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    IIIV
    Earnings call· Jun 2026(Q3 FY26)

    i3 Verticals Q3 FY26 earnings call IIIV

    Aug 7, 2026 Source

    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

    7
    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

    2
    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
    		————

    Operational metrics

    17
    Annualized recurring revenue
    $174.1M8% YoY growth
    Q3 2026
    SaaS revenue growth
    38%
    Q3 2026
    Transaction-based revenue growth
    5%
    Q3 2026
    Recurring revenue as % of total
    82%
    Q3 2026
    Non-recurring revenue decrease
    18%YoY
    Q3 2026
    Professional services decrease
    $1.8M
    Q3 2026

    Hampered organic revenue growth.

    Adjusted EBITDA
    $13.3M5% increase
    Q3 2026

    Compared to $12.7M for Q3 2025.

    Adjusted EBITDA margin
    25%up from 24.5%
    Q3 2026

    Improvement due to process improvements and AI adoption.

    Corporate expenses as % of revenues
    8.2%
    Q3 2026
    Adjusted diluted earnings per share
    $0.258.5% increase
    Q3 2026

    Compared to $0.23 for Q3 2025.

    Unrealized gain on minority equity investment
    $9.9M
    Q3 2026

    Investment in a business launched by a former team member.

    Debt
    $114.3M
    Q3 2026 end
    Cash balance
    $2.6M
    Q3 2026 end
    Borrowing capacity under revolving credit facility
    $285.7M
    Q3 2026 end

    Subject to 5X leverage constraint. Expected to be used for opportunistic acquisitions and stock repurchases.

    Adjusted weighted average shares outstanding reduction
    from over $34M to under $28M
    Trailing

    Result of share buybacks.

    AI development velocity improvement
    >25%
    Internal sprint metrics

    Achieved with flat engineering headcount.

    AI-enabled document processing contracts
    8
    Current

    For AI-enabled document extraction, redaction, and document separation services.

    Industry KPIs

    7
    MetricValueDetails
    Revenue growth$53.1MUSD
    Arr net new arr$174.1MUSD
    Pricing model mixchanging from per seat to usage-based models
    Customer account count—
    Large deal new logo metrics—
    Operating FCF margin rule of 4025%%
    Ai product adoption monetization8contracts

    Orderbook & backlog

    1
    Contracted implementation revenue backlogdeep backlogQ3 2026 end

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

    Product announcements

    3
    ProductTypeDetails
    State Electronic Lane and Title Solutionlaunch
    Insurance Verification Systemslaunch
    AI-driven Inventory Optimization, Menu Planning, and Food Cost Managementmilestone

    Risks & headwinds

    5
    Slower than expected growth in less recurring revenue streamsQ3 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 servicesQ3 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 usageQ3 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 productQ3 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 normalQ3 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

    5

    Professional Services Revenue

    Q4 FY26 / FY27
    CurrentDown $1.8M in Q3 FY26, expected to persist in Q4 FY26
    TargetImprovement/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.

    Q&A highlights

    3

    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 read6 chapters

    Detailed Narrative

    01

    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.

    02

    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.

    03

    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.

    04

    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.

    05

    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.

    06

    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.

    AI-generated summary of the company’s earnings call. Not investment advice.