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DATE

Friday, Aug. 7, 2026 at 8:30 a.m. ET

CALL PARTICIPANTS

• Chief Strategy Officer - Clay Whitson
• Chairman and CEO - Gregory Daily
• President - Rick Stanford
• CFO - Geoffrey Smith
• Chief Revenue Officer - Paul Christians

TAKEAWAYS

• Revenue -- $53.1 million, an increase of 2% year over year driven by growth in recurring sources that was partially offset by weakness in non-recurring streams.
• Annualized Recurring Revenue (ARR) -- $174.1 million, representing 8.3% growth compared to $160.8 million in the previous year's third quarter.
• Non-GAAP Adjusted Diluted EPS -- $0.25, increasing from $0.23 in the prior year's third quarter.
• Adjusted EBITDA -- $13.3 million, a 4.6% increase over the prior year's $12.7 million reflecting process improvements and AI adoption.
• Adjusted EBITDA Margin -- 25.1%, representing a 60-basis point expansion from 24.5% in the third quarter of 2025.
• Organic Revenue -- Declined 2% during the quarter, reflecting a $1.8 million decrease in professional services primarily within the utilities market.
• Non-recurring Revenue -- Decreased 18% year over year, hampered by professional services project delays.
• SaaS Revenue -- Grew 38% year over year, reflecting the migration of customers to scalable recurring software models.
• Transaction-based Revenue -- Grew 5% year over year, though impacted by elevated interchange rates on commercial cards.
• Maintenance Revenue -- Decreased 13% due to the timing of material SaaS conversions, with a normalized decline of 3.5% expected in future periods.
• Recurring Revenue Concentration -- 82% of total revenue in the quarter was derived from recurring sources.
• FY 2026 Revenue Guidance -- Revised to a range of $216 million to $221 million from the previous range of $221 million to $229 million.
• FY 2026 Adjusted EBITDA Guidance -- Revised to a range of $57 million to $60 million from the previous $61 million to $65 million.
• FY 2026 Adjusted Diluted EPS Guidance -- Revised to a range of $1.08 to $1.12 from the previous $1.09 to $1.15.
• Long-term Debt -- $114.3 million at quarter end, with $285.7 million of remaining borrowing capacity under the revolving credit facility.
• Cash Balance -- $2.6 million at the end of the third fiscal quarter.
• Share Repurchases -- Reduced total adjusted weighted average shares outstanding from over 34 million to under 28 million, representing over 20% of outstanding shares since October 2024.
• Minority Equity Investment Gain -- $9.9 million unrealized gain recognized in other income related to a former team member's business growth.
• Professional Services Headwind -- Accounted for $4.5 million of the total revenue guidance reduction, including $3 million in delays within the utilities market.
• 2027 Revenue Growth Outlook -- Expected to be mid-single digits, which is lower than the previous high single-digit growth forecast.
• AI Development Velocity -- Improved by more than 25% while maintaining a flat engineering headcount.
• Corporate Expenses -- 8.2% as a percentage of total revenues for the quarter.
• Resolve Product Performance -- Realized lower growth than expected due to fluctuations in case throughput within the existing customer base.

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RISKS

• CFO Smith stated, "We expect the year-over-year drawdown in professional services to persist in the fourth quarter," noting that ongoing delays in large utility projects continue to hamper organic growth.
• Smith noted that transaction revenue was impacted by "elevated interchange around commercial cards," which pressured net take rates and contributed to the downward revision in guidance.

SUMMARY

Management reported third quarter results that fell below internal expectations, primarily due to weakness in non-recurring revenue streams and delays in professional services projects. Consequently, the company lowered its full-year 2026 financial guidance and adjusted its 2027 revenue growth forecast to mid-single digits. Despite these headwinds, annualized recurring revenue grew 8.3%, and recurring sources now comprise 82% of total revenue. Strategic efforts are focused on improving margins through process efficiencies and AI adoption, while the transportation and education segments saw new deployments and customer wins. The company remains committed to share repurchases, having retired more than 20% of its shares since late 2024.

• CEO Daily stated that annualized recurring revenue growth of 8% reflected the "ongoing value of our software solutions provided to our customers and the strength of the markets we serve."
• CFO Smith attributed a significant portion of the guidance reduction to $4.5 million in professional services delays, primarily involving a customer information system project in the utilities vertical.
• CFO Smith noted that the net take rate on payments was affected by "elevated interchange around commercial cards," with a technical data fix scheduled for implementation in the fourth quarter.
• President Stanford reported a "more than 25% improvement in development velocity" following the deployment of AI-enabled tools across engineering and cloud operations.
• The company holds eight contracts for AI-enabled document extraction and redaction services across four states, with implementations beginning to go live in the third quarter.
• Management reported the launch of a state electronic lien and title solution that provides an integrated digital workflow for dealers, lenders, and state motor vehicle agencies across 34 jurisdictions.
• Paul Christians confirmed the implementation of insurance verification systems in Kansas and Georgia, expanding the transportation footprint and establishing new recurring transaction streams.

INDUSTRY GLOSSARY

• ARR: Annualized Recurring Revenue, a metric calculating the yearly value of recurring contract revenue.
• CIS: Customer Information System, a software platform used by utilities for billing and customer management.
• ELT: Electronic Lien and Title, a digital system for managing vehicle titles and liens without paper documents.
• Interchange: Fees paid between banks for the acceptance of card-based transactions.
• JusticeTech: Technology solutions specifically designed for the judicial and legal sectors, such as court case management.
• SaaS: Software as a Service, a licensing and delivery model in which software is accessed via subscription.

Full Conference Call Transcript

Operator: Thank you. Good day everyone and welcome to the i3 Verticals third quarter 2026 earnings conference call. Today's call is being recorded and a replay will be available starting today through August 14. The number for the replay is 855-669-9658 and the code is 9466422. The replay may also be accessed for 30 days at the company's website. At this time, for opening remarks, I would like to turn the call over to Clay Whitson, Chief Strategy Officer. Please go ahead, sir.

Clay Whitson: Good morning and welcome to the third fiscal quarter 2026 conference call for i3 Verticals. Joining me on this call are Greg Daily, our Chairman and CEO; Rick Stanford, our President; Geoff Smith, our CFO; Paul Christians, our Chief Revenue Officer. To the extent any non-GAAP financial measures are 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 statements.

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 facts 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 statements.

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. I will now turn the call over to the company's Chairman and CEO, Greg Daily.

Gregory Daily: Thanks, Clay. Good morning to all of you on the call. Our third quarter results fell short of our expectations and we're disappointed in the outcome. The primary challenge continues to be slower than expected growth in certain areas of the business, particularly within revenue streams that tend to be less recurring in nature. Geoff will elaborate further. Despite the disappointing quarter, there are aspects of the business that continue to perform well. Annualized recurring revenue grew at 8% year-over-year, reflecting the ongoing value of our software solutions provided to our customers and the strength of the markets we serve. We have several material go-lives recently that Paul is excited to share with you later in the call.

We have laid the groundwork to realize margin expansion in the coming quarters. We remain confident in the long-term opportunity in front of us. Across our public sector end-markets, agencies continue to prioritize modernization, digital engagement, and operational efficiencies. We believe our software platforms, transaction-based solutions, and deep domain expertise position us well to participate in these trends. With that, I'll turn it over to Geoff. He'll walk you through our financial results in more detail.

Geoffrey Smith: Thanks, Greg. The following pertains to the third quarter of fiscal year 2026, which is the quarter ended June 30, 2026. Please refer to the slide presentation titled Supplemental Information on our website for reference with this discussion. Revenues for the third quarter of fiscal 2026 increased 2% to $53.1 million from $51.9 million for Q3 2025. 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. Overall, non-recurring revenue sources decreased 18% compared to the prior year.

Annual recurring revenues increased 8% to $174.1 million for Q3 2026 compared to $160.8 million for Q3 2025. SaaS revenue grew 38% and transaction-based revenue grew 5%. We are experiencing increased interchange rates related to high commercial card usage, a situation we are addressing with our processor in the fourth quarter. In addition, we realized lower growth from our Resolve product in the third quarter than expected but anticipate reacceleration into the next fiscal year due to the slate of go-lives. Maintenance revenue decreased 13%, which is steeper than normal due to the timing of certain material SaaS conversions, but will be closer to 3.5% down go forward. Overall, 82% of our revenues in the quarter came from recurring sources.

We do not expect material license revenue the remainder of the fiscal year. Adjusted EBITDA increased 5% to $13.3 million for Q3 2026, $12.7 million for Q3 2025. Adjusted EBITDA as a percentage of revenues was 25%, an increase from 24.5%. We continue to recognize efficiencies and savings due to process improvements and the adoption of AI. We expect the adjusted EBITDA as a percentage of revenue to improve in the fourth quarter and continue to accelerate into the next fiscal year. Corporate expenses as a percentage of revenues were 8.2% for Q3 2026. Adjusted diluted earnings per share from continuing operations for the third quarter of fiscal 2026 increased 8.5% to $0.25 from $0.23 for Q3 2025.

Again, please refer to the press release for a full description and reconciliation. You will notice an item in other income this quarter, a $9.9 million unrealized gain on a minority equity investment. Years back, we made a small investment in a business, a former team member launched. We are pleased with their rapid growth and grateful that our investors participate in that success. Regarding the balance sheet, at quarter end, debt stood at $114.3 million and our cash balance was $2.6 million. We still have $285.7 million of borrowing capacity under our revolving credit facility and 5x leverage constraint. The expectation remains that we will use any borrowings for opportunistic acquisitions and stock repurchases.

Our share buybacks have reduced our total adjusted weighted average shares outstanding from over 34 million to under 28 million. Following updates our guidance for continuing operations for FY2026, which was last updated during our second quarter fiscal 2026 press release dated May 7, 2026. The outlook does not include acquisitions that have not yet been announced or transaction-related costs. Revenue, $216 million to $221 million. Adjusted EBITDA, $57 million to $60 million. Adjusted diluted earnings per share, $1.08 to $1.12. We appreciate that this is meaningfully lower than our previous guidance, primarily due to lower than anticipated professional services and a deceleration of transaction revenues. Looking past 2026, we expect better growth on a go-forward basis.

Last quarter, we elaborated on several reasons for that, which all hold true. However, for 2027, our current expectations is mid-single-digit revenue growth, which is lower than previously guided high single-digit growth. I will now turn the call over to Rick for additional business-related comments.

Rick Stanford: Thank you, Geoff. Good morning, everyone. I want to spend a few moments discussing AI and the impact it's having on our business. Obviously, AI continues to be one of the most significant technology trends shaping our industry, and we view it not only as a standalone initiative, but as a strategic capability that is increasingly embedded throughout our operations and our customer facing solutions. Over the past year, we have systematically deployed AI enabled tools across product management, engineering, quality assurance, cloud operations, security, and customer support. These capabilities are helping us increase productivity, improve service delivery, accelerate innovation, and maintain a high standard of quality while operating efficiently.

A good example is the integration we delivered this quarter connected to a client's court case management system. What was originally considered an aggressive development timeline was completed in approximately one-third the time that similar projects would have historically required. More importantly, we did not just build a one-time integration. Because of the efficiencies created through AI-assisted development, we built a configurable integration framework that can now be leveraged for future deployments. We expect to bring 2 new clients live this quarter using that infrastructure with a third immediately behind them. AI is also allowing us to improve quality, security, and long-term maintainability.

We've expanded our investments in automation engineering and security engineering, enabling testing and security reviews to occur earlier in the development lifecycle. Human oversight with specific domain expertise and established quality controls remain central to our process. But issues are now identified sooner, reducing downstream costs and improving reliability for systems our customers rely on every day. The results are tangible. Internal sprint metrics show that more than 25% improvement in development velocity and we are releasing software more frequently while maintaining a flat engineering headcount. Just as importantly, these internal advances are translating directly into customer value and commercial opportunities.

Customers increasingly want solutions that automate routine work, improve accuracy, extract meaningful insights from data, and create more efficient user experiences. We are seeing this firsthand in our markets where AI-powered document processing capabilities are becoming a meaningful growth driver. Today, we hold 8 contracts spanning Louisiana, Tennessee, North Carolina, and South Carolina for AI-enabled document extraction, redaction, and document separation services. These implementations began going live this quarter, and we are increasingly seeing extraction and redaction capabilities specified directly within customer procurement requirements rather than being viewed as optional enhancements. As we evaluate AI opportunities, our focus remains on solving real customer problems and generating tangible returns.

We are applying AI in areas where we possess deep industry expertise, proprietary workflow knowledge, and trusted customer relationships. We believe this positions us to deliver differentiated solutions while creating opportunities for both future revenue growth and operating leverage. It's no secret that AI vendors are changing the way they price their platforms from per-seat to usage-based models. While AI-related infrastructure costs are increasing across the industry, as models become more capable and agentic workflows become more sophisticated, we are actively managing those investments. Not all embedded features require the most robust and pricier platforms, but instead some functions are basic and simply require less costly solution.

In fact, we are starting to see competitive situations where before it was a take it or leave it on the proposal side for AI platforms. We believe we are still in the early stages of long-term transformation in the software and the momentum we are seeing today reinforces our confidence that AI will be an increasingly important component of our growth strategy. With that, let me turn it over to Paul for revenue updates.

Paul Christians: Thank you, Rick. The third quarter remained active across our core markets with customers increasingly evaluating broader, more integrated platform solutions. Our strategic focus has translated this demand into a higher quality sales pipeline, more disciplined pursuits, stronger recurring revenue opportunities and shorter paths from bookings to revenue recognition. We have enhanced our approach to identifying, qualifying and pursuing public sector opportunities. Governments continue to invest in modernization initiatives and i3's focus is on delivering integrated software platforms that serve as operational backbone for mission-critical functions. We are expanding our presence in the JusticeTech market, securing multiple core agency conversions that demonstrate the strength of that platform and our ability to complete -- compete successfully in large established markets.

At the same time, we continue to advance our SaaS and cloud strategy, creating ongoing opportunities to migrate customers to more scalable recurring software models. Cross-selling remains a meaningful growth driver across our vertical markets, particularly where software platforms, payments and adjacent workflow solutions can be bundled to increase customer value and deepen long-term relationships. We continue to make meaningful progress across our public sector portfolio and our transportation business serves as a strong example of that momentum this quarter. i3 currently serves 34 jurisdictions across the United States and Canada. During the quarter, we launched the state electronic lien and title solution as part of a broader transportation platform.

Unlike traditional ELT providers that operate as single point solutions connecting to an existing state system, i3 provides mission-critical software across the entire title and registration ecosystem, including dealers, county clerks, state motor vehicle agencies and integration points for lender service providers. This comprehensive approach enables a seamless end-to-end digital workflow that improves data accuracy, reduces administrative costs, enhances security, increases operational efficiency and accelerates user adoption. Demand for our motor vehicle insurance verification solutions remained strong. During the quarter, we supported the implementation and launch of insurance verification systems in 2 major Midwestern states. Most recently, Kansas implemented the Kansas Insurance Verification System, real-time platform designed to streamline compliance and strengthen enforcement statewide.

The system enables immediate insurance verification for authorized agencies, connects with hundreds of participating insurers and supports the state's effort to reduce uninsured motorists. In Georgia, following statewide approval and execution of agreements with all participating counties, the state's vehicle renewal kiosk program is now fully operational. This achievement further expands i3 Verticals' transportation footprint, establishes additional recurring transaction revenue stream and provides a scalable foundation for future growth across the state. Education delivered another solid quarter, driven by new customer additions and continued expansion with our existing base. Nearly half of the fiscal '26 bookings were generated from net new customers, demonstrating the continued demand for our solutions.

On the innovation front, we continue to advance AI initiatives in our education platform. This quarter, we initiated a proof of concept focused on AI-driven inventory optimization, menu planning and food cost management for school nutrition programs. The initiative is designed to help educational institutions better optimize USDA meal program funding while improving efficiency, reducing waste and providing actionable operational insights. Looking ahead, we remain confident in the long-term fundamentals driving public sector technology investment. Government agencies continue to prioritize modernization, automation, enhanced citizen experience and greater operational efficiency. With our integrated software platform supporting critical government functions, we believe i3 Verticals is uniquely positioned to capitalize on these trends.

We remain focused on disciplined execution, expanding our market presence and delivering sustainable growth and long-term value to our customers and shareholders. This concludes my comments, Megan. At this time, we will open the call for Q&A, please.

Operator: [Operator Instructions] The first question comes from Madison Suhr with Raymond James.

Madison Suhr: I wanted to start just on the FY '26 revenue guide here. Obviously, it was lowered by $6.5 million. Maybe just double-click on the composition of that. I know, obviously, it's driven by non-recurring revenue, but is it mainly 1 large customer? Is it multiple? Any color on vertical? And just to be clear, is this a customer-driven kind of push-out or lower, or is there any kind of implementation delays internally?

Geoffrey Smith: Thanks for the question, Madison. To unpack it a little bit for you, of the $6.5 million guide down, probably about $4.5-ish million or so that I would attribute to professional services. Within that, about $3 million of that is utilities and I would classify that as pushout, just ongoing delays in our large CIS and a couple of smaller projects, but the vast majority of that being ongoing push out there. About $500,000 justice, $500,000 licensing and permitting in our public administration and a significant project in our transportation market, too, is delayed a little bit. That brings you up to about $4.5 million there. In the transaction revenue, you see that kind of throttle down this quarter.

I view that as temporary. A big chunk of that is payments, probably $1 million plus of that is the net take rate on payments, and it's being driven by what we alluded to in the comments around elevated interchange around commercial cards. And basically, that's a data fix that is going in, in the fourth quarter. It's been hurting us for a while. It was particularly acute this quarter, and the fix has just been repeatedly delayed, and there's been some dialogue with our processor that we've just kind of been working through and we just had to bite the bullet here.

And then our Resolve product, that is a product we've been upfront about just how excellent the pipeline and the growth is for it. It had a really weak quarter. It's subject to a number of forces that are kind of in the -- you might call in the realm of things outside of our control, mostly the throughput of cases through the existing customer base. There will be times that, that's a really great kind of wind in our sails item as that throughput is rising in the existing customer base and times when it's kind of dragged down a little bit.

We also had some good long-run implementation things, but they were short-run disruption items within that product suite as we went on to a new version of the product this quarter. But long run, that's going to continue to be a really strong growth driver for us. So anyway, that's kind of the anatomy of the guide down.

Madison Suhr: Okay, yes, that's very helpful color, Geoff. I appreciate it. And then just a follow-up, I think Greg mentioned, you know, have a solid foundation for margin expansion here. Can you guys maybe just touch on what gives you confidence in improving profitability? Geoff, I know, for example, you've talked about AI efficiencies in the past. And historically, you've talked about normalized margin improvement in the 50 to 100 basis point range. Is that still the right way to think about margins, given your comments around mid-single-digit revenue growth? Thanks, guys.

Geoffrey Smith: So, for the fourth quarter, we're looking at very strong margin growth. I'll kind of take it out to 2027 and look at that. We already have reduced our cost structure, and I'm referring specifically to people costs and some other things like some rent and things like that, materially. And frankly, there's a few things that have already been done that we're not getting the benefit from yet in Q3. Some of that is timing and some of that is also, there were some offsets in this current quarter in the form of reserves we had to take on some of our receivables.

And so those are one-time items, and we already are looking at kind of a cleaner path to better margins in 2027. A little bit of that is also compressed by the revenue growth situation, and as that improves into 2027, the margin expansion will benefit from that as well. But the long run guide that we've always put on margins being 50 to 100 basis points, I think you're looking north of the 100 basis points in 2027 currently. If revenue is growing in the mid-single digits, as we've kind of described here, we should be more in the 100 to 200 basis point margin expansion range for fiscal 2027.

Operator: [Operator Instructions]

Clay Whitson: Alex Markgraff at KeyBanc is having audio troubles, but he emailed a question he'd like for us to address. Curious to understand the bridge back to single-digit growth in 2027 and our degree of confidence in that path.

Geoffrey Smith: It's a really fair question from Alex. We're definitely sensitive to that and appreciate the market. You need to kind of understand how we get from the growth picture in '26 to '27. So the first thing I would highlight is, Greg and Paul touched on this in their comments, but we have several significant go-lives in our transportation market. Two of those are sort of in what you might call the legacy i3 transportation market. Good recurring revenue go-lives that have just kicked in here in the fourth quarter. Those will be on a ramp-up period, so the impact in Q4 is going to be really modest, but the impact in 2027 will be stronger and then into 2028.

And the other two are, in our most recent acquisition, the electronic insurance verification software and frankly, we're not, that's not all touching our organic growth until we get to Q2 of 2027. But the growth in that acquisition is tremendous. They just have a really, really strong market position. The things that we had in the pipeline at the time of the acquisition several months ago are all on track and several material new things are also already in the hopper as well. Really great growth picture there. Once that becomes part of the organic picture, that's going to be a nice, significant uplift on its own.

Also, the Board Licensing and Permitting software has had a really rough 2026 with a lot of project delays, but they have a deep backlog of contracted implementation revenue and go-lives slated for 2027 here. So their picture gets a lot brighter in that period. I alluded to the go-lives in our Resolve. Everybody's well aware of West Virginia, which will continue to progress forward. It'll be the back part of 2027 before we start going live on courts with that project. At that point, you get on the ramp of the recurring revenues. But in the meantime, we'll still have a slightly better diet of professional services in the next year.

And then finally in the utility space, in both our portal business and the CIS project, that's been a really difficult year in that space in 2026. We've set the bar pretty low to grow over and what we see right now for 2027 looks a lot brighter on both of those fronts.

Operator: [Operator Instructions] This concludes our question and answer session. I would like to turn the conference back over to Greg Daily for any closing remarks.

Gregory Daily: Again, thank you everyone for dialing in this morning. And we appreciate your support.

Operator: Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.