IIIV - Earnings call transcript Q3 2022

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Operator

Good day, everyone, and welcome to the i3 Verticals Third Quarter 2022 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 (877) 344-7529 and the code is 3637 280. The replay may also be accessed for 30 days at the company's website. [Operator Instructions] At this time, for opening remarks, I would like to turn the call over to Geoff Smith, VP of Finance. sir. ahead, go Please

Geoff Smith

to quarter Welcome for conference iX Verticals. the morning. XXXX third call Good

to this enhance of the Greg of a of non-GAAP call conference measure to Stanford, earnings call GAAP and on considered Private you the including individual GAAP financial me Joining are financial to today's in the understanding financial the performance. XXXX, company's Whitson, its information. the any operating Reform among others, information It meaning provide call, CFO; release. most statements, This addition measures financial To comparable discussed by CEO; also company's non-GAAP may Daily, yesterday's Securities our and consolidated to Litigation This financial regarding President. contain in by Rick and GAAP of find statements. the intent be reviewing not our will forward-looking extent is instead information non-GAAP statements expected reconciliation and Clay Act Chairman should our financial the each financial within directly

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

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

the and the law. Finally, is it turn Daily. obligation to may update under be Greg now call as date, over Chairman the as no I'll information undertakes on CEO, company and shared this call applicable the today's valid company's except to of required

Greg Daily

all good of Thanks, you. to Jeff, morning and

XX. which fiscal we records been we for quarter on 'XX, XX%, and pleased EBITDA, XXXX has year grew what touches revenue respectively, end with round June we a our months of our in as Year-to-date, the set phenomenal We are corner new to at expect finishing towards XX% X very put the the and And ending results. third year.

revenue in We revenue related focus particularly recurring services continue on sources, to and -- software streams.

license to lifetime certain markets While revenue provide. price focused time will necessitate and align transaction-based on to them, of are and the time SaaS the recurring solutions the from sales we benefit we at happen

Our a and service have lens. solutions excellent retention, go we market customer to with long-term

streams We're Additionally, excited acquiring sources. significant opportunity. products cloud-based revenue offerings great modern in about our than from add through revenue recurring in that public XX% came More remain businesses sector. the extremely third to several underemphasized have the revenue quarter of a recurring investments

the are M&A. capital As X months thinking the will not I in said, we of hesitate long In addition company the to fiscal of year invest quarter term third and 'XX, results within a to fit from in business pipeline. X quarter, were and acquisition, been health have have our May The what disappointed. highlighted great not last immediately cross-sell their materialized opportunities is, we care been

our have what 'XX of about seamlessly excited we're and All year next. integrated fiscal comes acquisitions

details financial our turn who'll call I'll over you Clay, Now of to third provide quarter performance. more the

update, M&A and we'll call questions. comments, for then will an Rick up Clay's us open Following give the

Clay Whitson

discussion. track to EBITDA. to Information 'XX, Please XXXX. titled adjusted morning. are our refer presentation which for of this from to great in Revenues million ended slide XX% the Good had following pertains is We June our another for the right growth and million the The year third third strong Supplemental key quarter for reflecting XX, fiscal with direction. metrics reference quarter $XX.X increased acquisitions. we quarter website headed The $XX.X the with record XXXX, revenues the quarter and QX on organic

Annual in for our XXXX, XXXX million period points totaled comparison the business. in for improved sources. from same $XXX.X of growth favorable revenues was XXXX from which a improved helped for XXX Over COVID which XXX prior XXXX, our quarter Organic revenue in basis from the QX $XXX.X benefit recurring XX% QX of to year, the the percentage points compared basis 'XX. for for came There from a to XX%. this Our quarter approximately in yield was has to essentially million XX%. XX% for quarter QX QX integrated no of our lines revenues recurring payments XX% for recovered QX growth rate from the pandemic

software XX% to portion for continued XXXX largest $XX.X momentum of million $XX QX from Software services EBITDA XX.X% from XX.X% percentage QX our EBITDA margin for increased from and XXXX. software reflecting for segment lower for related a and for $XX.X growing as XXXX, revenues. million XXXX, QX QX revenues Adjusted QX in million to XXXX overhead a in segment. corporate XX% for as million to proprietary of our remain $XX.X the percentage revenues, QX XXXX improvement Adjusted reflecting our increased of proprietary

health basis months, full please margin XXXX, Segment and Pro our our forma segment X the and principally verticals, per Proprietary press XX reflecting increased QX share $X.XX For to reconciliation. XX% for public Revenues $X.XX refer Software for EBITDA Payments earnings QX million XXXX. from points. adjusted million $XX.X XX% QX in diluted the release Again, the expanded from care. increased for sector X to adjusted $XX.X XXXX a description for largest growth XXXX for and to performance. QX in

Revenues revenues. verticals, thanks from growth an $XX.X care. roughly QX improved care in EBITDA our existing rate adjusted business, reflecting results The ISO higher-margin health a months XXXX public merchant redirected Balance for $X.X services for our with revenues million our expenses. new segment Services carry the for which for Adjusted segment sector X% software XX%. to channel organic $XX vertical, a QX by XX% This payment reopening X QX from IPO, represents our coupled higher $XX.X for QX sales Merchant The and quarter million for increased the from resources included XX%, with million consolidated from continued traditional hospitality and care half segment's outpacing XXXX, increasing X and services XXXX with offset On growth QX by in which Health since million public partially our XXXX from for health integrated $XX.X XXXX million QX most is principally strategy Revenues Services steadily the and internal slightly growth was driven increased in to sector basis, a of and enter to Merchant both sheet. XXXX, keeping run EBITDA is while higher start. higher to margins. largest districts. of million strong to for we $X.X residual acquisition school to have off rebound, education estimated customers into our payments. our vertical vertical, and good of principally recent our of proprietary QX, to QX In acquisition

June allowed to value $XXX revolver, strategy. our facility. execute $XXX a The $XXX notes we cash On XX, has us borrowed sheet to million of million. under our our convertible face million acquisition are continue balance Our had net of under

Fed raise X%, As for X%, to of for The currently was ratio revolver interest rate June current is notes XX, our around convertible the total rate which while rates. the is increase Outlook. earnouts. the cash the adjusted continues is interest while constraint approximately but will repayment, used capital and as We acquisitions the cash leverage Xx. convert software, adjusted can as we for capitalized be expenditures, expect EBITDA flow and to cash time, roughly of define free X/X internally cash EBITDA Over taxes. debt flow, interest minus into free Xx

not narrowing midpoints us year-to-date performance in gives our It and closed yet costs. XXXX. year fiscal the that transaction-related confidence forward, have our acquisitions raising and ranges for Looking guidance excludes

might more revenue As we more trend perpetual based become even vary our license software-centric, upon though generally streams. is quarters toward recurring sales

call guidance to to turn adjusted $XX.X to will $XXX million EBITDA, and pro now $XXX I M&A revenue company for million, adjusted updates million year, diluted over to million, $X.XX. for EPS, activity. the Rick Our forma the $X.XX $XX.X

Rick Stanford

you, Thank everyone. Good Clay. morning,

Before give items. few update discuss a M&A, I I'll an on

Our States in state serving and clients county have strong now success states continue local, XX sector Canada, sector provinces. reaches with Public software public across X solutions results to product public Canadian sector United the and municipal, unified and markets. in offering,

software have Expansion product processing, states. adding payment safety, land signature of the data solutions. access, public our certification, expanded licensing last courts, XX new digital in sales and instances quarter, we additional records, Over our software safe and solution includes by reach encounter

years brand recently past implement developments sector our supported unifies in greater by with deployed. A iX shift to K-XX Clarks and be for trailing with Remote starts of in lines districts and educational case it. all that go are schools, purchases along new management payments, districts pricing sales, of over our LCRAA, product Most The continue one the to lunches Authority marketing Access our Carte education best for which contract announced With and which continues has additions normalcy. We along services levels education support and months Louisiana the statewide been is to as the XX software the considerable higher sales. of La to observing growth associated e-filing

elective pre-COVID state our cycle been protocols. surgical we restoring lunch student and clients. is In levels have largely money or return federal eliminated revenue addition, volumes normal as for has In care our or subsidies health to for decreased health COVID vertical, care

source As care the telehealth need of and the care new has health for also a adjusts health to mobile delivery, care system shifting offered revenue.

willingness outreach we shift. our for subscriptions fade, to of more As industry's COVID issues SaaS are the noticing because

Our offering geographic to well and perspective, improved solutions companies as From still technology going and this cloud are promote coincide improved are scalability. products well a uptime in new efforts care new with and to health our a now private develop benefit environment. to customer together These are infrastructure working redundancies as now applications demands. from several that transition

solutions. a for FedRAMP-compliant Our environment milestone next government involves

are well to this hosted continue to offerings education speak sector verticals. development now managed which low-code our We be our in I'll to and training the AWS and infrastructure. leveraging invest Several DevOps and underway M&A. leverage can projects expand public as platforms, technology to resources on as

We public both on fit growing growth, and continue with to that our sector health and and emphasis and of culture an acquisitions through care. strategy organically within companies pursue companies

these additional haven't than many we today, to relative in transactions the size care expect with similar this transactions we at our acquisitions would what the with robust transactions pipeline higher acquisitions quarter, will that are be that have announced stated in our as acquisitions health Based we as remains for to any multiples other our larger. range on we of end seeing, the to opportunities larger some multiples. caveat other well tuck-in acquisition of that closed to consistent run are we May, with closed Although are tend for

to technologies local and state, sector Differing have for fragmented products, in particularly that a vertical. continue portion open are of This the we this public our for will this market municipal to U.S. concludes development inorganic existing We'll vertical. relatively believe complementary Q&A, time. Additionally, at looking across please. account provide the a comments regulations in acquisitions our created we expansion and call in sector, my for customer made base sizable this

Operator

[Operator from Our Raymond question James. Instructions] first John Davis comes of today

John Davis

a you guys Clay, Obviously, I margin. the about have wanted in. different to off inflation. We lot start on mixing wage hear acquisitions

like ticked So XX the XX it the midpoint margin points. down guide on basis looks or

wage function is just a revenue Are some inflation. that So mix? of curious, you seeing

Greg some investments willing you make called I the are that to think in out making or guys organic business. are potentially

commentary high-level the helpful. be any on margin Just would

Clay Whitson

a over performing. think of I revenue that's mainly function

that margin goal of at continue range. and is bit But a what's XX XXX basis a probably overall corporate us I our year. increase say performance. little we basis would to on to that back Our points we're expect to that XX Year-to-date, remain this And holding points, on plan low the year. is wage margins inflation end by

John Davis

to quarter. my looks by on put wanted you minute. on embedded for XQ, a growth but for math, similar just a something in could Okay. you Great. just finer Can quarter? it you us And hit Clay, with It said think if it's to fourth the I help organic curious it. XX% I then what's maybe was point like,

Clay Whitson

the say would year... grow digits, quarterly. grow we coming year, to We digits still the we expect for double double did and We don't into guide

John Davis

was maybe for guys an you strong Or Is organic? a [indiscernible] just I ARR, do that all then XX% So think, breakdown of quarter. growth. organic have ARR

Clay Whitson

our But and We don't of I organic driving growth. all verticals, health sector mean, organic care have the breakdown what ARR. hospitality, most are organic. an of It's not public are main

John Davis

or XXx pipeline. Okay. multiples M&A And out market can driving deals just It deals. deals X% the for very you in available comments. do -- Rick, range. -- in seems pipeline? function Is one of larger what's kind reasonable then the to you the for some some the guys larger if called like you last that what's fact comments in But are just a of potentially just on getting have me, larger bigger? Curious kind Greg if or the of still that curious

Rick Stanford

Yes.

for deals. expect running spot looked about on is can size We've into above our always we've for as X% crazy. We're fact more The X%, JD, they to broadened larger larger because their before, X% been that said So we've in are resources more get get what company. the sweet that to well now companies our the realistic has self-sourcing. valuations

we're to expect to. more our a within range. So we'll used lot stay talking would continue than we to individuals I

us stay up end is very well. pay The than those deals larger do for of to we note if you to XXx on range. again, shouldn't we're going disciplined expect to our the that's our But important than probably to spot, we're higher end something as sweet and going more having pay

Operator

Heckmann The Davidson. from D.A. next question Peter of comes

Peter Heckmann

sector, the to see to some you didn't in? procurements stimulus designed by soft or about can the we think attached then vein, or that be a are transaction you I American have And play that fee are public same about when that risk you fixed changing? is guess funded from that would the continuing In how configuration recurring, in talk deals, public mix of be sector deals versus transaction

Rick Stanford

I'll a the Well, to first part. talk

now. is up been if tie able haven't tell back, We hard more to additional pent Peter. to resources. that There demand or that's It's

the we're to been at. monies that to But with the interest to the back But are dollars. deals looking with black their to mindset changing white and pleased of that and see the educate our able they'll available our them. types really and the customers number We continue are regard we're to we're going haven't of that to we rescue plan tie products need excited forward, on customers that

Clay Whitson

was payments mix down how the that one do, has many deals about Louisiana, in question deals of a I the your still say On LCRAA of have would attached, most attached. payments big

a acquisition an Tennessee Our not From standpoint, attached. that contract large payments criteria. black-and-white it's renewals, has a

-- to like it's going that we we into line. out product because it's can We are the will revenue payments to it -- when software adjacent solutions identifiable But clearly synergy rounds it our not certainly deal. have if -- adjacent that my we synergy know payments we

Peter Heckmann

some in on It my might then state sector. And certified, now. of necessary that states you mentioned company And statewide FedRAMP looks trying for some had like it. been to I Or -- Got looking if the would or to have get agencies? that doing in research federal from level be would correctly acquisitions the level public contract us deals? state X,X,X you deals is at

Rick Stanford

both. it's Yes,

FedRAMP a today, our have environment cloud. but not it's We in private

Peter. what those working we're it's on. won't get products to So obviously that's trying until into move at, certified. what FedRAMP That's We AWS was I

Operator

[Operator Instructions] question Stanley. Our with James next from Morgan comes Faucette

James Faucette

job so revenue a doing internally I is takes acquisitions? or as do the that see First, I of great is targeting as percentage now growth? much software And growth that total ceiling a the a you something right like towards? part working that, for far as guess that is revenue, versus software capabilities coming of of faster how from you're of percentage software obviously transition. Where guess, on of share total software question, is high-level And a the

Clay Whitson

sector majority acquisitions your mid-XXs, the -- is has organic I our that still. grow in double proprietary digit. And last that part. we would revenues if coming low our growth segment, Well, from say then the public software the

and out about around payments of at as total this to like a that be software speculating is here. I -- that quarter, time, X/X, an internally, time. time a services speculation from and in over capping will linear bit we we're think revenues talked example, but progression plateauing as percentage But a little won't surge

James Faucette

side. least does it. relationships tend parts et particularly that That more or environment guess How And recessionary an of I opportunities? have when the And those municipalities, makes and your from you cetera, that impact on Does much economy. impact software new different around type importantly, to sense. of now about guess, then potential impact at I Got on business? the wins with right you're businesses, lots think the building questions of slower

Clay Whitson

recessionary comment Well, on general this a environment.

a that say. it much We trend, yet. softer that's would single-digit would was than it type I say haven't to seen of would little that July early of it's a June, say -- but a low be too I

there and long, painfully think about recognition a COVID modernizing put local during too became for municipalities, that question had apparent. I it Your state was off and governments

a -- lot correctly the the pullback the quits benefit sudden and a anymore. They people, we all They're see see those that key pain to don't fewer office committed run don't added a with I in governments them. allow employee point currently operate of them, have so of they for that's a And budgets. doesn't become to and a

And believe at will so years, level, if or not. cut the back things that for even federal several continue are we

Operator

The of of America. next from comes question Jason Bank Kupferberg

Tyler DuPont

is This Tyler for [ph] Jason. DuPont on

for anything at question takes whether out lighter still forward? or cash a call was the for you think just there maybe some all cash to I quarter's flow as have looks guidance we year. full should puts could to it's one Is wondering if specific moving with than conversion speak anticipated, Just rate and X/X the to flow. but just cadence conversion about there how like the bit me. this conversion It was

Clay Whitson

go, far that year since cash we've for And low taxes. public. of going Well, X/X every run the and EBITDA is reason takes as as puts than higher

it payer, out. stage, Rising will as XX% flow some continue equation. is seems part time it We a have be interest our cash to the rates we study of little tax to a anything but a add guidance I'll this cash the more X of time interest it still conversion Do because X/X years year. impact receivables although will a to flow year, the probably that anticipate This you closely, bill few for at cash give need of months? little on of

Geoff Smith

expected No. us use. will a metric we I that mean [indiscernible] But this to conversion. software X/X spoke about that's CapEx to I consideration. think investments ahead, going at new capital a throw we're don't of certainly time, be looking off still we is the think We fair any

Operator

Charles comes [Operator Instructions] next from The question of Nabhan Stephens.

Charles Nabhan

You of I driver to revenue. that was hoping customers of Services to well software Merchant conversion a terms get verticals had as that in terms you're in more as of conversion? the in seeing greater impact any particular a area of alluded magnitude the little color success of as

Clay Whitson

Well, We be higher putting get to. which one our be sales an effort tend as health think just growth. sector not their verticals. higher referring into in was to it payments, my if satisfying It's resources care for the integrated I allocating customer in environment. processing. a traditional I We're and comments, of more We're public and our to margin, towards integrated customers merchant just other and was much

Charles Nabhan

And get as prospective follow-up, comments your deals. to I wanted a it. Got on M&A valuations on

Specifically, range terms at. opposed of across you've secondly, the your greater end in looked differences end valuation. of range higher And there's at of if seeing any as verticals in changes the magnitude the to you're the seeing is historically lower compression valuation you're if a any compression, the of

Greg Daily

like effect in still talking changed. go able I'd our that in sellers, end range forward. XX. same There's going trickle-down conversations potential to X But been really range and think or in sellers haven't to our to on with now, no a our still to multiples. we There's little right yet. multiple range stated we're that and Nothing's lower engaging We're and our Yes. higher good be pushback them. a between to we'd of to lower seen

Operator

would closing This like I the concludes over the turn conference back Greg question-and-answer Daily for session. to to remarks.

Greg Daily

perfectly your right the place Thanks, in for support. at is do like the feel positioned the I your right time. interest, everyone, company

We have a pipeline. a great team,

last of finishing quarter So 'XX. excited the out fiscal our about year

thank a again. Have anyway, day. So you good

Operator

for attending now iX Thank The today's has conference concluded. you presentation. Vertical

may now disconnect. You

i3 Verticals (IIIV) 13 Aug 222022 Q3 Earnings call transcript