Okay. Good morning, everybody. We're gonna go ahead and get started. It's 7:30 A.M. My name's Madison Suhr. I'm the lead payments and fintech analyst here at Raymond James. Happy to be joined by i3 Verticals CFO, Geoff Smith. For today's format, I'm gonna kick it over to Geoff. He's gonna run through a little bit about the business, and then we're gonna transition into a fireside chat. With that, I'll kick it to you, Geoff.
All right. Thanks, Madison. It's a pleasure to be here. For those of you who aren't familiar with i3 Verticals, just to give you a quick summary before we get into some questions. i3 Verticals provides software to the public sector. Specifically, we are focused on five kind of core niches. Those would be JusticeTech, this would be software for courts. The core information system here would be the Case Management Solution for the courts, and then around that we have an array of other solutions, including solutions for public safety. After that would be utilities. The core system there, the system of record would be the customer information system. We serve utilities big and small.
We have a nice kind of core niche in the really small end of the market for utilities, where they're doing three to four customer information system implementations in a month, so really small. On the really deep end, the really large, extremely complicated multi-year installation, customer information systems. We're building a customer information system for that end of the market and have our first customer there. After that, public administration. This would be government fund accounting, board and licensing solutions, different revenue and property tax solutions, really sticky niche solutions geographically, can be kind of very focused and obviously government fund accounting is. That's an ERP for a government. That's ERP being kind of the gold standard of really sticky vertical software. After that, transportation.
This is software that is, you know, sold to the Department of Transportation, driver's license and motor vehicle being kind of the core systems of records for those spaces. We have a great practice that does software for motor carriers, so IRP and IFTA fuel taxes, PARS, routing software. Our most recent acquisition is in the insurance verification space, and we'll talk a little bit more about that later as well. Finally, the last one is in the education space. School lunch software. We're one of the largest providers of school lunch point-of-sale solutions in the country. Several million kids today will use our software to do their lunch payments, and parents will load money on a card. This is heavily monetized off of payments and transactional revenue, plus a SaaS stream, and you're selling to largely public school districts.
That was our earliest vertical market software business. The company, i3, has been sort of on a journey to reach this endpoint in the time period we've been on the public markets. We have a kind of a core competency in software meeting payments. About 25% of our revenue comes from payment revenue. All of that payment revenue, though, is integrated into our own software, so none of it is like third-party ISV or merchant acquiring. We used to have some of that and we've divested all of that. We've narrowed our focus to just this one particular market. Obviously, the public sector is a great market to operate in. It is way behind the times in terms of technology adoption.
That's particularly acute today, especially, obviously, you know, there's a lot of conversation, and we'll get into discussion about AI and how that's impacting i3 as a business. The public sector is, you know, usually late to adopt many things in AI on the ground. You know, we'll talk about kind of what we're seeing on the ground with our customers. You know, they're kind of in that same boat.
It's a very fragmented landscape. It's a very large market. The only other kind of public company that operates and is a good comp with us really is Tyler Technologies. They've been doing what we're doing for a little bit longer and have reached a little bit larger scale. While we serve slightly different end markets, the businesses are very similar in many, many ways. That's kind of a high-level overview, and with that, you know, I can answer some questions.
Yeah. That's great, Geoff. Thank you for providing that color. I did wanna kinda kick things off here with what's most topical.
Yeah
that's AI. Would love if you could just dive in a little bit more on, you know, where you're viewing AI from both an opportunity and, you know, what risks you're assessing with AI?
Yeah. Absolutely. Let's get right into it. The first thing I'll say is I can give you guys kind of a view from the ground and what we're seeing out there in our end markets. you know, obviously aware of what the public markets are discussing, and there's a lot of things moving very fast. We had all of our executive team in a management meeting this last week. We're discussing strategy, and we're discussing all kinds of things around this topic. We also did kind of survey the room and discuss what are we seeing on the ground here?
What I can share is basically, we're not seeing any of what the market is discussing on the ground in reality yet, which is to say we're not seeing any new entrants in our markets, brand-new competitors who are, you know, AI native or who have vibe-coded solutions that might compete with us. We're not seeing any customers that are holding back purchasing decisions or are opting to, you know, build something internally as opposed to acquire a software that, you know, is customized to meet their needs. So far on the ground, kind of no signs of that. We're the ones very much kind of pushing and driving the conversation with our customers. That being said, like, that's the view on the ground today, but obviously I know, especially this room full of investors, we're thinking about where things are going.
This is where, you know, the conversations we were having last year and over the last several years, frankly, as a team, are really important. We're absolutely not being complacent or standing still. This is a, you know, an opportunity for us. There is a massive amount of new capabilities and tools. We're thinking about our business models and where things might, you know, tweak or evolve. We're especially thinking about moats and the ones that we have.
Obviously, you know, we're in a well-positioned spot in terms of our end market public sector, but our actual like software and how, you know, we fit into these in our customers, we're generally the system of record for our customers, which I think is a, you know, that's an important spot to be in this time of, you know, in this time and moment. We have great lock-in on the transactional revenue. Payments specifically, I believe in this market is something that will be very potent. The education market is an example. You know, that software is specifically exactly what the customer needs, but then it is monetized off the payments, which makes it very hard to kind of come in and disintermediate what we're doing, you know.
Even if you have added payments capabilities to a new software, the scale, the pricing power, things like that, you have a nice moat with something like that. In our courts, I'll use another example, we have a service that we've had great success cross-selling within the court space. This is, you know, if you imagine a court, you know, and their kind of daily operations and business, they generate lots of fees. This could be parking tickets, civil penalties, any number of things, and they usually don't have any function to collect on these things. Often that gets outsourced to a law firm or something like that. We have built a software-enabled, and then it also includes arms and legs, you know, service component that we have, you know, added on to many of our customers.
Started with one acquisition, it's kind of run through a pretty good chunk of the base with a lot more kind of to come still, where we're doing that collection for them and taking a rev share on that. That's a great example in this kind of, you know, topic of AI because the point is we want to add additional services and have additional lockup with our customers. You want to be more deeply entrenched into their process. This particular example I just cited, there's situations where we can basically assume a customer, charge them nothing for the software because we're gonna get the payments revenue, and we're going to get the, we're gonna get that recurring services, transactional type revenue from the collections or whatever it might be. There's multiple examples like that within our customer base. There's other moats as well.
Learned interface, domain expertise, and all kinds of other stuff like that, bundling, that are still really relevant. I think you'll see us really lean into the transactional lock-in. One thing that we're kind of talking about internally is obviously SaaS is still a great revenue stream, very, you know, sticky and recurring, but what else? You know, can it be software and a service, software and something else? That kind of gets to the, you know, the last point, which is kind of where are we going from a development and technology perspective here? Obviously, there's a lot of great new tools out there, and we want to make sure that, you know, we capitalize on the opportunity that these tools present as quickly as possible and before our competitors, you know, current competitors in the market or any potential new ones.
Obviously, this is a market that will be probably slower than many others to adopt some of the benefits of this stuff, but we want to be the ones that really drive that conversation forward with those customers. Anyway, that's sort of a high level of how we're kind of interacting and doing this. With that.
Yeah.
I rambled for a little bit.
No, that's very helpful. I mean, as I mentioned, it's the most topical kind of debate, so it's great to provide a lot of color there.
Yeah.
I did wanna ask, you know, can you just also help investors understand the typical contract structure for i3? I guess more specifically, you know, do you guys have any seat-based type pricing?
Sure.
Pricing's also something that you guys have talked about potentially being a tailwind over the next few years. Do you still think that's the case?
Yeah, absolutely. First, to address the seat-based licensing or the seat-based pricing, we have virtually no seat-based pricing within our customer base, and that's not, you know, obviously, I think that's a good answer to have right now. People are concerned about that in the AI world. We've had a prejudice against that for a long time. The reason being that with our software, we want to penetrate as deeply into our customers' organizations as possible. When you're doing vertical market software, that's what you want. We want to encourage them to add more users to the platform. We want them to help us source creative ideas of how the software could do more for them and absorb more of their process.
This is another AI tailwind because now software, you know, the capabilities of software to absorb more and more of their process and add more value, expand the value proposition is accelerating. We've always had a prejudice against seat-based pricing. That's not how we usually do it. The way we think about pricing, we're trying to match SaaS price with kind of the value add. The scale of the organization, the scale of the customer is one of the main, you know, ways that we do that. You know, again, not seat. Obviously, we try and add a lot of transactional revenue. We talk about pricing a lot in the context of the public sector, that you can build a road or you can build a toll road often.
Constituent pricing, which would be payments or maybe a transaction fee, you can see that in our P&L. We break that out for investors to see how much of our revenue comes from SaaS payments and then like transactional revenue, where maybe there's a technology fee or something like that. The users or the direct constituents of our customers who are benefiting most directly from the software help fund and pay for it.
Awesome. I wanted to switch gears a little bit here. You touched on it briefly, but, you know, you announced an acquisition last quarter, a driver and motor vehicle software company. Believe you guys paid, you know, about $60 million here. Can you just kinda double-click on what exactly that business does?
Yeah.
You know, what made it an attractive asset for i3 to own?
Sure. If you're familiar with i3 and how we do M&A, we have our own team. We self-source the vast majority of our deals. Obviously, we consider, you know, many other things that come across our desk through marketed processes and things bankers bring and things like that. Most of our best deals and most of the deals we get to the finish line on are deals we sourced ourselves, and this is an example of that. This is the, you know, product of a multi-year relationship and ultimately the culture kind of carrying the day and getting them across the finish line. This is specifically the businesses in the Department of Transportation space. What they do is electronic insurance verification. This is something that has been a big trend in our, in our government.
Traditionally, you might be driving down the road, and you get pulled over by a police officer, and you have to show them proof of insurance. If you don't have that, you know you're gonna get a ticket. Now, states have realized, well, we actually can, using software, be proactive in identifying uninsured vehicles. Essentially the way it works is, you know, the state has its list of registered vehicles, and they, using the software that we now have acquired, are comparing that to a list of all the insured vehicles. Now, to do that, you have to build an integration with all of the insured carriers in that state. Obviously, you know, there's some nationwide ones, but there's also lots of point, you know, carriers and things like that.
Having built all those integrations provides the company we acquired a really deep moat, and also a competitive advantage for the next opportunity. They have to pass legislation generally requiring insurance carriers make this data available to the state. Finally, they pass legislation, or it's all probably part of one package, that includes a civil penalty for, you know, not having insurance on a registered vehicle. The state can now proactively issue these civil penalties when they see that, hey, you know, Madison's got a vehicle in this state, and he's dropped insurance coverage. Each state has the kind of different approaches, the penalties range in size and how punitive they are. Maybe there's warnings or things like that. This software, it's monetized largely off SaaS by state.
There's a couple states, including one of the smallest, where they have monetized off a rent share model on these fees. They do very well in that state. That's another, you know, kind of to the business models we were discussing earlier, opportunity we'll lean into. We love it. Often in our M&A space where we find software businesses that have under-monetized or non-monetized payments at all when there is an opportunity there. This is an example of that. There's services that they can attach, you know, actually like, you know, doing the issuing of these civil penalties and doing the mailing on that. They outsource that. It's an early synergy opportunity for us because we've been able to bring that already onto our scaled contract for kinda outsourced printing and pick up some nice revenue or some nice cost reductions.
They have a great deep pipeline. 'cause we can see pretty far out which states are coming out with the legislation, and these guys are working with these states in advance of the legislation even coming out there. They have about, at this moment, 19 states live on their platform, with about four more in process moving onto their platform. Massive market share and, you know, the states that are further out that are bringing this to the market, they're in a great position on that front too. We see it as being very durably in the 20% growth space. We're very excited about adding them to the team. These guys, you know, were the type of guys who had hung up on private equity for many years. They knew our guys.
They were at the same conferences, great relationships, even did like, you know, happy hours and team building together when they were at these conferences for years. you know, got to know our CEO, Greg Daily. Ultimately, you know, decided despite the fact that they had built something really great with great growth and they could keep building it on their own, that they wanted to be a part of the broader culture that we've built amongst our executive team and up beyond. It'll be great cross-sell with the rest of our Department of Transportation software solutions. Their 20 states and our 20 states overlap to be about 30 states of coverage. We also have some coverage in Canada in that space. you know, the relationships are really gonna be valuable.
Awesome. Yeah, that's a very helpful overview. I did wanna ask, you know, obviously you've touched a lot on the different verticals that you play in. Can you just maybe help investors understand, you know, kind of a ballpark revenue contribution by vertical? What's the biggest, what's the smallest, and to the extent, you know, as well as, you know, growth rates, where you see kind of the most opportunity for growth moving forward here?
Sure. I'll speak in high-level numbers 'cause we're a single segment, but we've given some kind of rough color here. The justice market specifically is both our largest and fastest-growing market at this point in time. That's the spot where the cross-sell is working the best. You know, I mentioned earlier we control the system of record there. We also have been building and have a really great recent validation with winning the statewide court opportunity in West Virginia. Basically, the what we believe will be the Case Management Solution of the future. We have, you know, kind of great attachment opportunities around that, like the Resolv product, the collections service that I mentioned a minute ago, public safety, e-filing, jury solutions, lots of different orbital things we can attach to that Case Management Solution, that beachhead.
That's the largest, you know, north of 25% of our revenues at this point in time. The other four markets break down actually fairly evenly, across the rest of the pie there. To kinda talk through growth rates, education has been a real durable 10% grower. Little bit of noise in there with COVID and things like that when different states went to free school lunches, they're kinda like normalized logo growth and, expansion of revenue. Kinda their growth algorithm has kinda worked out to about that 10% level for a really long time. Public administration is more in the mid-single digits growth. Hopefully accelerating.
We have what we believe is the best product in the market in a board and licensing solution space. I think as that keeps scaling and keeps growing very, at a really great pace, hopefully that will kind of blend that one up. Transportation is a little bit more of an up and down growth story. The ARR growth is very solid and predictable and steady, but they do rely on a very, a healthy amount of professional services. The transportation market, you know, you're never really no sale is, you know, less than a seven-figure sale. It's all elephant hunting. So, you know, depending on how kind of frequently you're stacking up those wins and what the kind of cadence is, that can be a little higher or lower.
It's a little bit at lower side, and we'll talk about that, maybe some of the non-recurring growth, or non-recurring revenues in this current fiscal year here in a second. Brings me to utilities. Utilities is similarly a good recurring revenue base that's growing very kind of predictably and stably, but they have a lot of professional services, a lot of non-recurring revenue in the utility space, and that's structural to that market because utilities want to, everything needs to be a capital project. They're, we have to fight them for the recurring revenue streams, so payment attachment's really important. They don't like the SaaS stuff. Their growth in this current year is on the lower side. We'll talk about the professional services revenue, and that's where a lot of that kind of trough is.
Yeah, certainly. Maybe just touch briefly on the competitive set. Do you go up against similar competitors in each one of these verticals? Is each one kind of different where you're, you know, batting it out with different competitors or?
Yeah, it's largely different competitors.
Okay.
I mentioned Tyler earlier as our kind of closest public company comp. The reality is, like, on the ground day-to-day, we don't run into them that often because we're both fishing in a, in a massive ocean, essentially. We bump up against them most in the court space, there are some other large case management providers out there like, you know, Avenu or Journal Technologies or Thomson Reuters. Even those, what's actually much more common is you're running into like specific niche point solutions that are heavily geographically concentrated. If you looked at like a pie chart of the public sector market, you know, you still would have, you'd have, you know, Tyler, and then you'd have some other, you know, kinda, you know, less scale but, you know, on the, you know, might have a slice of the pie like ourselves.
The vast majority of the public sector software space, especially for state and local governments specifically, which is what we plan, would be just other, and that goes kind of across the board in our market here.
Awesome. You know, you generally talk about i3 as being a high single digit organic growth grower. Can you just touch on, you know, kind of the drivers to that normalized high single digit growth.
Yeah.
You know, NRR versus new signings?
Yeah. Our guide right now, you know, implies that the organic growth for ARR will be in that high single digit. That's why we continue to, you know, guide the market that our expectation is that, you know, high single digits is kind of our normalized growth rate. Even though the, you know, total top line revenue this year is, you know, more in that, you know, 4-ish % kind of range. The ARR growth specifically though, you're, you know, we were 104 for NRR last year, and this year I think, you know, in that same kind of vicinity hopefully inching up about 1% or so.
The growth algorithm, you know, you're talking gross dollar retention in the high 90s, you're talking cross-sell price increase, and then just expansion from current customers all being in that 2%-4% contribution a piece, getting you up to that 104, 105 NRR level. New logos for another, you know, somewhere in the 3%-5% kinda range. That's the ARR growth.
Awesome. You know, I know you kinda hinted at it here a couple times. The guide this year for FY 2026 implies about 4% organic growth. You know, we just talked about how on a normalized basis it's high single. Maybe just, you know, walk investors through the bridge on kinda the impacts to this year and also, you know, again, how you're thinking about recurring revenue for this year as well.
Sure. Recurring revenue, we were a little above 80% this last year, and we'll be kind of in that vicinity for the fiscal year on the recurring revenue side. The non-recurring revenue is made of primarily two things: That's software license sales and then that's professional services. Software license sales, not a massive piece of our revenue line. Obviously, we sell SaaS first always. License sales will only happen when it's a scenario where a customer, you know, that it has to be that for some reason with the customer. Often it's in the utilities market, sometimes, you know, other markets but, we're almost always SaaS. It's also worth pointing out, pretty much in every situation, new sales always in the cloud even if the customer is acquiring a license, you know. These are, you know, cloud deployments.
With regards to the professional services, you know, that was about $40 million in fiscal 2025. This year that's closer to like about $31 million. The largest reason for that is our utility space. We've kinda broken that down previously for investors but there's a couple customers. One was kind of a long term, managed services deal that we had very much non-core to i3's business, that just is, you know, a trading project running off type of thing we don't seek out but had for several years, you know, legacy from an acquisition and, you know, it was still, you know, decent margin and happy to do it for the, for the customer. The other one is our large CIS build for a utility. This is a large, you know, heavy eight-figure contract and opportunity for us.
We've been in build mode and implementation mode and now very much in build mode working through different phases of this contract. It's a multi-year pro-process, you know, the customer relationship is very deep. We're building something really exciting. Obviously, we have to kind of work with them. They're very, you know, and understandably, they're risk-averse and wanna be careful. So the timing of revenue recognition on that can be a little bit, let's just say it's not very smoothed out.
It can be really lumpy. This particular fiscal year, there's a pretty significant drawdown in the recognition of professional services revenue on that relationship and that customer. Anyway, a pretty decent compression in the professional services, and that's the reason why the company isn't, you know, top-line growth kind of at the same level it was prior year and what we expect it'll be in the future. I wouldn't set your expectation that that professional services revenue kind of continues to erode. We have a lot of things in the future that we think are, you know, gonna be great contributions to that. Obviously, we don't lean into the professional services. We're always leaning towards the ARR, often, you know, even foregoing professional services or implementation revenue for a lot of different opportunities. But that doesn't mean that, you know, that stuff is gonna go away.
Okay. Awesome. I wanted to transition here to capital allocation. You know, we've talked a little bit about M&A. It's a, it's a big part of the story. Can you just remind us kinda where leverage is now post the deal that you just closed and how you're thinking about, you know, capital allocation between M&A and buybacks, you know, understanding that you have room for both here?
Yep. We have a $400 million credit facility that we can use as we need it. We were debt-free until this acquisition that we just did. This pushed us into a modest debt position. The other thing, though, that we have been, and we've been upfront with the market about this, we've been doing share buybacks, and you can kind of review our Form 10-Q to see how much we've done historically. The board this last quarterly cycle approved another $60 million buyback plan. you know, as we weigh buybacks, M&A, et cetera, I think the message I would have to you as investors is what we're looking for is attractive return on investment opportunities. you know, this most recent deal is obviously one that we really believe in from that perspective.
We expect that M&A will continue to be a piece of the story for i3, but we don't need to reach. We don't need to do M&A just for the sake of doing M&A.
We'll do that on an opportunistic basis. We have our team that hunts for that stuff. We've, I think, really proven over the last 3 years or so as our M&A velocity really reduced, we're willing to be really picky, and I think that's served us well because this is a good time to make sure we have, you know, ample capacity. Then share buybacks, it's the same kind of consideration. When we think that our shares are at a price where we think that for the benefit of investors, we're gonna get a great return by buying back or returning some of that capital, we'll do that. We've been active over the last year. We've continued to be active at, you know, in the last quarter. You know, stay tuned for more reporting on that.
I guess maybe if you can double-click on the M&A pipeline itself. You know, you guys have generally talked about targeting three to four years, three to four deals a year and targeting about $100 million in M&A.
Yeah.
I mean, how's the pipeline look right now? Are there things out there that you guys see as pretty attractive or?
Yeah. I mean, we always have a deep list of companies that we are working a relationship with. Timing is always really hard to predict. This most recent acquisition being a good example of that. You know, that was years long courting that company. There are other scenarios where something comes up and spins up really fast.
We've given the market that kind of like high level just kind of expectation that, you know, we could see ourselves deploying about $100 million a year in M&A. While that still may be kind of a reasonable guess or expectation, we, the company, don't say that, you know, in any way to be, like, beholden to that. Again, it will be opportunistic. We'll be thoughtful about it. We've been willing to do to move very fast and go quickly when we think the opportunities are there. Obviously, you know, right now, the software space prices have come down significantly, and we think there will probably be some attractive opportunities here. The private markets lag the public markets in all things with this.
We have to navigate that. You know, it kinda maybe circles back to the AI conversation we had here. You know, internally, there's a lot of reasons that we're just very excited about this market. One of those is because of, you know, the prices that we're able to deploy capital at right now and what we think the return on, you know, that investment will be. Obviously, there's, you know, all the opportunities that this, you know, these new tools and capabilities afford us. You know, we aim to be first to bring these things to our customers.
Okay. Awesome. We're about at time, but just any kind of final, you know, closing remarks or anything you want investors to really take away from the presentation here today?
Sure. Well, we covered AI a lot, and I think, you know, what I'll say to this is you're always welcome to reach out to us. This is something that, you know, is changing and moving very fast. We're being very thoughtful about it. We appreciate investors' thoughts about it. Our business is one that we think is gonna do really well in this environment. There's a lot of opportunities that this has presented. While those opportunities, you know, are out there for everybody, we think our subject matter expertise, our ability to distribute through our customer base and drive the conversation in an end market that's very attractive, sets us up really well.
As kind of, you know, the dust settles with this, I think that, you know, we expect that we're gonna be a net beneficiary in this environment. Excited to continue the dialogue, and we're gonna you know, keep operating.
Awesome. We'll leave it there. Thank you so much, Geoff.
Yep, absolutely. Thanks, Madison.