i3 Verticals Q3 2026 Earnings Call Transcript

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August 7, 2026

Key Takeaways

  • Negative Sentiment: Q3 results fell short of expectations, with revenue up just 2% year over year to $53.1 million as organic revenue declined 2% and non-recurring revenue fell 18%, primarily due to weaker professional services.
  • Negative Sentiment: Management reduced fiscal 2026 guidance to $216–$221 million of revenue, $57–$60 million of adjusted EBITDA, and $1.08–$1.12 of adjusted EPS; fiscal 2027 revenue growth is now expected to be in the mid-single digits, below the prior high-single-digit outlook.
  • Positive Sentiment: The recurring revenue base remained a relative strength, with annualized recurring revenue up 8% to $174.1 million, SaaS revenue up 38%, transaction revenue up 5%, and recurring sources representing 82% of quarterly revenue.
  • Positive Sentiment: Management expects margin expansion from cost reductions, process improvements, and AI adoption; adjusted EBITDA margin reached 25.4% in Q3, with fiscal 2027 margin expansion currently expected at approximately 100–200 basis points.
  • Positive Sentiment: Several transportation, insurance verification, licensing, and Resolve go-lives are expected to support growth in 2027, while AI-enabled document processing is gaining traction across eight public-sector contracts and internal development velocity has improved more than 25%.
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Earnings Conference Call
i3 Verticals Q3 2026
00:00 / 00:00

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Operator

Good day everyone. Welcome to the i3 Verticals Third Quarter 2026 Earnings Conference Call. Today's call is being recorded and a replay will be available starting today through August 14th. The number for the replay is 855-669-9658, and the code is 946-6422. 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 Clay Whitson, Chief Strategy Officer. Please go ahead, sir.

Clay Whitson
Clay Whitson
Chief Strategy Officer at i3 Verticals

Good morning. Welcome to the third fiscal quarter 2026 conference call for i3 Verticals. Joining me on this call are Greg Daily, our Chairman and CEO, Rick Stanford, our President, Geoff Smith, our CFO, Paul Christians, our Chief Revenue Officer. To the extent any non-GAAP financial measures discussed in today's call, you will also find a reconciliation to the most directly comparable GAAP financial measure by reviewing yesterday's earnings release. It is the company's intent to provide non-GAAP financial information to enhance understanding of its consolidated GAAP financial information. This non-GAAP financial information should be considered by each individual in addition to, but not instead of, the GAAP financial statements. This conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements among others, regarding the company's expected financial and operating performance.

Clay Whitson
Clay Whitson
Chief Strategy Officer at i3 Verticals

For this purpose, any statements made during this call that are not statements of historical fact may be deemed to be forward-looking statements. You are hereby cautioned that these forward-looking statements may be affected by important factors, among others, set forth in the company's earnings release and in the reports that are filed or furnished to the SEC. Consequently, actual operations and results may differ materially from those discussed in the forward-looking statements. Finally, the information shared on this call is valid as of today's date, and the company undertakes no obligation to update it except as may be required under applicable law. I will now turn the call over to the company's Chairman and CEO, Greg Daily.

Greg Daily
Greg Daily
Chairman and CEO at i3 Verticals

Thanks, Clay. Good morning to all of you on the call. Our third quarter results fell short of our expectations. We're disappointed in the outcome. The primary challenge continues to be slower than expected growth in certain areas of the business, particularly within revenue streams that tend to be less recurring in nature. Geoff will elaborate further. Despite the disappointing quarter, there are aspects of the business that continue to perform well. Annualized recurring revenue grew at 8% year-over-year, reflecting the ongoing value of our software solutions provide to our customers and the strength of the markets we serve. We have several material go lives recently that Paul is excited to share with you later in the call. We have laid the groundwork to realize margin expansion in the coming quarters. We remain confident in the long-term opportunity in front of us.

Greg Daily
Greg Daily
Chairman and CEO at i3 Verticals

Across our public sector end markets, agencies continue to prioritize modernization, digital engagement, and operational efficiencies. We believe our software platforms, transaction-based solutions, and deep domain expertise position us well to participate in these trends. With that, I'll turn it over to Geoff. He'll walk you through our financial results in more detail.

Geoff Smith
Geoff Smith
CFO at i3 Verticals

Thanks, Greg. The following pertains to the third quarter of fiscal year 2026, which is the quarter ended June 30th, 2026. Please refer to the slide presentation titled Supplemental Information on our website for reference with this discussion. Revenues for the third quarter of fiscal 2026 increased 2% to $53.1 million from $51.9 million for Q3 2025. Organic revenue was down 2% in the quarter, hampered by a $1.8 million decrease in professional services. The ongoing weakness in professional services continues to be concentrated in our utilities market. We expect a year-over-year drawdown in professional services to persist in the fourth quarter. Overall, non-recurring revenue sources decreased 18% compared to the prior year. Annual recurring revenues increased 8% to $174.1 million for Q3 2026, compared to $160.8 million for Q3 2025. SaaS revenue grew 38% and transaction-based revenue grew 5%.

Geoff Smith
Geoff Smith
CFO at i3 Verticals

We are experiencing increased interchange rates related to high commercial card usage, a situation we are addressing with our processor in the fourth quarter. We realized lower growth from our Resolve product in the third quarter than expected, but anticipate re-acceleration into the next fiscal year due to the slate of go lives. Maintenance revenue decreased 13%, which is steeper than normal due to the timing of certain material SaaS conversions, but will be closer to 3.5% down go forward. Overall, 82% of our revenues in the quarter came from recurring sources. We do not expect material license revenue the remainder of the fiscal year. Adjusted EBITDA increased 5% to $13.3 million for Q3 2026, $12.7 million for Q3 2025. Adjusted EBITDA as a percentage of revenues was 25.4%, an increase from 24.5%.

Geoff Smith
Geoff Smith
CFO at i3 Verticals

We continue to recognize efficiencies and savings due to process improvements and the adoption of AI. We expect the adjusted EBITDA as a percentage of revenue to improve in the fourth quarter and continue to accelerate into the next fiscal year. Corporate expenses as a percentage of revenues were 8.2% for Q3 2026. Adjusted diluted earnings per share from continuing operations for the third quarter of fiscal 2026 increased 8.5% to $0.25 from $0.23 for Q3 2025. Please refer to the press release for a full description and reconciliation. You will notice an item in other income this quarter, a $9.9 million unrealized gain on a minority equity investment. Years back, we made a small investment in a business a former team member launched. We are pleased with their rapid growth and grateful that our investors participate in that success.

Geoff Smith
Geoff Smith
CFO at i3 Verticals

Regarding the balance sheet, at quarter end, debt stood at $114.3 million, and our cash balance was $2.6 million. We still have $285.7 million of borrowing capacity under our revolving credit facility and a 5X leverage constraint. The expectation remains that we will use any borrowings for opportunistic acquisitions and stock repurchases. Our share buybacks have reduced our total adjusted weighted average shares outstanding from over 34 million to under 28 million. The following updates are guidance for continuing operations for FY 2026, which was last updated during our second quarter fiscal 2026 press release, dated May 7th, 2026. The outlook does not include acquisitions that have not yet been announced or transaction-related costs. Revenue, $216 million to $221 million. Adjusted EBITDA, $57 million to $60 million. Adjusted diluted earnings per share, $1.08 to $1.12.

Geoff Smith
Geoff Smith
CFO at i3 Verticals

We appreciate that this is meaningfully lower than our previous guidance, primarily due to lower than anticipated professional services and a deceleration of transaction revenues. Looking past 2026, we expect better growth on a go-forward basis. Last quarter, we elaborated on several reasons for that, which all hold true. However, for 2027, our current expectations is mid-single-digit revenue growth, which is lower than previously guided high single-digit growth. I will now turn the call over to Rick for additional business-related comments.

Rick Stanford
Rick Stanford
President at i3 Verticals

Thank you, Geoff. Good morning, everyone. I want to spend a few moments discussing AI and the impact it's having on our business. Obviously, AI continues to be one of the most significant technology trends shaping our industry, and we view it not only as a standalone initiative, but as a strategic capability that is increasingly embedded throughout our operations and our customer-facing solutions. Over the past year, we have systematically deployed AI-enabled tools across product management, engineering, quality assurance, cloud operations, security, and customer support. These capabilities are helping us increase productivity, improve service delivery, accelerate innovation, and maintain a high standard of quality while operating efficiently. A good example is the integration we delivered this quarter connected to a client's court case management system. What was originally considered an aggressive development timeline was completed in approximately one-third the time that similar projects would have historically required.

Rick Stanford
Rick Stanford
President at i3 Verticals

More importantly, we did not just build a one-time integration. Because of the efficiencies created through AI-assisted development, we built a configurable integration framework that can now be leveraged for future deployments. We expect to bring two new clients live this quarter using that infrastructure with a third immediately behind them. AI is also allowing us to improve quality, security, and long-term maintainability. We've expanded our investments in automation engineering and security engineering, enabling testing and security reviews to occur earlier in the development life cycle. Human oversight with specific domain expertise and established quality controls remain central to our process. Issues are now identified sooner, reducing downstream costs and improving reliability for systems our customers rely on every day. The results are tangible. Internal sprint metrics show that more than 25% improvement in development velocity, and we are releasing software more frequently while maintaining a flat engineering headcount.

Rick Stanford
Rick Stanford
President at i3 Verticals

Just as importantly, those internal advances are translating directly into customer value and commercial opportunities. Customers increasingly want solutions that automate routine work, improve accuracy, extract meaningful insights from data, and create more efficient user experiences. We are seeing this firsthand in our markets, where AI-powered document processing capabilities are becoming a meaningful growth driver. Today, we hold eight contracts spanning Louisiana, Tennessee, North Carolina, and South Carolina for AI-enabled document extraction, redaction, and document separation services. These implementations began going live this quarter, and we are increasingly seeing extraction and redaction capabilities specified directly within customer procurement requirements rather than being viewed as optional enhancements. As we evaluate AI opportunities, our focus remains on solving real customer problems and generating tangible returns. We are applying AI in areas where we possess deep industry expertise, proprietary workflow knowledge, and trusted customer relationships.

Rick Stanford
Rick Stanford
President at i3 Verticals

We believe this positions us to deliver differentiated solutions while creating opportunities for both future revenue growth and operating leverage. It's no secret that AI vendors are changing the way they price their platforms from per seat to usage-based models. While AI-related infrastructure costs are increasing across the industry, as models become more capable and agentic workflows become more sophisticated, we are actively managing those investments. Not all embedded features require the most robust and pricier platforms, but instead, some functions are basic and simply require less costly solution. In fact, we are starting to see competitive situations where before it was a take it or leave it on the proposal side for AI platforms.

Rick Stanford
Rick Stanford
President at i3 Verticals

We believe we are still in the early stages of long-term transformation in the software, and the momentum we are seeing today reinforces our confidence that AI will be an increasingly important component of our growth strategy. With that, let me turn it over to Paul for revenue updates.

Paul Christians
Chief Revenue Officer at i3 Verticals

Thank you, Rick. The third quarter remained active across our core markets, with customers increasingly evaluating broader, more integrated platform solutions. Our strategic focus has translated this demand into a higher quality sales pipeline, more disciplined pursuits, stronger recurring revenue opportunities, and shorter paths from booking to revenue recognition. We have enhanced our approach to identifying, qualifying, and pursuing public sector opportunities. Governments continue to invest in modernization initiatives, and i3's focus is on delivering integrated software platforms that serve as operational backbone for mission-critical functions. We are expanding our presence in the Justice Tech market, securing multiple core agency conversions that demonstrate the strength of that platform and our ability to compete successfully in large established markets. At the same time, we continue to advance our SaaS and cloud strategy, creating ongoing opportunities to migrate customers to more scalable recurring software models.

Paul Christians
Chief Revenue Officer at i3 Verticals

Cross-selling remains a meaningful growth driver across our vertical markets, particularly where software platforms, payments, and adjacent workflow solutions can be bundled to increase customer value and deepen long-term relationships. We continue to make meaningful progress across our public sector portfolio, and our transportation business serves as a strong example of that momentum this quarter. i3 currently serves 34 jurisdictions across the U.S. and Canada. During the quarter, we launched a state electronic lien and title solution as part of a broader transportation platform. Unlike traditional ELT providers that operate as single-point solutions connecting to an existing state system, i3 provides mission-critical software across the entire title and registration ecosystem, including dealers, county clerks, state motor vehicle agencies, and integration points for lender service providers.

Paul Christians
Chief Revenue Officer at i3 Verticals

This comprehensive approach enables a seamless end-to-end digital workflow that improves data accuracy, reduces administrative costs, enhances security, increases operational efficiency, and accelerates user adoption. Demand for our motor vehicle insurance verification solutions remained strong. During the quarter, we supported the implementation and launch of insurance verification systems in two major Midwestern states. Most recently, Kansas implemented the Kansas Insurance Verification System real-time platform designed to streamline compliance and strengthen enforcement statewide. The system enables immediate insurance verification for authorized agencies, connects with hundreds of participating insurers, and supports the state's effort to reduce uninsured motorists. In Georgia, following statewide approval and execution of agreements with all participating counties, the state's vehicle renewal kiosk program is now fully operational. This achievement further expands i3 Verticals' transportation footprint, establishes additional recurring transaction revenue stream, and provides a scalable foundation for future growth across the state.

Paul Christians
Chief Revenue Officer at i3 Verticals

Education delivered another solid quarter, driven by new customer additions and continued expansion with our existing base. Nearly half of the FY 2026 bookings were generated from net new customers, demonstrating the continued demand for our solutions. On the innovation front, we continue to advance AI initiatives in our education platform. This quarter, we initiated a proof of concept focused on AI-driven inventory optimization, menu planning, and food cost management for school nutrition programs. The initiative is designed to help educational institutions better optimize USDA meal program funding while improving efficiency, reducing waste, and providing actionable operational insights. Looking ahead, we remain confident in the long-term fundamentals driving public sector technology investment. Government agencies continue to prioritize modernization, automation, enhanced citizen experience, and greater operational efficiency. With our integrated software platforms supporting critical government functions, we believe i3 Verticals is uniquely positioned to capitalize on these trends.

Paul Christians
Chief Revenue Officer at i3 Verticals

We remain focused on disciplined execution, expanding our market presence, and delivering sustainable growth and long-term value to our customers and shareholders. This concludes my comments, Megan. At this time, we will open the call for Q&A please.

Operator

We will now begin the question and answer session. To ask a question, you may press star one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star two. At this time, we will pause momentarily to assemble our roster. The first question comes from Madison Suhr with Raymond James. Please go ahead.

Madison Suhr
Madison Suhr
Analyst at Raymond James

Hey, good morning, guys. I appreciate you taking the questions here. I wanted to start just on the FY 2026 revenue guide here. Obviously, it was lowered by $6.5 million. Maybe just double click on the composition of that. I know, obviously, it's driven by non-recurring revenue, but is it mainly one large customer? Is it multiple? Any color on vertical? Just to be clear, is this a customer-driven push-out or lower, or is there any kind of implementation delays internally?

Geoff Smith
Geoff Smith
CFO at i3 Verticals

Thanks for the question, Madison. To unpack it a little bit for you, of the $6.5 guide down, probably about $4.5-ish or so that I would attribute to professional services. Within that, about $3 million of that is utilities. I would classify that as push-out. It's just ongoing delays in our large CIS, a couple other smaller projects, but the vast majority of that being ongoing push out there. About $500K justice, $500K licensing and permitting in our public administration, a significant project in our transportation market too is delayed a little bit. That brings you up to about $4.5 there. In the transaction revenue, you see that throttle down this quarter. I view that as temporary. Big chunk of that is payments.

Geoff Smith
Geoff Smith
CFO at i3 Verticals

Probably $1 million-plus of that is the net take rate on payments, and it's being driven by what we alluded to in the comments around elevated interchange around commercial cards. Basically that's a data fix that is going in the fourth quarter. It's been hurting us for a while. It was particularly acute this quarter, and the fix has just been repeatedly delayed, and there's been some dialogue with our processor that we've just been working through, and we just had to bite the bullet here. Our Resolve product, that's a product we've been upfront about just how excellent the pipeline and the growth is for it. It had a really weak quarter. It's subject to a number of forces that are in the, you might call, in the realm of things outside of our control. Mostly the throughput of cases through the existing customer base.

Geoff Smith
Geoff Smith
CFO at i3 Verticals

There will be times that that's a really great kind of wind in our sales item as that throughput's rising in the existing customer base, and times when it's dragged down a little bit. We also had some good long-run implementation things, but they were short-run disruption items within that product suite as we went on to a new version of the product this quarter. But long run, that's going to continue to be a really strong growth driver for us. Anyway, that's the anatomy of the guide down.

Madison Suhr
Madison Suhr
Analyst at Raymond James

That's very helpful color, Geoff. I appreciate it. Then just a follow-up. I think Greg mentioned have a solid foundation for margin expansion here. Can you guys maybe just touch on what gives you confidence in improving profitability, Geoff? I know, for example, you've talked about AI efficiencies in the past, and historically you've talked about normalized margin improvement in the 50-100 basis point range. Is that still the right way to think about margins given your comments around mid-single-digit revenue growth? Thanks, guys.

Geoff Smith
Geoff Smith
CFO at i3 Verticals

For the fourth quarter, we're looking at very strong margin growth. But I'll take it out to 2027 and look at that. We already have reduced our cost structure and I'm referring specifically to people costs and some other things like some rent and things like that materially. Frankly, there's a few things that have already been done that we're not getting the benefit from yet in Q3. Some of that is timing and some of that is also, there were some offsets in this current quarter in the form of reserves we had to take on some of our receivables. So those are one-time items, and we already are looking at a cleaner path to better margins in 2027. A little bit of that is also compressed by the revenue growth situation.

Geoff Smith
Geoff Smith
CFO at i3 Verticals

As that improves into 2027, the margin expansion will benefit from that as well. The long run guide that we've always put on margins being 50-100 basis points, I think you're looking north of the 100 basis points in 2027 currently. If revenue is growing in the mid-single digits as we've described here, we should be more in the 100-200 basis point margin expansion range for fiscal 2027.

Operator

Again, if you have a question, please press star then one.

Clay Whitson
Clay Whitson
Chief Strategy Officer at i3 Verticals

Alex Markgraff at KeyBank is having audio troubles, but he emailed a question he'd like for us to address. He's curious to understand the bridge back to mid-single digit growth in 2027 and our degree of confidence in that path.

Geoff Smith
Geoff Smith
CFO at i3 Verticals

It's a really fair question from Alex. We're definitely sensitive to that and appreciate the market needing to kind of understand how we get from the growth picture in 2026 to 2027. The first thing I would highlight is, Greg and Paul touched on this in their comments, but we have several significant go-lives in our transportation market. Two of those are sort of in what you might call the legacy i3 transportation market, good recurring revenue go-lives that have just kicked in here in the fourth quarter. Those will be on a ramp-up period, so the impact in Q4 is going to be really modest, but the impact in 2027 will be stronger, then into 2028. The other two are in our most recent acquisition, the electronic insurance verification software. Frankly, that's not all touching our organic growth until we get to Q2 of 2027.

Geoff Smith
Geoff Smith
CFO at i3 Verticals

The growth in that acquisition is tremendous. They just have a really strong market position. The things that we had in the pipeline at the time of the acquisition several months ago are all on track, and several material new things are also already in the hopper as well. Really great growth picture there. Once that becomes part of the organic picture, that's going to be a nice significant uplift on its own. Also, the board licensing and permitting software has had a really rough 2026 with a lot of project delays, but they have a deep backlog of contracted implementation revenue and go-lives slated for 2027 here. Their picture gets a lot brighter in that period. I alluded to the go-lives in our Resolve. Everybody's well aware of West Virginia, which will continue to progress forward.

Geoff Smith
Geoff Smith
CFO at i3 Verticals

It'll be the back part of 2027 before we start going live on courts with that project. At that point, you get on the ramp of the recurring revenues. In the meantime, we'll still have a slightly better diet of professional services in the next year. Finally, in the utility space, in both our portal business and the CIS project, that's been a really difficult year in that space in 2026. We've set the bar pretty low to grow over, and what we see right now for 2027 looks a lot brighter on both of those fronts.

Operator

Again, if you have a question, please press star, then one. This concludes our question and answer session. I would like to turn the conference back over to Greg Daily for any closing remarks.

Greg Daily
Greg Daily
Chairman and CEO at i3 Verticals

Again, thank you everyone for dialing in this morning. We appreciate your support. Thank you.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Executives
    • Clay Whitson
      Clay Whitson
      Chief Strategy Officer
    • Greg Daily
      Greg Daily
      Chairman and CEO
    • Geoff Smith
      Geoff Smith
      CFO
    • Rick Stanford
      Rick Stanford
      President
Analysts
    • Paul Christians
      Chief Revenue Officer at i3 Verticals
    • Madison Suhr
      Analyst at Raymond James
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