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i3 Verticals (IIIV) Q3 FY26 earnings call: guidance and Q&A

Earnings call· Jun 2026 (Q3 FY26)· Information Technology· Aug 7, 2026

Source: earnings call transcript

Executive summary

i3 Verticals Q3 FY26 — Lowered FY26 Guidance and Reduced FY27 Growth Expectations

i3 Verticals reported a disappointing Q3 FY26, missing expectations due to continued weakness in non-recurring professional services and a deceleration in transaction revenues, leading to a significant cut in FY26 guidance and reduced FY27 growth outlook. Despite these challenges, recurring revenue streams and SaaS growth remain strong, with AI-driven efficiencies improving development velocity. Management is focused on go-lives and operational improvements to drive future growth and margin expansion.

Highlights

5

  • Annualized recurring revenue grew 8% year-over-year to $174.1 million.

  • SaaS revenue grew 38% in Q3 FY26.

  • Adjusted EBITDA increased 5% to $13.3 million, with margin expanding to 25% of revenues.

  • Adjusted diluted EPS increased 8.5% to $0.25 in Q3 FY26.

  • Internal sprint metrics showed over 25% improvement in development velocity due to AI, maintaining flat engineering headcount.

Concerns

5

  • FY26 revenue guidance lowered to $216 million-$221 million, primarily due to lower professional services and decelerating transaction revenues.

  • FY27 revenue growth expectation reduced to mid-single digits from previously guided high single-digit growth.

  • Organic revenue was down 2% in Q3 FY26, hampered by a $1.8 million decrease in professional services.

  • Non-recurring revenue sources decreased 18% compared to the prior year.

  • Maintenance revenue decreased 13%, which was steeper than normal due to timing of SAS conversions.

Guidance & targets

CategoryTargetConfidence
Revenue
$216 million to $221 million
high materiality
High
Adjusted EBITDA
$57 million to $60 million
high materiality
High
Adjusted diluted earnings per share
$1.08 to $1.12
high materiality
High
Revenue growth
mid-single-digit growth
high materiality
Medium
Adjusted EBITDA as a percentage of revenue
improve in the fourth quarter and continue to accelerate into the next fiscal year
medium materiality
High
Adjusted EBITDA margin expansion
100 to 200 basis point margin expansion
medium materiality
High
Maintenance revenue decrease
closer to 3.5% down go forward
low materiality
High

Segment performance

SegmentRevenueYoYQoQMargin
Transportation
Launched a state electronic lane and title solution. Supported implementation and launch of insurance verification systems in two major Midwestern states (Kansas, Georgia), expanding footprint and establishing recurring transaction revenue.
Jurisdictions served: 34 across US and Canada
————
Education
Delivered another solid quarter, driven by new customer additions and continued expansion with existing base. Initiated a proof of concept for AI-driven inventory optimization.
FY26 bookings from net new customers: Nearly half
————

Orderbook & backlog

Contracted implementation revenue backlog deep backlog Q3 2026 end

For board licensing and permitting software, with go-lives slated for 2027.

Product announcements

ProductTypeDetails
State Electronic Lane and Title Solutionlaunch
Insurance Verification Systemslaunch
AI-driven Inventory Optimization, Menu Planning, and Food Cost Managementmilestone

Risks & headwinds

Slower than expected growth in less recurring revenue streams Q3 FY26, expected to persist in Q4 FY26 for professional services.

Organic revenue down 2%, non-recurring revenue sources decreased 18% YoY.

Mitigation:Focus on go-lives, operational improvements, and recurring revenue streams.

Ongoing weakness in professional services Q3 FY26, expected to persist in Q4 FY26.

$1.8 million decrease in Q3 FY26.

Mitigation:Addressing ongoing delays in large CIS and other projects, particularly in the utilities market.

Elevated interchange rates related to high commercial card usage Q3 FY26, being addressed in Q4 FY26.

Impacted transaction revenue, contributing to $1M+ of the guide down.

Mitigation:Addressing the situation with the processor; a data fix is going in Q4.

Lower growth from Resolve product Q3 FY26.

Lower than expected growth in Q3 FY26.

Mitigation:Anticipate reacceleration into the next fiscal year due to slate of go-lives and new product version benefits.

Maintenance revenue decrease steeper than normal Q3 FY26.

13% decrease in Q3 FY26.

Mitigation:Due to timing of certain material SAS conversions, expected to be closer to 3.5% down go forward.

What to watch in Q4 FY26

Professional Services Revenue

Q4 FY26 / FY27
Current Down $1.8M in Q3 FY26, expected to persist in Q4 FY26
Target Improvement/stabilization

Why it matters

A key driver of the FY26 guidance cut and FY27 growth reduction, particularly in the utilities market.

Organic revenue was down 2% in the quarter, hampered by a $1.8 million decrease in professional services. Ongoing weakness in professional services continues to be concentrated in our utilities market. We expect the year-over-year drawdown in professional services to persist in the fourth quarter.

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Q&A highlights

Can you elaborate on the components of the $6.5 million revenue guide down for FY26, specifically regarding non-recurring revenue, customer-driven push-outs, or internal implementation delays?

The $6.5M guide down includes approximately $4.5M from professional services, mainly due to ongoing delays in utilities projects ($3M), and some delays in justice, licensing/permitting, and transportation. The remaining portion is from transaction revenue, impacted by elevated interchange rates on commercial cards (a data fix expected in Q4) and lower-than-expected growth from the Resolve product due to case throughput and short-run implementation disruptions.

“of the 6.5 guide down are in about 4.5ish or so that I would attribute to professional services with Within that, about 3 million of that is utilities, and I would classify that as push out. It's just ongoing delays in our large CIS and a couple of other smaller projects, but the vast majority of that being ongoing push out there.”

asked by Madison Sir · answered by Geoffrey Smith

2 min read 6 chapters

Detailed narrative

Q3 FY26 Performance and Guidance Revision

The company reported third-quarter results that fell short of expectations, primarily due to slower growth in less recurring revenue streams. Organic revenue was down 2%, and non-recurring revenue sources decreased 18% year-over-year. This led to a significant reduction in the full-year 2026 revenue guidance to $216 million-$221 million and a lowered FY27 revenue growth expectation to mid-single digits.

Recurring Revenue Strength and SaaS Growth

Despite overall revenue challenges, annualized recurring revenue demonstrated strength, growing 8% year-over-year to $174.1 million. SaaS revenue was a notable highlight, increasing 38%. Recurring sources constituted a substantial 82% of the company's total revenues for the quarter, underscoring the stability of its core business model.

AI Integration and Operational Efficiency

i3 Verticals has systematically deployed AI-enabled tools across product management, engineering, quality assurance, and customer support. This integration has resulted in tangible benefits, including over 25% improvement in internal sprint development velocity with a flat engineering headcount. AI-powered document processing capabilities are also becoming a meaningful growth driver, securing eight contracts across multiple states.

Public Sector Momentum and Strategic Go-Lives

The company continues to expand its presence in the public sector, securing multiple core agency conversions in justice tech and launching a state electronic lane and title solution. Significant go-lives in transportation, including insurance verification systems in two Midwestern states, are expected to contribute to stronger growth in FY27. The board licensing and permitting software also has a deep backlog of contracted implementation revenue slated for 2027.

Margin Expansion Initiatives

Management expressed confidence in improving profitability, expecting adjusted EBITDA as a percentage of revenue to improve in Q4 FY26 and accelerate into FY27. This is attributed to process improvements, AI adoption, and a materially reduced cost structure. For FY27, the company anticipates 100 to 200 basis points of margin expansion, exceeding its historical target range.

Balance Sheet and Capital Allocation

At quarter-end, debt stood at $114.3 million with a cash balance of $2.6 million. The company maintains $285.7 million in borrowing capacity under its revolving credit facility, with an expectation to use borrowings for opportunistic acquisitions and stock repurchases. Share buybacks have significantly reduced total adjusted weighted average shares outstanding from over $34 million to under $28 million.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.