Q2 2025 i3 Verticals Inc Earnings Call
Okay.
Unknown Executive: Good day, everyone, and welcome to the i3 Verticals second quarter 2025 earnings conference call. Today's call is being recorded and a replay will be available starting today through May 16th. The number for the replay is 877-344-7529, and the code is 5899364. The replay may also be accessed for 30 days at the company's website.
Good day everyone.
Welcome to the I T verticals second hardest 2025 earnings conference call.
Today's call is being recorded and a replay will be available starting today through may 16.
The number for <unk> for the replay is 877.
We put 475 to nine.
And the code is 5899364.
The replay may also be accessed for 30 days at the company's website.
Clay Whitson: At this time, for opening remarks, I'd like to turn the call over to Clay Whitson, Chief Strategy Officer.
Clay Whitson: At this time for opening remarks, I would like to turn the call over to Clay Whitson She's strategy Officer. Please go ahead Sir.
Clay Whitson: Please go ahead, sir. Good morning and welcome to the second quarter 2025 conference call for i3 verticals. Joining me on this call are Greg Daly, our chairman and CEO. Rick Stanford, our President, Jeff Smith, our CFO, and Paul Christians, our Chief Revenue Officer.
Speaker Change: Good morning, and welcome to the second quarter 2025 conference call for I three verticals joining me on this call are Greg Daily our chairman and CEO.
Speaker Change: Rick Stanford, our President, Jeff Smith, our CFO and Paul Christians, our Chief revenue Officer.
Clay Whitson: To the extent any non-GAAP financial measure is discussed in today's call, you will also find a reconciliation to the most directly comparable GAAP financial measure by reviewing yesterday's earnings release. It is the company's intent to provide non-GAAP financial information to enhance understanding of its consolidated GAAP financial information. This non-GAAP financial information should be considered by each individual in addition to, but not instead of, the GAAP financial statement.
Speaker Change: To the extent any non-GAAP financial measure is discussed in today's call. You will also find a reconciliation to the most directly comparable GAAP financial measure by reviewing yesterday's earnings release.
Speaker Change: It is the company's intent to provide non-GAAP financial information to enhance understanding of its consolidated financial information.
Speaker Change: This non-GAAP financial information should be considered by each individual in addition to but not instead of the GAAP financial statements.
Clay Whitson: This conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements, among others, regarding the company's expected financial and operating performance. For this purpose, any statements made during this call that are not statements of historical fact may be deemed to be forward-looking statements. You are hereby cautioned that these forward-looking statements may be affected by important factors, among others, set forth in the company's earnings release and in reports that are filed or furnished to the SEC. Consequently, actual operations and results may differ materially from those discussed in the forward-looking statement.
Speaker Change: This conference call may contain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995, including statements among others regarding the company's expected financial and operating performance.
Speaker Change: For this purpose any statements made during this call that are not statements of historical fact may be deemed to be forward looking statements.
Speaker Change: You are hereby cautioned that these forward looking statements may be affected by important factors among others set forth in the company's earnings release, and then reports that are filed or furnished to the SEC.
Speaker Change: Consequently, actual operations and results may differ materially from those discussed in the statements.
Clay Whitson: Finally, the information shared on this call is valid as of today's date, and the company undertakes no obligation to update it, except as may be required under applicable law.
Speaker Change: Finally, the information shared on this call is valid as of today's date and the company undertakes no obligation to update it except as may be required under applicable law.
Greg Daly: I will now turn the call over to the company's chairman and CEO, Greg Daly. Thanks, Clay, and good morning to everyone on the call. We have some exciting things to discuss on the call today. I'd like to start by saying thank you to everyone in our Healthcare Revenue Cycle Management, or RCM, business. It's been a pleasure to have you on the team. And I know you're going to do great things together with the FinEx. We're proud of your performance and wish you the very best.
Speaker Change: I will now turn the call over to the company's chairman and CEO Greg Daily.
Speaker Change: Thanks, Clay and good morning to everyone on the call.
Speaker Change: We have some exciting things to discuss on the call today.
Speaker Change: I'd like to start by saying, Thank you to everyone in our health care revenue cycle management or RCM business.
Speaker Change: It's been a pleasure to have you on the team.
Speaker Change: And I know you're going to do great things together with Phoenix.
Speaker Change: We're proud of your performance and wish you the very best.
Greg Daly: After the divestiture of our RCM business, we're excited to be streamlined and focused on public sector vertical markets. That business had a second quarter revenue growth of 12% and SAS revenue growth grew at 23%. It's an exciting time to be building in the public sector. There's been a lot of focus on efficiency and cost savings, particularly at the federal level. When we're focused at the state and local level, we embrace this national conversation. We believe that better software is one of the best ways for government. There are ways that government can become more efficient while improving their services to their citizens.
Speaker Change: After the divestiture of our RCM business, we're excited to be streamlined and focused on public sector vertical market.
Speaker Change: That business had a second quarter revenue growth of 12%.
Speaker Change: SaaS revenue growth grew at 23.
Speaker Change: It's an exciting time rebuilding in the public sector, there's been a lot of focus on efficiency and cost savings, particularly at the federal level well, we're focused at the state and local level, we embrace this national conversation.
Speaker Change: We believe that better software is one of the best ways for government.
Speaker Change: [noise] better ways that government can become more efficient while improving their services to their citizens.
Greg Daly: That is what we're committed to, helping government deliver on their promises with excellence. Something that excites me is that there are many small public sector focused software businesses that share that perspective.
Speaker Change: That is what we're committed to.
Speaker Change: I don't think government deliver on their promises with excellence.
Speaker Change: Something that excites me is that there are many small public sector focused software businesses that share that perspective.
Greg Daly: One such business joined us on April 1.
Speaker Change: One such business joined Us on April one rich.
Greg Daly: Rick's going to share more later. But we're excited about the management team and the increased market presence in utilities.
Speaker Change: Rick's going to share more later.
Speaker Change: But we're excited about the management team and the increased market presence and utilities.
Clay Whitson: I will now turn the call over to Clay or to Rufus. Geoff, and he'll provide us more details on the financial performance. When he's finished, Rick will address our most recent deal, and finally, Paul will discuss revenue, and then we'll open up to the call for questions.
Speaker Change: I will now turn the call over to clay or two sure.
Speaker Change: Yes, and it will provide us more details on the financial performance. When he's finished Rick will address our most recent deal and finally, Paul will discuss revenue and then we'll open up the call for questions.
Geoffrey Smith: Thanks, Craig. The following pertains to the second quarter of fiscal year 2025, which is the quarter ended March 31, 2025. Please refer to the slide presentation titled Supplemental Information on our website and provided with our format K for reference with this discussion.
Speaker Change: Thanks, Craig.
Speaker Change: The following pertains to the second quarter of fiscal year 2025, which is the quarter ended March 31 2025.
Speaker Change: Please refer to slide presentation titled supplemental information on our website and provided with our form 8-K for reference with this discussion.
Geoffrey Smith: On Tuesday, we announced the sale of our healthcare RCM business. The business we sold had approximately $39 million of revenues and approximately $8 million of adjusted EBITDA in our guidance for fiscal 2025. The sale will reduce our headcount by over 400 employees. This sale follows the sale of our merchant services business last September, and we need to start by clarifying some labels and classifications. The sale of our healthcare RCM business did not qualify as assets held for sale or discontinued operations as of March 31st, our current reporting period. As such, for financial reporting purposes, when you look at our earnings release, or later our 10-Q, continuing operations refers to our results, exclusive of the merchant services business, but including the healthcare RCM business.
Speaker Change: On Tuesday, we announced the sale of our health care RCM business.
Speaker Change: The business, we saw had approximately $39 million of revenues and approximately $8 million of adjusted EBITDA and our guidance for fiscal 2025.
Speaker Change: The sale will reduce our head count by over 400 employees.
Speaker Change: This sale follows the sale of our merchant services business last September and we need to start by clarifying some labels and classifications.
as continued operations as of March 31st, our current reporting period.
Speaker Change: As such for financial reporting purposes, when you look at our earnings release or later our 10Q, continuing operations refers to our results, exclusive of the merchant services business, but including the healthcare RCM business.
Geoffrey Smith: The healthcare RCM business will then become discontinued operations as part of our Q3 reporting cycle.
Speaker Change: to help care RCM business will then become discontinued operations as part of our Q3 reporting cycle for June quarter.
Geoffrey Smith: for June 4. And we will be able to give more complete historical financial information related to the divested business debt. For now, when we remove the impact of the divested health care RCM business, we will call that Remainco, and our discussion on our quarterly results in the Outlook section will be focused there. Remainco Revenues for the second quarter of fiscal 2025 increased 11.6% to $54.1M from $48.5M for Q2 2025. reflecting 4.4 million of organic growth or 9%. and $1.2 million of revenue from the permitting and licensing acquisition we made last year in the public sector.
Speaker Change: and we will be able to give more complete historical financial information related to the
Speaker Change: For now, when we remove the impact of the Devested Healthcare RCM business, we will call that Remain Count and our discussion on our quarterly results and the Outlook section will be focused there [inaudible]
Speaker Change: For main code revenues for the second quarter of fiscal 2025 increased 11.6% to 54.1 million from 48.5 million for Q224
Speaker Change: For 14 4.4 million of organic growth, 49% and 1.2 million of revenue from the permitting and licensing acquisition we made last year in the public sector.
Geoffrey Smith: Growth for the education revenues were in line with organic growth for Remainco as a whole. Annual recurring revenues for Remainco increased 9.2% to $164.5 million for Q2 2025, compared to $150.6 million for Q2 2020. 2024. 76% of our revenues from the quarter came from recurring sources, driven by SAS revenue growth of 23%, transaction-based revenue growth of 8%, and recurring software services growth of 12%. Non-recurring sales of software licenses for RemainCo increased to $2.8 million for Q2 2025 and just $1 million for Q2 2024. We expect software license sales to be lower for the second half of the fiscal year relative to the first half.
Speaker Change: Growth for the education revenues were in line with organic growth for remain count as a whole.
Speaker Change: annual recovery revenues for a main co-increased 9.2%, so 164.5 million for Q2 2025, compared to 150.6 million for Q2
Speaker Change: 2024. 76% of our revenues from the quarter came from recurring sources, driven by SaaS revenue growth of 23%, transaction-based revenue growth of 8%, and recurring software services growth of 12%.
Speaker Change: Non-recurring sales of software licenses for Remain Co. increased to 2.8 million for Q2 2025, and this 1 million for Q2 2024.
Speaker Change: We expect software license sales to be lower for the second half of the fiscal year relative to the first half.
Geoffrey Smith: RemainCo software and related services represented 70% of RemainCo revenues for Q2. Payments 26% and other 4%. Adjusted EBITDA for Romanco increased 17%, outpacing revenues, to $15.8 million for Q2 2025 from $13.5 million for Q2 2024. Adjusted EBITDA as a percentage of revenues was $29.5 million. An increase from 27.9 for Q2 2024. Reflecting higher software sales, which carry high markets.
Speaker Change: Bermanco Software and Related Services represented 70% of Bermanco revenues for Q2 with payments 26% and other 4%
Speaker Change: Ajusted EBITDA for Romancco increased 17% outpacing revenues to $15.8 million for Q2 2025 from $13.5 million for Q2 2024. Ajusted EBITDA as a percentage of revenues was $29.3 million.
Speaker Change: percent, an increase from 27.9 for Q2 2024, for Fuckeying Higher Software Sales, which carried out margins.
Geoffrey Smith: Regarding the balance sheet, following the sale of our merchant services business last September and the sale of our RCM healthcare business this week, our balance sheet is strong and well positioned for the future. As of March 31, net debt stood at $4 million. We repaid the balance of our convertible notes at maturity during February.
Speaker Change: Regarding the balance sheet, following the sale of our merchant services business last September and the sale of our RCM healthcare business this week, our balance sheet is strong and well-positioned for the future. As of March 31, net debt stood at 4 million. We repay the balance of our convertible notes at maturity during February .
Geoffrey Smith: Following quarter end, we purchased the utility billing software company for $9 million, which we'll call Ripple Profile. We also paid an earn out of $1.5 million associated with the divested healthcare RCM business. We sold the RCM healthcare business for $96 million, less transaction costs and taxes of almost $18 million. So we currently have a cash position of approximately $64 million. We still have $400 million of borrowing capacity under our evolving credit facility with a 5x leverage constraint. We intend to use the cash and any borrowings for acquisitions and potential stockpiling.
Speaker Change: Following quarter end, we purchased the utility billing software company for 9 million, which was called Ripple Profile. They also paid an earn out of 1.5 million associated with the invested healthcare RCM business. We sold the RCM healthcare business for 96 million. The less transaction costs and taxes of almost 18 million.
Speaker Change: So we currently have a cash position of approximately 64 million.
Speaker Change: We still have $400 million of borrowing capacity under our evolving credit facility with a 5x leverage constraint. We intend to use the cash and any borrowings for acquisitions and potential stock repertices.
Geoffrey Smith: The following introduces guidance for a main code for fiscal 2025. The outlook does not include acquisitions or dispositions that have not been announced or transaction related costs. The Utility Billing Software Acquisition is a high-margin business, and the price of $9 million was on the high end of our normal multiple-range. The effective date was April. Revenues $207 to $217 million. Adjusted EBITDA $56 to $61 million. Appreciation and internally developed software amortization $11 to $12 million. Cash interest expense $0 to $750,000. Per forma adjusted diluted earnings per share, $0.96 to $1.60.
Speaker Change: The following introduces guidance for a main co for fiscal 2025. The outlet does not include acquisitions or dispositions that have not been announced or transaction related costs. The utility billing software acquisition is a high margin business and the price of 9 million was on the high end of our normal multiple range.
The effective date was April 1st.
Speaker Change: Revenues, 207 to 217 million, Adjust the EBITDA, 56 to 61 million, Appreciation and Internally Developed Software Emeraldization, 11 to 12 million, Cash Interest Expense, 0 to 750,000.
Speaker Change: Proforma Adjusted Deludinaries per share, 96 cents to $1.6 [inaudible]
Geoffrey Smith: In view of recent trade friction between the U.S. and Canada and ongoing delays with our Manitoba contract, we have removed about $2.5 million of revenues which were previously included in our outlook for fiscal 2025, principally in the second half of the fiscal year. We still continue to expect high single-digit organic revenue growth for Romenco in the absence of the healthcare RCM business. And we continue to expect adjusted EBITDA margin improvement of 50 to 100 basis points per year. From a seasonality standpoint, we currently expect our revenue distribution for the remaining two quarters to approximate the following, Q3, 48%, Q4, 52%.
Speaker Change: In view of recent trade friction between the U.S. and Canada and ongoing delays with our man-its-hoba contract, we have removed about $2.5 million of revenues for previously included in our outlook for fiscal 2025, principally in the second half of the fiscal year.
Speaker Change: We still contain to expect high single-digit organic revenue growth for Remenco in the absence of the healthcare RCM business and we contain to expect adjusted even a margin improvement of 50 to 100 basis points per year.
Speaker Change: From a seasonality standpoint, we currently expect our revenue distribution for the remaining two quarters to approximate the following. The 348% Q4, 52%.
Geoffrey Smith: Public sector payments and software services revenues declined seasonally during Q3, along with education revenues while school was out. Although software license sales are less a factor than in years past, they still represent the most variable line-itemed forecast and can distort seasonality in any given year.
Speaker Change: Public sector payments and software services rep refused to client seasonally during Q3 along the education revenues while school was out.
Speaker Change: Although software license sales are less a factor than in years past, they still represent the most variable line item to forecast and can distort seasonality in any given court.
Rick Stanford: I will now turn the call over to Rick for comments on M&A. Thank you, Geoff. Good morning, everyone.
Rick Stanford: I'll speak about our most recent acquisition, and then I'll turn the call over to Paul for updates. In last night's earnings release, we announced that we have closed another public sector acquisition in the utility billing space. This acquisition expands our business in various states, but also creates a new footprint in many states where we do not operate today. With this acquisition, we feel this will give us ample room to run in those new states in the future from a sales perspective. The company we acquired serves small to medium-sized municipal utilities, providing utility billing and inventory solutions, such as inventory cost tracking and supply management that supports purchase orders, project management, and work order integration.
Speaker Change: This acquisition expands our business in various states, but also creates a new footprint in many states, where we do not operate today with this acquisition. We feel this will give us ample room to run in those new states in the future from a sales perspective.
Speaker Change: The company, we acquired serves small to medium sized municipal utilities, providing utility billing and inventory solutions, such as inventory cost tracking and supply management that supports purchase orders project management and work order integration.
Rick Stanford: Their software is cloud-based and mobile-compatible. Utility Billing Platform allows users to import meter reads and supports both AMI, Advanced Metering Infrastructure or two-way communication, and AMR, Automated Meter Reading via walk-by or drive-by reading integration. This helps streamline the billing process and seamlessly integrates into various accounting systems. The software also offers email and text alerts for automated billing reminders. The company has recurring payments and print and mail revenue streams, both of which are outsourced today. This acquisition should enhance i3's offerings in the utilities market overall. For example, being able to track and bill multiple meters per account is a feature that we needed to supply with current and new potential customers.
Speaker Change: Their software is cloud based and mobile compatible.
Speaker Change: Utility billing platform allows users to import meter reads and supports both a M. I danced metering infrastructure or two way communication and EMR automated meter reading the walk by or dropout reading integration.
Speaker Change: This helps streamline the billing process and seamlessly integrates into various accounting systems.
Speaker Change: The software also offers email and text alerts for automated billing reminders. The company has recurring payments and print and mail revenue streams, both of which are outsourced today.
Speaker Change: This acquisition should enhance our <unk> offerings in the utilities market. Overall for example, being able to track and bill multiple meters per account is a feature that we needed to supply with current and new potential customers.
Rick Stanford: In addition, there are areas of our business model that offer us opportunities for growth. For example, they have historically not licensed their software on a SaaS basis, which is already in the process of changing. In addition, we feel that i3's internal payment processing platform should improve the economics of that portion of their business. They currently outsource that function. We are encouraged by our integration of prior acquisitions and the ability of our engineering group to build full payments integration into new products and our time to market with our software and payments as a combined solution. To that end, this acquisitions engineering team has already begun the process of coding to our current API so that payments can be made in-house versus using a third-party vendor.
Speaker Change: In addition, there are areas of our business model that offer us opportunities for growth for example, they have historically not license their software on a SaaS basis, which is already in the process of changing in.
Speaker Change: In addition, we feel that <unk> internal payment processing platform should improve the economics of that portion of their business like currently outsource that function.
Speaker Change: We are encouraged by our integration of prior acquisitions and the ability of our engineering group to build full payments integration into new products and our time to market with our software and payments as a combined solution.
Speaker Change: To that end this acquisitions engineering team has already begun the process of coding to our current API. So the payments can be made in house versus using a third party vendors.
Rick Stanford: Beyond printing and payments, i3 has several other products in the utility market, including a best-in-class EIVR, Enhanced Interactive Voice Response, and Customer Portal. While these products generally are sold to larger utilities, we expect over time to find cross-sell opportunities to acquisitions existing customer base.
Speaker Change: Beyond printing and payments are three of several other products in the utility market, including our best in class <unk> enhanced interactive voice response and customer portal.
Speaker Change: While these products generally are sold to larger utilities, we expect overtime to bond cross sell opportunities for acquisitions, the existing customer base.
Rick Stanford: Our acquisition pipeline continues to be strong with our primary focus on acquisitions in the public sector vertical and the markets they serve. We look forward to sharing more information on M&A activity as it becomes available.
Speaker Change: Our acquisition pipeline continues to be strong with a primary focus on acquisitions on the public sector vertical and the markets they serve.
We look forward to sharing more information on M&A activity as it becomes available I will now turn the call over to Paul for final comments.
Paul Christians: I'll now turn the call over to Paul for final comments. Thank you, Rick. At i3 Verticals, we remain committed to a domain specific approach across our targeted markets. By offering tailored solutions and deep domain expertise, we create meaningful adoption and barriers to entry. Our customers know that with i3, there is certainty of deliverables and execution, which fosters trust and long term relationship. This is evident in select enterprise markets that interface with consultants or selection companies that are domain specific. That has been positive for i3 as the broader market understands our branding, market focus, domain expertise, and responsive software solutions.
Paul: Thank you Rick.
Speaker Change: These three verticals, we remain committed to a domain specific approach across our targeted markets by offering tailored solutions and deep domain expertise, we create meaningful adoption and barriers to entry.
Speaker Change: Our customers know that it's really they're a certainty of deliverables and execution, which fosters trust and long term relationship.
Speaker Change: This is evident in select enterprise markets that interface with consultants our selection companies that are domain specific.
Speaker Change: That has been positive for <unk> as the broader market understands our branding market focus domain expertise and responsive software solutions.
Paul Christians: We are monitoring the geopolitical landscape and see opportunity for i3. We do not currently have any direct business with the federal government. However, we have seen opportunities emerge at the state and local levels, which appear to be tied to evolving DOGE style efficiency requirements. While those developments are encouraging, it is too early to determine whether they represent a trend. Our ability to monetize software systems by offering perpetual licensing, SAS, user fee, plus payment models to our customers drives significant advantages for i3. This structure lowers barrier to entry by reducing upfront financial hurdles. In turn, it accelerates implementation timelines, enhances speed to market for our customers, and helps them protect their operating budget.
Speaker Change: We are monitoring the geopolitical landscape and see opportunity for <unk> III, who do not currently have any direct business with federal government. However, we have seen opportunities emerge at the state and local levels, which appear to be tied to evolving does style efficiency requirements.
Speaker Change: Those developments are encouraging it is too early to determine whether they represent a trend.
Speaker Change: Our ability to monetize software systems by offering perpetual licensing SaaS user fee plus payment models to our customers drive significant advantages for ice right <unk>.
Speaker Change: This structure lowers barrier to entry by reducing upfront financial hurdles and turn it accelerates implementation timelines enhanced speed to market for our customers and help them protect their operating budget.
Paul Christians: And it insulates us from volatility associated with shifts in government priorities or funding cycles. Cross-selling activities across our public sector markets of VRP, public safety, justice tech, public education, utility, and transportation remain robust. By concentrating on these markets, we deliver highly integrated solutions that address a wide range of customer needs. Our continued execution in these areas will remain a significant driver of organic growth over time. This has resulted in a healthy balance of contracts across the spectrum of our markets with the number of contracts and bookings revenue up double digits on a sequential quarter basis.
Speaker Change: And it Insulates us from volatility associated with shifts in government priorities are funding cycles.
Speaker Change: Cross selling activities across our public sector markets of ERP and public safety Justice Tech public education utility and transportation remain robust.
Speaker Change: Concentrating on these markets, we deliver highly integrated solution that address solutions that address a wide range of customer needs. Our continued execution in these areas will remain a significant.
Speaker Change: Driver of organic growth over time.
Speaker Change: This has resulted in a healthy balance of contracts across the spectrum of our markets with a number of contracts in bookings revenue up double digits on a sequential quarter basis.
Paul Christians: The public education market has been particularly productive with new contracts with contracts in five new markets, including Idaho, Texas, Oklahoma, North Carolina, and Delaware. We're also in the process of finalizing contract for a statewide court system in our Justice Tech market. We're anticipating having more to share on this on next quarter's call.
Speaker Change: Public education market has been particularly productive with new contracts.
Speaker Change: With contracts in five new markets, including Idaho, Texas, Oklahoma, North Carolina and Delaware.
Speaker Change: We are also in the process of finalizing contracts for a statewide court system and our Justice Tech market.
Speaker Change: Anticipating having more to share on this on next quarters call.
Paul Christians: I am also pleased to share the status of our artificial intelligence applications and initial market acceptance. We have created. and i3 Infrastructure Group, leveraging common infrastructure, security and development platforms in support of our public sector market efforts. Our focus mirrors our domain-specific product sales and deployment model, initially looking to solve client pain points while enhancing client efficiency. This includes the release of an AI service agent in our transportation market that is deployed across the state in each of the 95 counties. In our ERP market, we are just releasing a module in our land records application focused on automated indexing.
Speaker Change: I'm also pleased to share the status of our Mark of our artificial intelligence applications and had initial market acceptance.
Speaker Change: We have created.
Speaker Change: And ice raid infrastructure group, leveraging common infrastructure security and development platforms in support of our public sector market efforts, our focus mirrors, our domain specific product sales and deployment model initially looking to solve client pain points Wally.
Speaker Change: While enhancing client efficiency.
Speaker Change: This includes the release of an AI service agent and our transportation market that is deployed across the state each of the 95 counties.
Speaker Change: Our ERP market, we're just releasing a module and our land records application focused on automated indexing.
Paul Christians: The module provides clients with significant improvement in accuracy and efficiency. On our last call, I discussed the success of our i3 customer engagement e-portal, particularly in enterprise utilities markets. We have continued our product evolution by enhancing our AI market offerings that we introduced this week. The initial release focuses on i3 generative AI bots capable of handling complex end-to-end transactions that integrate with an i3 agent assist dashboard that summarizes account history, generate recommended actions, and automate communications, improving customer satisfaction. This is accomplished via a secure i3 AI knowledge layer integrated into billing systems and accessible across i3's ePortal, eIVR, and CSR interface.
Speaker Change: The module provides clients with significant improvement in accuracy and efficiency.
Speaker Change: On our last call I discussed success of our <unk> customer engagement E portal, particularly in enterprise utilities market.
Speaker Change: We have continued our product evolution by enhancing our AI market offerings that we introduced this week.
Speaker Change: The initial release focuses on ice regenerative AI bot capable of handling complex end to end transactions that integrate with an arbitrary agent assist dashboard summarizes account history generate recommended actions and automated communications improving customer satisfaction. This.
Speaker Change: As accomplished via a secure ice free AI knowledge layer integrated into billing systems and accessible across <unk> Z portal E V. R N CSR interfaces.
Paul Christians: This concludes my comments, Rocco.
Speaker Change: This concludes my comments Rocco at this time, we will open the call for Q&A. Please.
Unknown Executive: At this time, we will open the call for Q&A, please. Absolutely, sir. If you'd like to ask a question, please press star, the one on your telephone keypad.
Speaker Change: Absolutely so let's see I'd like to ask a question. Please press Star then one of your telephone keypad.
Unknown Executive: If your question has already been addressed and you'd like to remove yourself from queue, please press stars and 2.
Speaker Change: Question has already been addressed and you'd like to remove yourself from queue. Please press Star then two.
John Davis: Today's first question comes from John Davis at Raymond James. Please go ahead. Hey, good morning, guys. Geoff, appreciate the color on the go forward kind of growth algo, you know, more or less unchanged. You know, good to see 9% organic growth in the quarter. Our math suggests that the HCM divestiture is probably about 100 basis points accretive to revenue growth and overall margins. You know, as we go into next year, how should we think about, or even this year, the run rate of what's left of the healthcare business? So, you know, if you've annualized the first half of the year, it would be $10 million business.
Speaker Change: Today's first question comes from John Davis at Raymond James. Please go ahead.
John Davis: Hey, good morning, guys.
Speaker Change: Jeff I appreciate the color on the go for kind of growth algo more or less unchanged.
Speaker Change: Good to see 9% organic growth in the quarter, our math suggests that the.
Speaker Change: The HCM divestiture, sorry, about a 100 basis points accretive to revenue growth and overall margins as we go into next year, how should we think about or even this year. The run rate of what's left of the health care business. So.
Speaker Change: If you annualize the first half of the year, it's it would be $10 million business. If you annualize second quarter, it's more like seven so just curious how big that.
Geoffrey Smith: If you annualize the second quarter, it's more like seven. So just curious how big that remaining healthcare business. So, the remaining healthcare business is this piece of the healthcare setting that was focused on workflow software for providers specifically. We'll re-segment this coming quarter, and it will probably not be large enough to stand on its own as a segment go forward. His growth profile should be fairly consistent with the rest of the remaining public sector business and the education business. It's revenue approximately $8 million. for the fiscal year. Okay, and margin profile look more like public sector or look more like health Arjun Profile.
Speaker Change: We're making health care businesses.
Speaker Change: So the remaining health care business is this piece of the health care system is focused on workflow software for providers, specifically will re segment this coming quarter.
Speaker Change: Probably not be large enough to stand on its own as a segment going forward.
Speaker Change:
Speaker Change: This growth profile should be fairly consistent with <unk>.
Speaker Change: Rest of the remaining public sector business in the education business.
Speaker Change: It's revenue approximately $8 million.
Speaker Change: For the fiscal year roughly.
Speaker Change: Okay and margin profile look more like public sector with more like health care.
Speaker Change: <unk> file.
Speaker Change:
Geoffrey Smith: Fairly consistent with public sector. Okay, now. Yeah, no, that's great. And then, just as we think about free cash flow conversion of Remainco, obviously, this quarter free cash flow was was muddied by a bunch of different stuff. But historically, you guys have talked about two thirds of EBITDA from a free cash flow conversion perspective. Is that something similar we should expect for Remainco or any kind of puts and takes there? Yeah, we'll, it will remain kind of a little bit muddy because of taxes from these divestitures. But the go forward free cash flow conversion, in kind of a steady state right where we are right now should be well in excess of two thirds.
Speaker Change: Fairly consistent with public sector.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: That's great and then.
Speaker Change: Just as we think about free cash flow conversion of a remain co. Obviously this quarter free cash flow was muddied by a bunch of different stuff, but historically you guys have talked about two thirds of EBITDA.
Speaker Change: Our free cash flow conversion perspective is that something similar we should expect for remain co or any kind of puts and takes there.
Speaker Change: Yeah, well it will remain kind of a little bit muddy because of taxes from these divestitures, but the go forward free cash flow conversion.
Speaker Change: Kind of a steady state right, where we are right now should be well in excess of two thirds and that's partially driven by the fact that.
Geoffrey Smith: And that's partially driven by the fact that not only will we not have interest expense, the remainder of this year, semi NOAA M&A activity, we'll have interest income. So, you know, even though we're kind of increasing investment and the rate of CapEx. What we're developing on the software side. You know, there's there's things kind of cutting the other direction on that too, between AI, offshoring, we're kind of increasing our output without having to increase our cost. And then, yeah, obviously our balance sheet puts us in a position where our free cash flow conversion is just excellent right now.
Speaker Change: We now have interest expense the remainder of this year, assuming no M&A activity, while the interest income.
Speaker Change: So you know what.
Speaker Change: Even though we're kind of increasing investment in <unk>.
Speaker Change: Great.
Speaker Change: Opex and you know what we are developing on the software side.
Speaker Change: Yes, theres things kind of.
Speaker Change: The other direction on that too between AI offshoring.
Speaker Change: Kind of increasing our output without having to increase our cost substantially.
Speaker Change: And then obviously our balance sheet puts us in a position where our free cash flow conversion is excellent right now.
Geoffrey Smith: Okay, and then last one for me, Geoff, just any help on cadence, 3q, 4q, revs and margins, we have a lot of moving pieces here over main co. So obviously, you know, lots of detail on the updated guide and moving pieces there. But just curious if you can help us any with 3q, 4q cadence for revenue and or margins. Yes, so we noted that the Q3 revenue, that'll be our low point, should be about 48% of the remaining revenue and Q4 should be, you know, we expect about 52%. There's a little bit that can kind of move in or out of those depending on when some of the one-time revenues hit.
Speaker Change: Okay, and then last one for me, Jeff just any help on cadence <unk> revs in margins, we had a lot of moving pieces here.
Speaker Change: Well remain co. So obviously.
Speaker Change: Lots of detail on the updated guide and the moving pieces there, but just curious if you can help us any with the <unk> cadence for revenue and our margins.
Speaker Change: Yes. So we noted that the Q3 revenue that will be our low point.
Speaker Change: It should be about 48% of the remaining revenue or should we expect about 52%, there's a little bit next time move in or out of those wins some of the onetime revenues.
John Davis: But given the drop in revenue in Q3 that we kind of expect seasonally, that will also kind of be the low point from a margin perspective. Get down into the mid-20s for that. or back up into the height on Okay, pretty shallow color. Thanks, guys. Thank you.
Speaker Change: But given the drop in revenue in Q3.
Speaker Change: Expect seasonally that will also kind of be the low point from a margin perspective.
Speaker Change: Get down into the mid twenties.
Speaker Change: We're back up into the high Twenty's in Q4.
Speaker Change: Okay I appreciate all the color thanks, guys.
Speaker Change: Thank you and our next question today comes from Peter Heckmann with D. A Davidson. Please go ahead.
Peter Heckmann: And our next question today comes from Peter Heckmann with D.A. Davidson. Please go ahead. Hey, good morning. Thanks for taking the questions and congrats on the sale of the RCM business looks like a nice deal and the remain co certainly is is much more of a focus pure play. Just a couple of questions on fine tuning, but the 64 million in cash at the end of this week. Do you anticipate any additional taxes on on either divestiture that still need to be paid? Or is that a good net number? Yeah, that's a net number. Okay, great.
Peter Heckmann: Hey, good morning, Thanks for taking the questions and congrats on the sale of the RCM business it looks like that.
Peter Heckmann: Nice deal in the remain co. Certainly is is much more of a focused pure play just a couple of questions on fine tuning, but the $64 million in cash at the end of this week.
Peter Heckmann: Do you anticipate any additional taxes on on either divestiture that still need to be paid or is that a good net number.
Peter Heckmann: Yes.
Peter Heckmann: Yes, that's a net number I think you can come up with.
Peter Heckmann: Okay great.
Peter Heckmann: And then is the is the small utility billing acquisition included in updated guidance? It is. Okay, okay, great. And then go ahead. When you're kind of modeling that, expect high end of our range and a high margin. Got it. Okay, that's helpful.
Peter Heckmann: And then yeah. It is.
Peter Heckmann: Small utility billing acquisition included in updated guidance.
Peter Heckmann: It is yeah.
Peter Heckmann: Okay.
Great and then Greg.
Peter Heckmann: What does this I mean when.
Peter Heckmann: When you're kind of modeling that I expect high end of our range and a high margin business.
Peter Heckmann: Got it got it okay. That's helpful. So so really it.
Peter Heckmann: So, so really, as, as, as John said, you know, the, the divestiture really should be enhancing to organic growth rate and to margins, and, and really create almost a pure play on the public sector and, and give you some, some good, some, some really good dry powder to go after M&A, I guess, in terms of You know, that pipeline, you said it was quite strong. I guess, are you seeing deals? Actually, we expect deals kind of consistent with your historical practice with most of the deals being kind of relatively smaller tuck-in deals, and then potentially, from time to time, something that's more on the midsize, more of a midsize deal.
John Davis: As a as John said, you that'd be the divestiture it really should be.
John Davis: Enhancing the organic growth rate and to margins and really create almost a pure play on the public sector in and give you. Some some good some some really good dry powder to go after M&A I guess in terms of.
John Davis: That pipeline you said it was quite strong I guess are you seeing deals that should we expect deals kind of consistent with your historical practice with most of the deals being kind of.
John Davis: They are relatively smaller tuck in deals and then potentially from time to time something gets for them the choice.
John Davis: Have a good size deal.
Peter Heckmann: Yeah, we've looked at some larger ones. But that's really not our specialty. I think you'll see us do smaller tuck-ins. very fragmented. You know, our focus has become very, very focused. I mean, just more Rifle Shot Now, Public Sector, Utilities, Education. You know, I'd like to say we do a larger one here or there, but I think you can count on more regular small deals in the next couple of years. That makes sense. Okay.
Speaker Change: Yes, we've looked at some larger ones.
John Davis: Uh-huh.
John Davis: But that's really not our <unk>.
John Davis: Specialty.
John Davis: I think you'll see us do smaller tuck ins.
John Davis: Very fragmented.
John Davis: Our focus has become very very folk.
John Davis: It's just more.
John Davis: Rifle shot now public sector utilities.
John Davis: Location.
John Davis: Okay.
John Davis: Yeah, Yeah got it okay.
I'd like to think we do a larger one here or there a bank I think you can count on.
John Davis: More regular small deals in the next couple of years.
John Davis: That makes sense that makes sense. Okay. And then just last question on on Manitoba, I guess is that you.
Peter Heckmann: And then just last question on on Manitoba, I guess, is that you're taking, I think you said two and a half million, but taking some some future revenue out of the guidance is, is that something that you feel like that's a formal decision? Or is that conservatism just based on some of the discussions you have with the customer at this Define conservatism based on discussions with the customer. That's something that. repeatedly been delayed and There now appears to be a sequencing issue with the customer in terms of they have some other large enterprise projects including an ERP one that they think needs to sequentially happen before we kind of keep progressing on our end.
John Davis: We're taking I think he said two and a half million, but taking some some future revenue out of the guidance or is that something that you feel like it.
John Davis: The formal decision or is that conservatism just based on some of the discussions about the customer at this time.
Definitely conservatism based on discussions with the customer.
John Davis: That's something that has repeatedly been delayed and.
John Davis: They're now appears to be a sequencing issue with the customer in terms of they have some other large enterprise projects, including an ERP one.
John Davis: They think these to sequentially happened before we can.
John Davis: Kind of keep progressing on our end.
Peter Heckmann: Some of the discussions are exciting in the long run, so I mean, we're still really happy and grateful to have that relationship with that customer. We are. Go faster, but we are in client service. Fall in line with what they think and so The picture, you know, we thought we had kind of adequate conservatism when we were guiding last fall and everything was kind of moving in that direction from a momentum perspective. And the picture just kind of changed right now, unfortunately, so that's why we Okay, that's helpful. I appreciate it. Thank you.
John Davis: Some of the discussions are exciting in the long run. So I mean, we're still really happy and grateful to have that relationship with that customer.
John Davis: We obviously wish that we could go faster, but we are we are in client service and we have to kind of.
John Davis: Fall in line with what they think and so.
John Davis: The picture.
John Davis: Thought we had kind of adequate conservatism, while we were guiding last fall and everything was kind of moving in that direction from a momentum perspective.
John Davis: The picture is just kind of changed right now Unfortunately, and so that's why we made the choice of the house.
John Davis: Okay. That's helpful. I appreciate it.
Speaker Change: Thank you and as a reminder, if you'd like to ask a question. Please press star one unrecovered firm keypad.
Unknown Executive: And as a reminder, if you'd like to ask a question, please press star 1 on your telephone keypad. We'll pause for just a moment to assemble our roster.
Speaker Change: Pause for just a moment to assemble our roster.
Alex Markgraff: And our next question today comes from Alex Markgraff with KeyBank Capital Markets. Please go ahead. Thanks. Hey, Geoff, just curious on the RemainCo ARR growth number that you gave, I think it was 9.6%.
Speaker Change: And our next question today comes from Alex <unk> with Keybanc capital markets. Please go ahead.
Speaker Change: Thanks.
Speaker Change: Jeff just curious on the remain co <unk> growth number that you gave I think it was nine 6%.
Geoffrey Smith: Any sort of compare you can give for us sequentially or otherwise, just to understand how that has trended? Yeah, so I think, essentially, it's down just slightly, main culprit of that being the payments revenue. I have a much more optimistic view of payments revenue in the back half of this fiscal year. There's a few situations where we're on a pricing structure that is conveniency and we're enduring some higher interchange rates before our price increases went into effect. And so we expect the margin to kind of tick up a little bit and that kind of leads to a little bit better growth.
Speaker Change: Any sort of compare you can give for us sequentially or otherwise just to understand how that has gone.
Speaker Change: Got it.
Speaker Change: Yeah. So.
Speaker Change: I think sequentially, it's down versus prior quarter, just slightly main corporate payments revenue I have a much more optimistic view of payments revenue in the back half of this fiscal year.
Speaker Change: Theres, a few situations where were on a.
Speaker Change: Pricing structure that has convenience fee and were during some higher interchange rates before our price increases went into effect.
Speaker Change: And so we we expect the margin to kind of tick up a little bit and that's kind of a little bit better growth.
Speaker Change: The back half of the year on payment script, so expect that to be it was only 4% year over year. This quarter I expect that to be back in line with kind of the broader company growth rate by the end of this fiscal year.
Greg Daly: Transcription by Rev.com Page 1 of 2 And we still think that most quarters the ARR growth is going to lead our Normal OrganicGrowth. It's a little bit out of sync this quarter because we had such a great license quarter. But normally, you know, that would be the leader. And you can see that especially as the SAS momentum kind of continues to grow. and Launch Forward. That's just really going to keep carrying us and carry a further outsized kind of a pull on the overall. Thanks.
Speaker Change: And yes, we still think that most quarters the growth is going to lead our.
Speaker Change: Our normal organic growth.
Speaker Change: Little bit.
Speaker Change: I think this quarter, because we had such a great license quarter.
Speaker Change: Normally that would be the leader and you can see that especially as the SaaS momentum kind of continues to grow.
Speaker Change: And launch forward, that's just a.
Speaker Change: Really.
Speaker Change: Keep carrying us in carrying for further outsized kind of a pull on the overall picture.
Speaker Change: Thanks, and then maybe one for maybe Greg or Paul just on the.
Paul Christians: And then maybe one for maybe Greg or Paul, just on the AI products that are being introduced. Could you just speak to sort of the readiness for AI at your customer segment? Thank you. Yeah, I can take that one, Greg. The interest level has been really high. I think part of the reason that the interest level has been so high is that, is that our focus is on solving pain points and doing that in a, in a very specific focused fashion. And, and so it's, it's tangible for customers in the sense that they've struggled with something for a period of time and they're, they're having a hard time being responsive to it.
Speaker Change: AI products that are being introduced could you just speak to sort of the readiness for AI at your customer segment.
Speaker Change: Thank you.
Speaker Change: Yes, I can take that one Greg.
Speaker Change: The interest level has been really high I think part of the reason that the interest level has been so high is that is that our focus is on solving pain points and doing that in a.
Speaker Change: And a very specific focused fashion and so it's.
Speaker Change: It's tangible for customers in the sense that they've had struggled with something for a period of time in there.
Speaker Change: There are having a hard time being responsive to it and by having that.
Paul Christians: And by having the company organize its domain expertise and the deliverables the way they do, we can get to market quicker on those and solve those pain points. So, the interest level has been high. And the, the adoption, indicators of adoption on that continue also to be high. And it's evident that there's a, there's a need there, and they're a little bit lost in the sense of really large enterprise things about how to employ that, employ that. And we developed platforms internally to support it, but we're, but the application of, it's really more of an applied AI technology, which makes it more tangible and easier for them to pull the trigger on, which is being well received.
The company organized its domain expertise and the deliverables the way they do we can get to market quicker on those and solve those pain points. So the interest level has been high.
Speaker Change: And the.
Speaker Change: Adoption indicators of adoption on that continue also to be high.
Speaker Change: And it's evident that there is there is a need there.
Speaker Change: And there are a little bit.
Speaker Change: Lost in the sense of really large enterprise things about how to employ that employ that Ed we developed platforms internally to support it but we're but the application of its really more of an applied AI technology, which makes it more tangible and easier for them to pull the trigger on which is being well received.
Paul Christians: Great. Thank you. Appreciate the comment. Thank you.
Speaker Change: Great. Thank you I appreciate the comments.
Speaker Change: Thank you ladies and gentlemen, this concludes our question and answer session. At this time I'd like to turn the conference back over to Greg Daily for any closing remarks.
Unknown Executive: And ladies and gentlemen, this concludes our question and answer session.
Greg Daly: At this time, I'd like to turn the conference back over to Greg Daly for any closing remarks. Again, thank you for your interest and support. We're excited about our next couple of years, so stay tuned and reach out to us if you have any questions. Thank you.
Speaker Change: Again thank.
Speaker Change: Thank you for your interest and support.
Speaker Change: We're excited about.
Speaker Change: Our next couple of years, so stay tuned.
Speaker Change: And reach out to us if you have any questions. Thank you.
Speaker Change: Thank you and this concludes today's conference call. We thank you all for attending today's presentation.
Unknown Executive: And this concludes today's conference call. We thank you all for attending today's presentation.
Unknown Executive: You may now disconnect your lines and have a wonderful day. © transcript Emily Beynon © BF-WATCH TV 2021
Speaker Change: May now disconnect your lines and have a wonderful day.
Speaker Change: [music].
Speaker Change: Yeah.
Speaker Change: [music].