believe and on in We are, in with tune fall. what's each of time on they will the the open and we

John Davis

the me And that is had mentioned seasonally XQ Clay, then think, that you the weakest. I remind

forward we fall? us about education the think going strongest year. the we model just about back quarter into the which cadence, think mix in as the help education for is in as So the full school about Maybe to the think

Clay Whitson

September Both have their off and SchoolPay. a PaySchools and They're fall you then strongest a very in quarter. strongest about a June. quarter, get quarter. the the SchoolPay quarter quarter has because June half in in different month March May for SchoolPay zero little in in the

so, had And to still quarter, quarter a painful. this if pick for be wouldn't happen, but to I it's this very the

John Davis

elsewhere. maybe negative maybe the some numbers you And think some comment appreciate but heard overall impacts pretty one But seen revenue Have the on healthcare guys there. really verticals, percentage not the last breakout I for of horror different I then we've bad healthcare. me. stories, significant on there?

seeing you're Just vertical? curious to what your in healthcare know

Greg Daily

healthcare nicely. held very up our No,

Operator

Kupferberg with Our of next America. Jason question Bank comes from

Unidentified Analyst

thanks people sort where an [ph] of versus being trends restrictions to states, that on is one in orders my on an already stay-at-home Thank just in for you as payment My are maybe transactions? volume seen lifted states haven't searching taking increase Have sort about question. of more or mobile online lifted. seen you. for This seen update asked first Jason, you've is trends Cassy

Greg Daily

we we But the around of the lot in the in by opening saw increase. has a So May. definitely you a of hard. tell state. end everybody's we've state believe X How I online. April. business mentioned, That I continued and think But have think I our can started is don't seen? May uptick nice I it's seen

makes not But a change. that So improving daily it's like on us it's basis.

Clay Whitson

present Our with pretty number number our closely card tracks we integrated not report. that

to So XX% we traffic has our improve you present. overtime, of is been That continue industry card not wide as and increasing that'll think know, overtime.

positioned So there. we're well

Unidentified Analyst

Have which you April back to May follow-up the that, a now? fastest bounce as and verticals sort seen incrementally of into And throughout

Clay Whitson

opened closed. been school, Probably restaurant have retail up. as completely have Not schools states

Unidentified Analyst

me. just but I the which how And ramp of more one get of areas of or of focused payroll the from sort sort later wanted other little a again, long reducing. And more things run cutting? about up bit of as cost come maybe you. just you're expenses back detail question Thanks. Thank obviously will cost to areas on sustainable some

Clay Whitson

which not we But XX% Well, a costs. And $XX like less revenues, will $XX if most apply expense, expenses. that. for et The over could quite a our -- that you headcount, is That's that. this rent, modeling cuts our mainly have bout a little gross operating you're of we've fixed million that number, million percentage else relatively made of little cetera, a everything and margin, about than to reduce employee operating Okay. is related quarter. insurance, whatever ran

[ph]? that is over our again, current little pick a And -- if it'll million over rate revenues back But we so ever that Cassy Does $XX run until a change up is increase number that number about, time. if reduce and we help quarter. could

Operator

KeyBanc. Our question Beck comes with next Instructions] [Operator Josh from

Josh Beck

everyone a a bit wanted broader color a discern, to tough of might it call, but staying is be everyone ask. to doing question. the little well. Thanks and would of helpful And I here for I glad lot little ask

you of Just just release decent or been know as made businesses of these little have tough I'd small a be discern, seen to a thought any given some within over portfolio, have last but I impacts you month? number might have the your loans ask. PPP

Clay Whitson

We haven't the that we information comment the see the seen know don't in on but our end didn't in impact, seen it volume. rebound at in of data at definitely but don't spike anticipate a see of, be a will we enough of We granular May there I -- have merchant PPP end March. I attrition. to some, we've

Josh Beck

sure And good I business is the a card-not-present but this mentioned I'm cut way, you've integrated you for the not mix. think mix your proxy

you way were any substantially at cut it If to growth the look just it pretty you to but way? mix, I'm different card-not-present have quantify that, is that sure and not rate really a

Clay Whitson

of reported we've Well, and seen more made spike just more quarter, over the acquisitions. because it's have know increasing that don't of mix, business been that environment, as result we every it's But we've would software I number I as a been a say.

Josh Beck

if not I within couple last and ones? the ones couple Public or year-over-year even defensive more resilient be highlighting think terms ones or Okay. growth verticals, say, year-over-year your the positive just across more may there trends flat are in ways, to I the your we weeks, guess of the there's been of of Sector is some still look that close was there of you in actually had but that some thinking about any And a of different I

Clay Whitson

the good. good. was it what can had rent a share But March, bounced very thought roundup and education above any I back. was was solid education, know us weeks. it's year, happens don't Sector last March, that thing and coming was It small, down And two it's a on the the hospitality healthcare I but and we -- a so comment Public is in expected. up until good that's we dragging BXB non-profit bit, little know pretty just is I warrant

Josh Beck

just other just book So reasonable business. quite to on clarify. lastly, it seems for the And like the visibility of side then is your

that XX you want think good right? a that of that Or think mentioned to run number is next I April, I about is that Is to make -- model good million. you've quarters? over overtime that just Clay, I So rate the when get a is sure couple

Clay Whitson

Well, so cut XX.X and effective a the was dollars. Xst, quarter million we March then April

XX.X. would that so go to And

April overtime. it's something happens So, We it that not done got Xst. on

Operator

D.A. Our next comes from with question Heckmann Davidson. Peter

Peter Heckmann

interest probably budgets regards In some Sector if early? there? solution Public convenience you thesis? with little integrated fees still for that that should to an seen budgets, state as early, agree do Or payment in that's self-funded. seems is of it played if municipal on effectively and see pretty it Have includes pressure space, the local it's really And an a will well you that uptick

Clay Whitson

of in a in government. more Well, willing are seen the get that or automated there to to of we're schools money. And going exchange we've digitized see lot pushes of that, and to in more

in have a government, are education only payments. mix of business and revenues XX% XX%, We we're different

Education And the so downturn. on other hand is that's helped cushion this XX% payments.

And different so, with dynamics they little have there.

software Our overtime. increased have revenues

This payments represented XX% and XX%. quarter represented software

continues So to up. that number go

And software more as is than generally you payments, insulated know.

schools and that'll we're wise, they're they think we very well technology but adopt positioned. they really help Both we governments now need until to to, really slow us. probably so and not think need to, the leaders, are So,

Peter Heckmann

terms of share notable relative thoughts number And change or And kind are the that some terms any terms terms there in just that of any partners of revenue of regards is then another these the to of other in about are there getting? question ISPs, changing? in any ISVs

Rick Stanford

for integration. range We're XX%. to haven't payment anywhere shares for Ease sign We revenue the technology XX% to from any But any number to share changes. haven't seen movement seen important or we looking ISVs, is in of revenue secure that that are solutions. They're them. able we're ISVs, looking continuing to

Peter Heckmann

And the X? they there that, number champion-challenger would that be average what or mean, ISVs, more X might relationships? have? are type have of partners see Or you I some Might ISV Okay. regards as an

Rick Stanford

proven be of reach with ISVs our team to Pace are referring went we can't When across force. of with the I combined a the and ISV down, But now. they've speak Pace we subsidiaries, to all internal country increased market that are you We've numbers. our seeing number tell opportunities acquisition. organization expanded an the ISV our to can we've that got Pace salespeople that and the into I

So, we're there. seeing uptick an

education, and as it of most space, really the think helped ISV we some know that's brought I but was well. Pace people talented with on that

Operator

this time, no at there any And to the are to I'd remarks. questions. further for turn or additional Daily Greg closing back like conference

Greg Daily

Thank you, everyone.

this interesting is an So, time.

I see cash about us the increase think you'll We're payments talk from coming. electronic is and our in check to prepared more rebound. future calls it because the for

I think we're positive. The already numbers that started. seeing from are very it's May

thanks call. And on being our so anyway, everybody for you. Thank

Operator

does conclude We your That conference. today's you for thank participation.

disconnect. You now may

i3 Verticals (IIIV) 9 May 202020 Q2 Earnings call transcript