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Recurring revenue strength but organic softness: Annualized recurring revenue rose 12% to $183.5M (SaaS +37%, transaction revenue +7%) and recurring sources made up ~80% of revenue, yet organic revenue was flat due to a $2.2M decline in professional services—prompting a modest cut to the revenue midpoint within the guidance range of $221M–$229M.
Margins pressured now, improvement expected: Adjusted EBITDA grew 5% to $16.6M while margin slipped to 28.8% from 29.3% because of investments in JusticeTech, higher hosting costs and lower services revenue, but management expects stronger margins in H2 and long-term annual improvement of 50–100 basis points.
Balance sheet and product momentum: With $81M of debt, $7.1M cash and $319M revolver capacity, the company has capital flexibility for acquisitions/repurchases while rolling out AI-powered reporting and document tools and seeing demand across JusticeTech, transportation and education markets.
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i3 Verticals (NASDAQ:IIIV) reported second-quarter fiscal 2026 results marked by higher recurring revenue and continued investment in product capabilities, while ongoing weakness in professional services weighed on organic growth and prompted a modest reduction to full-year revenue guidance.
Chairman and CEO Greg Daily said the company was “pleased with our performance in the second quarter as we continue to execute against our strategy and further improve the quality of our business.” Daily noted that revenue from continuing operations grew 6% year over year and annualized recurring revenue increased 12%, which he called “the best indicator of our long-term growth opportunity.”
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Chief Financial Officer Geoff Smith said revenue for the quarter ended March 31, 2026 increased 6% to $57.5 million, up from $54.1 million in the prior-year quarter, “principally reflecting revenues from two acquisitions which have not yet annualized.” Smith said organic revenue was flat, citing a $2.2 million decrease in professional services revenue.
Smith said the “ongoing weakness in professional services continues to be concentrated in our utilities market,” and the company expects that trend to persist through the remainder of fiscal 2026. He added that non-recurring revenue sources declined 11% year over year, while annual recurring revenue rose to $183.5 million from $164.5 million.
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Breaking down recurring performance, Smith said SaaS revenue grew 37% and transaction-based revenue rose 7%. He said the company expects “elevated levels of SaaS growth the remainder of the fiscal year and accelerating transaction-based revenue growth.” Smith also noted that 80% of quarterly revenue came from recurring sources, and that the company expects lower software license sales for the remainder of fiscal 2026 after most expected license sales have already been completed.
Adjusted EBITDA increased 5% to $16.6 million from $15.8 million, while adjusted EBITDA margin dipped to 28.8% from 29.3%. Smith attributed the margin decline to “investments in our JusticeTech market, higher hosting costs, and lower professional services revenues.”
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Despite the margin pressure in the quarter, Smith said the company expects adjusted EBITDA margin to improve in the remainder of the year and reiterated a long-term expectation of 50 to 100 basis points of margin improvement per year.
In the Q&A session, Smith told analysts the company’s cost actions include managing expenses tied to professional services declines and “continually tidying up and improving and efficiency and processes all over the business,” noting the firm has benefited from AI across “a lot of different processes and pockets within the company.” He said the company expects “margins to be stronger the back half of this fiscal year,” while continuing to invest in growth areas such as JusticeTech.
Adjusted diluted earnings per share from continuing operations rose 10% to $0.32 from $0.29, according to Smith.
Smith reaffirmed full-year fiscal 2026 guidance ranges but lowered the midpoint of the revenue outlook, citing a weaker view of non-recurring professional services.
Adjusted EBITDA: $61 million to $65 million
Smith said the company expects recurring revenue to grow at a double-digit rate for the rest of fiscal 2026, but “our view of non-recurring professional services has deteriorated further, leading us to guiding down the midpoint of our revenue range.” He added that the company expects to remain closer to its prior EBITDA outlook despite lower revenue expectations, pointing to anticipated “margin strength in the back half of the fiscal year.”
On seasonality, Smith said the company expects revenue distribution in the final two quarters to be approximately 48% in the third quarter and 52% in the fourth quarter.
Smith said quarter-end debt was $81 million and cash was $7.1 million. He also said i3 Verticals had $319 million of borrowing capacity under its revolving credit facility, subject to a 5x leverage constraint.
Smith said the company expects to use borrowings for “opportunistic acquisitions and stock repurchases.” Daily also pointed to balance sheet strength, saying it gives the company flexibility to pursue “all manner of capital allocation opportunities.”
President Rick Stanford highlighted new AI-powered capabilities aimed at government clients. He described a newly released ad hoc query and reporting tool that allows users to access insights from existing data using natural language “without requiring lengthy custom report development or IT involvement.” Stanford said feedback at the IUCX utility customer experience conference was immediate, with clients requesting access and citing the ability to compress a multi-day reporting cycle “down to minutes.”
Stanford also discussed an AI-assisted document analysis and management platform to ingest, extract, redact, and search documents with an “auditable AI-assisted workflow,” emphasizing that “human review remains at the center of the process” to support accuracy and compliance in regulated environments.
On internal development, Stanford said i3 Verticals has expanded AI use from assistance tools to AI agent tools that can “plan, write, test, and modify code with minimal human intervention.” He also cited automated testing through Playwright, which he said improves release reliability and quality.
Chief Revenue Officer Paul Christians said demand remained healthy in the quarter as government agencies prioritize modernization and platforms that reduce operational complexity. He outlined consistent buying patterns including broader solution scope beyond a single system, preference for integrated analytics and payments, and interest in AI platform architecture that can layer on top of existing solutions.
Christians said JusticeTech was among the company’s most active markets, supported by court modernization demand and interest in offerings that combine payments, analytics, transactional services, and citizen access. He also described a strategy shift to offer transactional services independently of a full case management system deployment, which he said can accelerate time to revenue recognition and drive pull-through demand for broader software adoption.
In transportation, Christians pointed to momentum supported by AI-enabled verification and enforcement workflows and cross-sell opportunities. He also said the company has strengthened customer relationships through multi-year support and maintenance agreements and “multiple large renewals with disciplined pricing.”
Christians noted education remained strong and said the company “opened up another state with the addition of Utah.” He added that “close to half of our new sales for FY 2026 so far are net new customers” in education, later clarifying in Q&A that this was “probably close to 2x what their average would have been five years ago.”
On the earnings call, Smith pointed to several factors he expects to support growth beyond fiscal 2026, including ongoing onboarding of courts in West Virginia and other states on case management platforms, two “long-delayed” transaction-based revenue opportunities in transportation expected to go live near the end of fiscal 2026, and acceleration in the company’s recent insurance verification acquisition.
In response to analyst questions about that acquisition, Smith said the vendor typically receives 100% of a state’s insurance verification business, as a single system of record is required. He added that the business is “generally SaaS” with implementation revenue upfront, and that i3 Verticals expects to monetize payments, noting “we’ve already got two states lined up for that.”
Daily closed the call by saying the company is “excited about our pipeline” and encouraged investors to “stay tuned.”
i3 Verticals, Inc is a provider of integrated software and merchant payment processing solutions tailored for specific vertical markets across the United States. Since its founding in 2001 and headquartered in Columbia, South Carolina, the company has focused on delivering SaaS-based applications and payment services to streamline revenue collection and management workflows for its clients.
The company's product portfolio includes electronic payment processing for credit and debit card transactions, automated clearing house (ACH) transfers, online and mobile payment portals, and related risk management and compliance tools.
The article "i3 Verticals Q2 Earnings Call Highlights" was originally published by MarketBeat.
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