i3 Verticals reported a solid QQ2 2024 against a backdrop of a transitioning business model and ongoing strategic review. Revenue rose 1% year-over-year to $94.5 million, led by growth in recurring sources and a robust ARR. ARR climbed 6% year-over-year to $322.5 million, and recurring revenue contributed more than 80% of total revenue, underscoring the durability of i3’s software-as-a-service and subscription-based propositions. Adjusted EBITDA expanded 4% to $25.8 million, delivering a 27.3% adjusted EBITDA margin, aided by the internal realignment that improved merchant services margins and reduced corporate costs. Net income was modest at $1.88 million, with earnings per share of $0.08, reflecting higher interest expense after the January repurchase of convertible notes.
Management emphasized the company’s strategic focus on sustainable, high-quality software and services revenue across public sector, education, healthcare, and education verticals, while exploring the potential divestiture of the Merchant Services Business. They highlighted a strong longer-term growth trajectory for RemainCo should the Merchant Services sale close, with an expectation of high-single-digit revenue growth starting in fiscal year 2025 and margin expansion as the SaaS transition matures and debt is reduced. Near-term headwinds include lower nonrecurring revenue (licenses and professional services) and delayed backlog projects (notably Manitoba drivers license and the large utilities opportunity), which have clouded some revenue visibility in the near term but are expected to unlock significant value in the medium term.
The company reaffirmed a FY24 revenue target of $380–$394 million and Adjusted EBITDA of $107–$113 million, with pro forma diluted EPS guidance of $1.49–$1.57. Management signaled a multi-year path to accretive growth via continued SaaS adoption, disciplined cost management, and selective acquisitions post-deleveraging. Investors should monitor the progression of the Manitoba project timing, the trajectory of the large utilities engagement, the SaaS attach rate across newly integrated software offerings, and the execution of the Merchant Services divestiture and related capital allocation.