Introduces 2024 Outlook
i3 Verticals, Inc. (Nasdaq: IIIV) (“i3 Verticals” or the
“Company”) today reported its financial results for the fiscal
fourth quarter and year ended September 30, 2023.
Highlights for the fiscal fourth quarter and full fiscal year
of 2023 vs. 2022
- Fourth quarter revenue was $96.4 million, an increase of 13.1%
over the prior year's fourth quarter; full year revenue was $370.2
million, an increase of 16.5% over the prior year.
- Fourth quarter net income was $3.4 million, compared to a net
loss of $4.4 million in the prior year's fourth quarter. Net loss
for the year ended September 30, 2023, was $2.7 million, compared
to a net loss of $23.2 million for the year ended September 30,
2022.
- Fourth quarter net income attributable to i3 Verticals, Inc.
was $4.5 million; full year net loss attributable to i3 Verticals,
Inc. was $0.8 million.
- Fourth quarter adjusted EBITDA1 was $26.8 million, an increase
of 23.2% over the prior year's fourth quarter. Adjusted EBITDA1 for
the year ended September 30, 2023, was $100.4 million, an increase
of 26.2% over the prior year.
- Adjusted EBITDA1 as a percentage of revenue was 27.1% for the
year ended September 30, 2023, compared to 25.0% for the year ended
September 30, 2022.
- Fourth quarter diluted net income per share available to Class
A common stock was $0.11, compared to a net loss per share of $0.15
in the prior year's fourth quarter; full year diluted net loss per
share available to Class A common stock was $0.07, compared to a
net loss per share of $0.77 in the prior year.
- For the fourth quarter and year ended September 30, 2023, pro
forma adjusted diluted earnings per share1, which gives pro forma
effect to the Company's tax rate, was $0.40 and $1.52,
respectively, compared to $0.39 and $1.48 for the fourth quarter
and year ended September 30, 2022, respectively.
- Annualized Recurring Revenue ("ARR")2 for the fourth quarter of
2023 and 2022 was $312.9 million and $281.2 million, respectively,
representing a period-to-period growth rate of 11.3%.
- Software and related services revenue3 as a percentage of total
revenue was 50% and 49% for the years ended September 30, 2023 and
2022, respectively. Payments revenue4 as a percentage of total
revenue was 45% and 45% for the years ended September 30, 2023 and
2022, respectively.
- As of September 30, 2023, our consolidated interest coverage
ratio was 4.39x and our total leverage ratio was 3.77x. These
ratios are defined in the Company's 2023 Credit Agreement.
1.
Represents a non-GAAP financial measure.
For additional information (including reconciliation information),
see the attached schedules to this release.
2.
Annualized Recurring Revenue (ARR) is the
annualized revenue derived from software-as-a-service (“SaaS”)
arrangements, transaction-based software-revenue, software
maintenance, recurring software-based services, payments revenue
and other recurring revenue sources within the quarter. This
excludes contracts that are not recurring or are one-time in
nature. The Company focuses on ARR because it helps i3 Verticals to
assess the health and trajectory of the business. ARR does not have
a standardized definition and is therefore unlikely to be
comparable to similarly titled measures presented by other
companies. It should be reviewed independently of revenue and it is
not a forecast. Additionally, ARR does not take into account
seasonality. The active contracts at the end of a reporting period
used in calculating ARR may or may not be extended or renewed by
our customers.
3.
Software and related services revenue
includes the sale of subscriptions, recurring services, ongoing
support, licenses, and installation and implementation services
specific to software.
4.
Payments revenue includes merchant
processing, PCI and annual fees, residual, gateway and ACH
revenue.
Greg Daily, Chairman and CEO of i3 Verticals, commented, "We are
pleased to report an excellent finish to fiscal 2023. For three
straight years we have set a new record for revenue and adjusted
EBITDA every single quarter. At the same time, the mix and quality
of our business has continued to improve. For example, in this 2023
fiscal fourth quarter software-as-a-service revenue grew 23% and
overall margins expanded by over 200 basis points year over year.
We are pleased with our performance in fiscal 2023 which we believe
will carry over into fiscal 2024.
"Our total leverage as of September 30, 2023, is back below 3.8x
adjusted EBITDA. We have been very disciplined in our growth and
acquisition strategy, and I am excited about our ability to
capitalize on future opportunities.
"Finally, I want to congratulate Eric Willis and Crystal Bell on
their promotions to President - Healthcare and President –
Enterprise Solutions, respectively. We continue to benefit from
phenomenal talent that has been developed within our Company and
added through our acquisitions, and we are excited about how Eric
and Crystal will continue to transform our business."
2024 Outlook
The Company's practice is to provide annual guidance, excluding
the impact of future acquisitions and transaction-related
costs.
The Company is providing the following outlook for the fiscal
year ending September 30, 2024:
(in thousands, except share and per share
amounts)
Outlook Range
Fiscal year ending September 30,
2024
Revenue
$
385,000
-
$
410,000
Adjusted EBITDA (non-GAAP)
$
109,000
-
$
119,000
Depreciation and internally developed
software amortization
$
11,000
-
$
13,000
Cash interest expense
$
22,000
-
$
25,000
Proforma adjusted diluted earnings per
share(1)(non-GAAP)
$
1.60
-
$
1.78
__________________________
1.
Assumes an effective pro forma tax rate of
25.0% (non-GAAP).
With respect to the “2024 Outlook” above, reconciliation of
adjusted EBITDA, pro forma adjusted diluted earnings per share and
adjusted diluted earnings per share guidance to the closest
corresponding GAAP measure on a forward-looking basis is not
available without unreasonable efforts. This inability results from
the inherent difficulty in forecasting generally and quantifying
certain projected amounts that are necessary for such
reconciliations. In particular, sufficient information is not
available to calculate certain adjustments required for such
reconciliations, including changes in the fair value of contingent
consideration, income tax expense of i3 Verticals, Inc. and
equity-based compensation expense. The Company expects these
adjustments may potentially have a significant impact on future
GAAP financial results.
Conference Call
The Company will host a conference call on Thursday, November
16, 2023, at 8:30 a.m. ET, to discuss financial results and
operations. To listen to the call live via telephone, participants
should dial (844) 887-9399 approximately 10 minutes prior to the
start of the call. A telephonic replay will be available from 11:30
a.m. ET on November 16, 2023, through November 27, 2023, by dialing
(877) 344-7529 and entering Confirmation Code 7272540.
To listen to the call live via webcast, participants should
visit the “Investors” section of the Company’s website,
www.i3verticals.com, and go to the “Events” page approximately 10
minutes prior to the start of the call. The online replay will be
available on this page of the Company’s website beginning shortly
after the conclusion of the call and will remain available for 30
days.
Non-GAAP Measures
This press release contains information prepared in conformity
with GAAP as well as non-GAAP information. It is management’s
intent to provide non-GAAP financial information to enhance
understanding of the Company's consolidated financial information
as prepared in accordance with GAAP. This non-GAAP information
should be considered by the reader in addition to, but not instead
of, the financial statements prepared in accordance with GAAP. Each
non-GAAP financial measure and the most directly comparable GAAP
financial measure are presented for historical periods so as not to
imply that more emphasis should be placed on the non-GAAP measure.
The non-GAAP financial information presented may be determined or
calculated differently by other companies.
Additional information about non-GAAP financial measures,
including, but not limited to, pro forma adjusted net income,
adjusted EBITDA and pro forma adjusted diluted EPS, and a
reconciliation of those measures to the most directly comparable
GAAP measures is included in the financial schedules of this
release.
About i3 Verticals
The Company delivers seamless integrated software and services
to customers in strategic vertical markets. Building on its
sophisticated and diverse platform of software and services
solutions, the Company creates and acquires software products to
serve the specific needs of public and private organizations in its
strategic verticals, including its Public Sector (including
Education) and Healthcare verticals.
Forward-Looking Statements
This release contains forward-looking statements that are
subject to risks and uncertainties. All statements other than
statements of historical fact or relating to present facts or
current conditions included in this release are forward-looking
statements, including any statements regarding the Company's fiscal
2024 financial outlook and statements of a general economic or
industry specific nature. Forward-looking statements give the
Company's current expectations and projections relating to its
financial condition, results of operations, guidance, plans,
objectives, future performance and business. You can identify
forward-looking statements by the fact that they do not relate
strictly to historical or current facts. These statements may
include words such as “anticipate,” “estimate,” “expect,”
“project,” “plan,” “intend,” “believe,” “may,” “will,” “should,”
“could have,” “exceed,” “significantly,” “likely” and other words
and terms of similar meaning in connection with any discussion of
the timing or nature of future operating or financial performance
or other events.
The forward-looking statements contained in this release are
based on assumptions that we have made in light of the Company's
industry experience and its perceptions of historical trends,
current conditions, expected future developments and other factors
we believe are appropriate under the circumstances. As you review
and consider information presented herein, you should understand
that these statements are not guarantees of future performance or
results. They depend upon future events and are subject to risks,
uncertainties (many of which are beyond the Company's control) and
assumptions. Factors that could cause actual results to differ from
those expressed or implied by our forward-looking statements
include, among other things: future economic and geopolitical
conditions, including the impact of inflation and rising interest
rates, competition in our industry and our ability to compete
effectively, regulatory developments, the successful integration of
acquired businesses, and future decisions made by us and our
competitors. All of these factors are difficult or impossible to
predict accurately and many of them are beyond our control. For a
further list and description of these and other important risks and
uncertainties that may affect our future operations, see Part I,
Item 1A - Risk Factors in our most recent Annual Report on Form
10-K filed with the Securities and Exchange Commission, which we
may update in Part II, Item 1A - Risk Factors in Quarterly Reports
on Form 10-Q we have filed or will file hereafter.
Any forward-looking statement made by us in this release speaks
only as of the date of this release and we undertake no obligation
to publicly update any forward-looking statement, whether as a
result of new information, future developments or otherwise, except
as may be required by law.
i3 Verticals, Inc.
Consolidated Statements of Operations
($ in thousands, except share and
per share amounts)
Three months ended September
30,
Year ended September
30,
2023
2022
% Change
2023
2022
% Change
(unaudited)
(unaudited)
(unaudited)
Revenue
$
96,407
$
85,250
13
%
$
370,239
$
317,862
16
%
Operating expenses
Other costs of services
21,021
20,477
3
%
80,552
73,367
10
%
Selling general and administrative
56,103
50,912
10
%
219,736
193,790
13
%
Depreciation and amortization
9,612
7,601
26
%
36,461
29,424
24
%
Change in fair value of contingent
consideration
876
(959
)
(191
)%
10,781
23,725
(55
)%
Total operating expenses
87,612
78,031
12
%
347,530
320,306
8
%
Income (loss) from operations
8,795
7,219
n/m
22,709
(2,444
)
n/m
Other expenses
Interest expense, net
6,714
4,477
50
%
25,128
14,775
70
%
Other expense
1,731
991
75
%
1,436
991
45
%
Total other expenses
8,445
5,468
54
%
26,564
15,766
68
%
Income before income taxes
350
1,751
(80
)%
(3,855
)
(18,210
)
(79
)%
(Benefit from) provision for income
taxes
(3,099
)
6,161
n/m
(1,203
)
5,007
n/m
Net income (loss)
3,449
(4,410
)
(178
)%
(2,652
)
(23,217
)
(89
)%
Net loss attributable to non-controlling
interest
(1,099
)
(937
)
17
%
(1,841
)
(6,115
)
(70
)%
Net income (loss) attributable to i3
Verticals
$
4,548
$
(3,473
)
(231
)%
$
(811
)
$
(17,102
)
(95
)%
Net income (loss) per share available to
Class A common stock:
Basic
$
0.20
$
(0.15
)
$
(0.04
)
$
(0.77
)
Diluted
$
0.11
$
(0.15
)
$
(0.07
)
$
(0.77
)
Weighted average shares of Class A common
stock outstanding:
Basic
23,236,620
22,645,755
23,137,586
22,249,656
Diluted
34,011,302
22,645,755
33,246,833
22,249,656
n/m = not meaningful
i3 Verticals, Inc. Segment
Summary
(Unaudited)
($ in thousands)
For the Three Months Ended
September 30, 2023
Software and Services
Merchant Services
Other
Total
Revenue
$
60,056
$
36,374
$
(23
)
$
96,407
Income (loss) from operations
$
13,329
$
8,456
$
(12,990
)
$
8,795
Payment volume(1)
$
735,980
$
5,563,071
$
—
$
6,299,051
For the Year Ended September
30, 2023
Software and Services
Merchant Services
Other
Total
Revenue
$
232,967
$
137,342
$
(70
)
$
370,239
Income (loss) from operations
$
45,712
$
29,130
$
(52,133
)
$
22,709
Payment volume(1)
$
2,743,549
$
21,686,690
$
—
$
24,430,239
For the Three Months Ended
September 30, 2022
Software and Services
Merchant Services
Other
Total
Revenue
$
51,827
$
33,410
$
13
$
85,250
Income (loss) from operations
$
12,923
$
6,746
$
(12,450
)
$
7,219
Payment volume(1)
$
604,592
$
5,470,056
$
—
$
6,074,648
For the Year Ended September
30, 2022
Software and Services
Merchant Services
Other
Total
Revenue
$
193,402
$
124,481
$
(21
)
$
317,862
Income (loss) from operations
$
20,003
$
24,595
$
(47,042
)
$
(2,444
)
Payment volume(1)
$
2,148,795
$
20,488,530
$
—
$
22,637,325
__________________________
1.
Payment volume is the net dollar value of
both 1) Visa, Mastercard and other payment network transactions
processed by the Company's customers and settled to customers by us
and 2) ACH transactions processed by the Company's customers and
settled to customers by the Company.
i3 Verticals, Inc.
Consolidated Balance Sheets
($ in thousands, except share and
per share amounts)
September 30,
September 30,
2023
2022
(unaudited)
Assets
Current assets
Cash and cash equivalents
$
3,112
$
3,490
Accounts receivable, net
65,110
53,334
Settlement assets
4,873
7,540
Prepaid expenses and other current
assets
12,449
19,445
Total current assets
85,544
83,809
Property and equipment, net
12,308
5,670
Restricted cash
4,415
12,735
Capitalized software, net
62,577
52,341
Goodwill
409,563
353,639
Intangible assets, net
226,952
195,919
Deferred tax asset
52,514
43,458
Operating lease right-of-use assets
13,922
17,678
Other assets
13,698
5,063
Total assets
$
881,493
$
770,312
Liabilities and equity
Liabilities
Current liabilities
Accounts payable
11,064
9,342
Accrued expenses and other current
liabilities
37,740
57,833
Settlement obligations
4,873
7,540
Deferred revenue
35,275
31,975
Current portion of operating lease
liabilities
4,509
4,568
Total current liabilities
93,461
111,258
Long-term debt, less current portion and
debt issuance costs, net
385,081
287,020
Long-term tax receivable agreement
obligations
40,079
40,812
Operating lease liabilities, less current
portion
10,433
13,994
Other long-term liabilities
24,143
9,540
Total liabilities
553,197
462,624
Commitments and contingencies
Stockholders' equity
Preferred stock, par value $0.0001 per
share, 10,000,000 shares authorized; 0 shares issued and
outstanding as of September 30, 2023 and 2022
—
—
Class A common stock, par value $0.0001
per share, 150,000,000 shares authorized; 23,253,272 and 22,986,448
shares issued and outstanding as of September 30, 2023 and 2022,
respectively
2
2
Class B common stock, par value $0.0001
per share, 40,000,000 shares authorized; 10,093,394 and 10,118,142
shares issued and outstanding as of September 30, 2023 and 2022,
respectively
1
1
Additional paid-in-capital
249,688
241,958
Accumulated deficit
(12,944
)
(23,582
)
Total stockholders' equity
236,747
218,379
Non-controlling interest
91,549
89,309
Total equity
328,296
307,688
Total liabilities and equity
$
881,493
$
770,312
i3 Verticals, Inc.
Consolidated Cash Flow Data
($ in thousands)
Year ended September
30,
2023
2022
(unaudited)
Net cash provided by operating
activities
$
34,503
$
45,846
Net cash used in investing activities
$
(121,520
)
$
(113,045
)
Net cash provided by financing
activities
$
75,652
$
73,033
Reconciliation of GAAP to Non-GAAP Financial Measures
The Company believes that the non-GAAP financial measures
presented by the Company provide useful information to investors in
understanding and evaluating the Company's ongoing operating
results. Accordingly, the Company includes such non-GAAP financial
measures when reporting its financial results to shareholders and
potential investors in order to provide them with an additional
tool to evaluate the Company’s ongoing business operations. The
Company believes that these non-GAAP financial measures are
representative of comparative financial performance that reflects
the economic substance of the Company’s current and ongoing
business operations.
Although these non-GAAP financial measures assist in measuring
the Company's operating results and assessing its financial
performance, they are not necessarily comparable to similarly
titled measures of other companies due to potential inconsistencies
in the method of calculation. The Company believes that the
disclosure of these non-GAAP financial measures provides investors
with important key financial performance indicators that are
utilized by management to assess the Company's operating results,
evaluate the business and make operational decisions on a
prospective, going-forward basis. Hence, management provides
disclosure of these non-GAAP financial measures to give
shareholders and potential investors an opportunity to see the
Company as viewed by management, to assess the Company with some of
the same tools that management utilizes internally and to be able
to compare such information with prior periods. The Company
believes that disclosure of these non-GAAP financial measures
provides investors with additional information to help them better
understand its financial statements just as management utilizes
these non-GAAP financial measures to better understand the
business, manage budgets and allocate resources.
i3 Verticals, Inc.
Reconciliation of GAAP Net Income to Non-GAAP Pro Forma Adjusted
Net Income and Non-GAAP Adjusted EBITDA
(Unaudited)
($ in thousands)
Three months ended September
30,
Year ended September
30,
2023
2022
2023
2022
Net income (loss) attributable to i3
Verticals, Inc.
$
4,548
$
(3,473
)
$
(811
)
$
(17,102
)
Net loss attributable to non-controlling
interest
(1,099
)
(937
)
(1,841
)
(6,115
)
Non-GAAP Adjustments:
Provision for income taxes
(3,099
)
6,161
(1,203
)
5,007
Financing-related expenses(1)
—
—
8
13
Non-cash change in fair value of
contingent consideration(2)
876
(959
)
10,781
23,725
Equity-based compensation(3)
7,032
6,550
27,878
26,230
Acquisition-related expenses(4)
29
1,071
1,132
2,088
Acquisition intangible amortization(5)
7,132
6,155
28,142
24,129
Non-cash interest expense(6)
405
1,483
1,717
5,795
Other taxes(7)
433
257
1,394
508
Other expenses (income) related to
adjustments of liabilities under tax receivable agreement(8)
(929
)
991
(929
)
991
Write down of intangible asset(9)
2,660
—
2,660
—
Gain on investment(10)
—
—
(295
)
—
Non-GAAP pro forma adjusted income
before taxes(11)
17,988
17,299
68,633
65,269
Pro forma taxes at effective tax
rate(12)
(4,497
)
(4,325
)
(17,158
)
(16,317
)
Pro forma adjusted net
income(13)
$
13,491
$
12,974
$
51,475
$
48,952
Cash interest expense, net(14)
6,309
2,994
23,411
8,980
Pro forma taxes at effective tax
rate(12)
4,497
4,325
17,158
16,317
Depreciation and internally developed
software amortization(15)
2,480
1,446
8,319
5,295
Adjusted EBITDA(11)
$
26,777
$
21,739
$
100,363
$
79,544
__________________________
1.
Financing-related expenses includes
expenses directly related to certain transactions as part of
financing transactions.
2.
Non-cash change in fair value of
contingent consideration reflects the changes in management’s
estimates of future cash consideration to be paid in connection
with prior acquisitions from the amount estimated as of the later
of the most recent balance sheet date forming the beginning of the
income statement period or the original estimates made at the
closing of the applicable acquisition.
3.
Equity-based compensation expense related
to stock options and restricted stock units issued under the
Company's 2018 Equity Incentive Plan and 2020 Acquisition Equity
Incentive Plan.
4.
Acquisition-related expenses are the
professional service and related costs directly related to the
Company's acquisitions and are not part of its core
performance.
5.
Acquisition intangible amortization
reflects amortization of intangible assets and software acquired
through business combinations, acquired customer portfolios,
acquired referral agreements and related asset acquisitions.
6.
Non-cash interest expense reflects
amortization of debt discount and debt issuance costs and any
write-offs of debt issuance costs.
7.
Other taxes consist of franchise taxes,
commercial activity taxes, reserves for ongoing tax audit matters,
the employer portion of payroll taxes related to stock option
exercises and other non-income based taxes. Taxes related to
salaries are not included.
8.
Under our Tax Receivable Agreement we have
a liability equal to 85% of certain deferred tax assets resulting
from an increase in the tax basis of our investment in i3
Verticals, LLC. Other expenses related to adjustments of
liabilities under our Tax Receivable Agreement relate to the
remeasurement of the underlying deferred tax asset for changes in
estimated income tax rates.
9.
Write down of intangible asset is related
to the write down of an internal use software project.
10.
Gain on investment, which the Company
recognizes in other income, reflects contingent consideration
received for an investment that was sold in a prior year for the
year ended September 30, 2023.
11.
Represents a non-GAAP financial
measure.
12.
Pro forma corporate income tax expense is
based on Non-GAAP adjusted income before taxes and is calculated
using tax rates of 25.0% for 2023 and 2022, based on blended
federal and state tax rates.
13.
Pro forma adjusted net income represents a
non-GAAP financial measure, and assumes that all net income during
the period is available to the holders of the Company’s Class A
common stock.
14.
Cash interest expense, net represents all
interest expense net of interest income recorded on the Company's
statement of operations other than non-cash interest expense, which
represents amortization of debt discount and debt issuance costs
and any write-offs of debt issuance costs.
15.
Depreciation and internally developed
software amortization reflects depreciation on the Company's
property, plant and equipment, net, and amortization expense on its
internally developed capitalized software.
i3 Verticals, Inc. GAAP
Diluted EPS and Non-GAAP Pro Forma Adjusted Diluted EPS
(Unaudited)
($ in thousands, except share and
per share amounts)
Three months ended September
30,
Year ended September
30,
2023
2022
2023
2022
Diluted net income (loss) available to
Class A common stock per share
$
0.11
$
(0.15
)
$
(0.07
)
$
(0.77
)
Pro forma adjusted diluted earnings per
share(1)
$
0.40
$
0.39
$
1.52
$
1.48
Pro forma adjusted net income(2)
$
13,491
$
12,974
$
51,475
$
48,952
Pro forma weighted average shares of
adjusted diluted Class A common stock outstanding(3)
34,011,302
33,618,854
33,970,731
33,100,182
__________________________
1.
Pro forma adjusted diluted earnings per
share is calculated using pro forma adjusted net income and the pro
forma weighted average shares of adjusted diluted Class A common
stock outstanding.
2.
Pro forma adjusted net income assumes that
all net income during the period is available to the holders of the
Company's Class A common stock. Further, pro forma adjusted diluted
earnings per share assumes that all Common Units in i3 Verticals,
LLC and the associated non-voting Class B common stock were
exchanged for Class A common stock at the beginning of the period
on a one-for-one basis.
3.
Pro forma weighted average shares of
adjusted diluted Class A common stock outstanding include
10,099,678 and 10,109,247 weighted average outstanding shares of
Class A common stock issuable upon the exchange of Common Units in
i3 Verticals, LLC and 675,004 and 723,898 shares resulting from
estimated stock option exercises and restricted stock units vesting
as calculated by the treasury stock method for the three months and
year ended September 30, 2023, respectively. Pro forma weighted
average shares of adjusted diluted Class A common stock outstanding
include 10,118,142 and 10,170,668 outstanding shares of Class A
common stock issuable upon the exchange of Common Units in i3
Verticals, LLC and 854,957 and 679,858 shares resulting from
estimated stock option exercises and restricted stock units vesting
as calculated by the treasury stock method for the three months and
year ended September 30, 2022, respectively.
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version on businesswire.com: https://www.businesswire.com/news/home/20231115418119/en/
Clay Whitson Chief Financial Officer (888) 251-0987
investorrelations@i3verticals.com
i3 Verticals (NASDAQ:IIIV)
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