Why i3 Verticals Stock Dropped Today
Key Points
Management has high hopes for i3 Verticals' shift to a primarily software-as-a-service (SaaS) business model.
Impatient investors are selling.
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Shares of i3 Verticals (NASDAQ: IIIV) sank on Monday after the software maker issued a conservative growth forecast for the year ahead.
As of 3:30 p.m. EST, i3 Verticals' stock price was down more than 10% after declining as much as 24% earlier in the day.
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A shift toward subscription-based revenue
The provider of software solutions to government organizations saw its revenue from continuing operations rise by 7% year over year to $54.9 million in its fiscal fourth quarter, which ended on Sept. 30. These results exclude the impact of i3 Verticals' sale of its merchant services and healthcare revenue cycle management businesses, which closed on Sept. 20, 2024, and May 5, 2025, respectively.
These gains were driven by a 23% jump in i3 Verticals' software-as-a-service (SaaS) revenue. SaaS revenue is recognized as the service is delivered, rather than at the time of sale like traditional software licenses. But subscription-based software often generates recurring revenue that can grow over time via upgrades and cross-selling.
"We are leaning into recurring revenue any chance we get," chief financial officer Clay Whitson said during a conference call with analysts.
However, an increase in lower-margin professional services sales contributed to a slight decline in i3 Verticals' profitability. The company's earnings before interest, taxes, depreciation, and amortization (EBITDA) from continuing operations decreased by 1.5% to $14.4 million.
A conservative growth outlook
Looking ahead to fiscal 2026, management expects revenue of $217 million to $232 million and adjusted EBITDA of $58.5 million to $65 million. That would represent growth of 2%-9% and 2%-13%, respectively.
Whitson said certain projects in i3 Verticals' utilities and transportation markets would be slower to recognize revenue than previously expected. Still, he expects growth to reaccelerate over time.
"Despite the lower outlook for those markets in fiscal 2026, they are well positioned to rebound in fiscal 2027 and beyond," Whitson said.
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Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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