Okay. All right. Thanks everyone for joining. I'm Alex Markgraff, analyst for the KeyBanc Capital Markets Research team. We have Geoff Smith from i3 Verticals here with us for 25 minutes for a fireside chat. We'll cover a wide range of topics, but probably helpful for us to start with just a quick intro to yourself and the business, and then we'll dig in from there. Sure. Geoff Smith, I'm the CFO of the business. The company itself, i3 Verticals is a vertical market software business concentrated exclusively in the public sector end market, which we believe is a really preferred spot to be at this point in time. Underneath that public sector umbrella, which obviously is broad, there's five spots that we play. The first, and this is our largest group is courts. You might call it justice. Core enterprise solution there being the case management system. And then we have an array of different solutions around that. Solutions for jury, e-filing. We have public safety solutions, and we have a product called Resolv 360, which essentially helps courts drive revenue collections by helping them with the collections on traffic tickets and things like that. Courts is our largest, fastest growing. After that, we'll hit transportation. The core solutions here would be the motor vehicle solution for a state. We also have a lot of fuel tax solutions here. And then our most recent acquisition in January is electronic insurance verification. That's been a great success for us so far. And a new spot where software can do something for states that previously wasn't possible. And then after that, public administration. This would be like government fund accounting, tax packages, land records packages. And then our best product here is a board licensing solution that you might use for Department of Consumer Affairs for a state will have a whole array of boards. Could be fish and wildlife boards, could be massage therapist boards, whatever it might be. The workflow software that those entities within a state need to manage renewals and things like that is what that solution is. After that, utilities. In the utilities market, we have customer information systems. That's the core enterprise billing solution for a utility. We do smaller utilities on up to the very largest. When we talk about our quarter and our year, that's an area that's one of the hotter fires within the business, but it's still a great market opportunity in the long run. And then finally, education. Our niche within education software is school lunch software. Highly transactional, heavily monetized off the payments. We're one of the largest providers of school lunch software anywhere. Kids are going back to school right now, and many millions across the U.S. are using our lunch software. Helpful to dig into the sales environment, demand environment, I think, just within the broader scope of software, obviously an area of attention. But would be curious, when you look at your core verticals within public sector, could you just give us a sense as to the sales environment and demand signals that you're getting from your customer base? How it may be distinct from the broader narrative in software. Sure. That's a question that really we do have to take market by market. I should point out at the outset as I discuss the company, we're very centralized in terms of how consolidated we are on things like ERP, Salesforce, and things like that. But then when you get to sales and you get to product, that is much more concentrated in the end markets close to the customers, as it would make sense. Our sales force is direct in almost all instances. Then again, focused on a particular market. Somebody that's selling to courts is not also distracted by selling to schools or something like that. It's a different go-to-market motion in each of those markets. If you're talking about transportation, those are always state-level sales, heavy enterprise. We have basically a couple of very well-connected professional guys, and we don't need a large sales team in that group. Education, that's a lot more base hits. Huge landscape across the U.S. to cover, so you need a bigger sales force in that space. Courts would be similar to that as well. In terms of the dynamics out there right now, there is a lot of demand for software in the public sector because the gap between what our potential customers are utilizing software for and what it can now do for them is very wide. The demand is very real. They're hurting for people. There's pressure to modernize, pressure to upgrade security, pressure to just adapt to this modern age. That being said, our customers are not motivated by profit generally, and that's part of why they are so systemically behind the times in the software perspective. You talk about AI later on, maybe, and our customers are not generally the driving force for AI adoption. That's very much coming from us to our customers. This is what we can do for you. This is what is possible now. This is a new function that we can add. As far as demand, there was a lot of money in this space because of the American Rescue Plan, circa three, four years ago, post-COVID. That was part of all those big funding packages that came down. It forgave a lot of debt, greenlit a lot of projects. Also, property taxes, we've probably all felt those have gone up significantly. The tax base for the customers has gone up a lot. That has produced a lot of extra cash flow for these entities, some of which can be spent on software. We are starting to notice that things seem to be getting a little bit thinner, and there's a lot more appetite for creativity in funding in this space right now. I think it doesn't take long when the property tax base is leveled up for that to be spoken for. Sure You can imagine. i3 Verticals is really well-positioned in regards to that, we believe, relative to our competitors. We have about 25% of our revenue comes from payments. Another healthy chunk comes from transactional sources, technology fees or success fees on collections and courts, things like that. We're well-positioned to be creative with our customers to do things on a constituent bit, constituent funded models. Does that make sense? Yeah. Well, just to your point on from a budget standpoint, it sounds like normalization is the right way to interpret that after a period of excess. Yeah. Is that a fair characterization? I think that's fair to say. It definitely varies across. It varies by jurisdiction. It varies in all the customers you talk to. You have to be flexible to work with them. Some of them can do a SaaS deal or something like that. Some of them need to get more creative. The budget scenario can be very different. When you talk about utilities, that's a very different picture than say a state government or something like that. For them, they're very much constrained by needing projects to be capital in nature, needing to have a way to avoid having to push through things into rates, but to push things into CapEx. Sure. You have to get creative in those ways with them. Okay. Understood. We should talk about AI. Sure. Maybe let's start. I want to go through a series of questions here, but let's first start with the internal use and how it's changed the product velocity and integration at i3 Verticals. Yeah. There's plenty to talk about on AI, and the first thing I'll say at the outset is all the changes, they're moving fast, all the new capabilities that this has brought, these are things that very much excite us at i3 Verticals. Our demeanor and posture is very much one to embrace, experiment, and pursue all the different new angles that we can find with this. I mentioned earlier that our customers are not really driving the demand side of it. It's very much i3 driven. At the fundamental, most basic layer, our job is to provide great software solutions to our customers, and that hasn't changed. What's changed is the capabilities to do so. On the internal side, where your question was, number one, this touches almost all development at this point in time. In fact, it touches nearly all roles. We use Microsoft Copilot heavily throughout the whole organization. Employees have deep access to all the different models through that, so we're using a lot of Anthropic these days. We can pivot very quickly back to OpenAI and do in some use cases. Token cost is, I know that that's been getting a lot of buzz these days. At the moment, we're still in a pretty good spot when it comes to that. There's a little bit of routing things, having to start getting the infrastructure to be judicious about where we need to send different workloads to. Does it need to go to the frontier model, or does it need to go to something else? We're excited about the trends in open source models and things like that. From our seat, it's definitely a great thing if this stuff becomes more widespread, easier to access, and specifically the competitive nature is such that the costs stay- Yeah low and manageable. For us, building software for our customers, this is a major accelerant, and it is a major reduction in cost. You can feel that when you look at our CapEx over the last few years. Our CapEx, despite the fact that we are building more and the velocity of development has never been higher, the costs have not gone up with that. When you think about internal benchmarks or measurements of effectiveness, is that the best way to think about it, CapEx relative to what you are delivering on the product side? Or how do you measure things internally? I think it would be a metric. Okay. But I don't think it would be the whole thing. Okay. Internal, things that our CTO, Michael O'Keefe, keeps an eye on. Token usage is absolutely something. Code commit, that would probably be more important. Then at the end of the day, this all has to manifest in the form of new products and new functionality, in particular, that find product market fit out there. That's the real measure of success. Yeah. Historically, and continues to be the case, i3 Verticals is very acquisitive. When you think about M&A integration, have some of the tools that you've embraced accelerated integration timelines or help facilitate that process in a smoother way than historically so? Yeah. Well, on M&A integration, the first thing I'll say is that we have just, relative to what we've been used to in our life cycle and what we've shown ourselves capable to do, we have just had a very easy slate in the last two years because our company has done a lot of M&A over the years, and we've done it at a very fast clip at certain points in time. There was a point in time we did 11 deals in 10 months. The last three years, we've done about a deal per year. So we've been just at a much more manageable pace for us. The most recent deal we did in January has been a huge success so far. Mostly when I say that, I'm speaking about their sales momentum and their execution Sure and the new things coming into their pipeline. But the integration was very seamless. We're buying SaaS businesses. These are not the most complicated things to integrate. We're usually able to integrate with our ERP immediately, Salesforce soon after that HRIS all that stuff fairly simply. I wouldn't say that AI has made a massive impact there, aside from the fact that just you can see echoes of it everywhere. Even in my own day-to-day, you touch it all the time. Yeah. I'd be curious, you talked about the demand for AI tools or AI in the product being more of a push motion than a pull motion for customers. Yeah. What's the feedback been so far? Maybe before we go there, how is it showing up in the product today? Yeah for customers, and then what's the feedback then? Then I do want to ask on just monetization, willingness to pay, if that's a consideration here. Yeah. But maybe start with just the product feedback. So on the first point, we talked about using it to build these products, and so it touches everything now. But I think what you're getting at is what's new feature-wise or what projects maybe got done that would not have otherwise been done. In a pre-AI Sure environment. Things that are getting done that would not have done been done before. There's definitely several examples where refactoring code, modernizing or upgrading. I'll use a specific example where things are getting done here. We had a CIS that we bought two years ago. Great CIS, serving tier 4, tier 5 utilities. So on the smaller side of things, but a really proven track record of being very durable and a very scalable database, but didn't have the most attractive front end. It didn't feel like more modern software. And we may have done this with or without the existence of AI, but it was very easy to green-light, "Hey, let's put some time and several months into we're going to modernize the front end of this so that this has a much cleaner natural user interface and is going to feel like something that is much more, I don't know, ready for today. Yeah. And ultimately, our goal is to be able to sell that to larger utilities. So that's an example of just a project that was greenlit that might not have been before the costs were what they were Sure and capabilities were what they were on this. I'll use another example in our education space just last week. This isn't even a thing yet, but we were demoing a solution that is entirely made possible by AI. And essentially the gist of it is our customers, school districts, they have opportunities to get a lot of different funding from state, federal, and other sources to support kids' school lunches to lower the cost and supplement the cost of school lunches. And a lot of that funding, some of the bigger, more professional districts have the time and resources to pursue that, and many of our customers do not. And so the product that we were looking at a demo of that had been built in Claude, pretty rapidly was basically something that was going to help our customers unlock a bunch of revenue. That's a great spot you can be in when you can drive revenue, drive a funding source for your customer. And entirely dependent on the capabilities of AI. Yeah. Things like that are popping up all over the place. It's why we're excited. Yeah. No, it's encouraging. From a monetization standpoint, how does this all accrue? I think there are several ways how it can accrue to the model. There's maybe a conversation around direct pricing. There's a conversation- Yep around indirect pricing. There's- Yep serving larger customers with more sophisticated products. How does it all accrue to the i3 model as you roll this forward a number of years? Yeah, it would be very hard to point it at we are monetizing it this way, because it's not monolithic in that regard. It really varies. We love SaaS and lean heavily on SaaS. Our SaaS growth is tremendous right now, upwards of 30%. If you just made me speculate about where things go over the next several years, I really believe that transactional revenue is very important in this day and age. I think that all things being equal, if we can go to a customer and we can say, "The price is $100," or "The price is going to be $50, but we're going to get the payments revenue." Or there's going to be a technology fee where your constituents are helping pay for, which arguably is more equitable. It's like building a toll road versus a road. We're going to make $110 instead of $100 or something. Or even if it was just flat, $100, just to keep things really basic. The transactional model wins. You're going to be less of a burden. You're going to have less of a target on your back from an attrition perspective with your customer, and you're going to be able to grow naturally as your customer grows. Whereas the other method, you're going to be locked into SaaS price increases. Sure of 3%-5% range or something like that. Yeah. We're really bullish on the transactional model go forward. Over some of the other different ways you can monetize things. Okay. But always, any of the recurring sources, I'm happy to have any of them. Yeah. Shifting gears a little bit to the model. You talked about the evolution and strength in SaaS and sort of encouraging data points on transactional revenue. Maybe just a quick snapshot as to how the model has evolved, and then if you could fold in just some fiscal 3Q comments on what you saw in the quarter and as you think about 2027, just reiterate some of the comments that you'd shared last week. Yeah. So we published our quarter this last week. It was not a good quarter for us, and we guided down. We missed on our revenue and guided down for the remainder of the year. We're 9/30 year-end, so we'll be turning the corner looking ahead to 2027 here shortly. A couple different things. Professional services has been the topic of the year for us. Obviously we lean on the ARR whenever possible, but professional services is an important part of our business and it will never be totally gone. The professional services revenue is down pretty significantly on an organic basis year-over-year. A number of different spots where that's been relevant are board licensing software, a little bit in transportation and justice, but most acute in our utilities market in particular. We have a very large project that is very exciting for us in the long run, and it has been a frankly, just a really bleak outcome in terms of actual rev rec in 2026. Our view of the timing of it all has pushed further out. With that in mind, 2027, we have always guided ARR as high single digit. Long-term expectation for the business is high single digit. We guided for 2027 that, hey, we are actually probably looking at more like mid-single-digit revenue growth for 2027. We will put that guide out in a more detailed way in November. That is the view at this point in time. We have a couple other pockets that are just short-term impacting 2026 around transactional revenues. We are suffering right now from some higher interchange, and we spoke a little bit about that on the call. Some of that is addressable. The fixes for that are going in. Our Resolv 360 product is looking great from a long-term growth perspective, but we have to catch the operations up to the sales cycle, and the growth has not been what we had in our models previously to date. We do believe that will be addressed. On the pro services point, I guess, as you all have described, it feels very timing oriented. Just update on the process on the utilities front, just in terms of how the conversations are going and that relationship, irrespective of the timing difference in rev rec. Yeah. Alex is referring to, we have an opportunity to build a CIS for a very large public utility that is. It is a great opportunity for us. You would call it tier 1. This is a market that is primarily served by Oracle and SAP. There is not a lot of alternatives out there. We have the credibility with this customer, where they were willing to choose us as an alternative for that. Knew it was going to be a long-term project. It is shaping up to be substantially longer than we had anticipated. The news this quarter was we went live with the first phase of it, which was a great success. Went really well. Very smooth. They are very happy with the results of that. Now we are taking a pause and taking a breath right now as we work on, all right, reset. What are the expectations? What margins do we need to protect for us to be willing to continue doing this project? Because frankly, there are a lot of lessons learned on what we've done so far on it. The market opportunity is still very attractive. We're very optimistic that we can get to a great working relationship there. They've been a great partner. They'll be a great partner, and we just need to sync up expectations here a little bit. Sure. Then we can find a path forward. Yeah. The impact of this opportunity, it's fairly back weighted in terms of the real positive impact for us. That pushout has been really painful 2027. We think is going to be a better year in terms of outcomes, in terms of rev rec than 2026. It's all a little bit in flux, and we want to just be measured and cautious about how we guide the market about that right now. Yeah. Just to round out the 2027 discussion, we appreciate the forward look on the top line. From a margin standpoint, I think, able to reiterate what you all have been talking about. Maybe just levers, not the operating margin. Yeah. The margin picture is getting very attractive. Revenue growth needs to be higher, and if it were where we expect it to be in the future, we would be looking at an even brighter picture on margin, because some of that falls straight to the bottom line. This is partially an AI story, partially just the cost structure. We have a significant group of people offshore in India, our own direct entity over there. Not outsourced to a third party, our own direct entity. That's been a great tailwind for us, driving costs down. It's a piece of the AI story. As we have grown and as we have slowed up the M&A and worked on process and worked on getting more efficient in things, we've been able to just basically reduce our cost load in the form of people. That hasn't been anything dramatic, but it's just been the simple things like not backfilling when- Sure we have somebody move on as best as possible. And we've gotten to a really nice result there. This quarter, our margin picture, that would have started showing up this quarter, but we had a few customer reserve items that we put out there that are just one-off and nothing that you would take to drag on the long term. Q4 margin picture will look brighter. The 2027 margin picture, when we put that guide out there, I think people will be pleased. We've always said 50 to 100 basis points is a realistic baseline for margin expansion. I think we will be well north of that in 2027. Okay, that's great. As we wrap up here, I want to come back to M&A. Roughly a deal a year historically, I mean the recent history has been the cadence. Yeah. Does that feel right going forward as to what you see in the pipeline, opportunities ahead? Yeah. After you answer, I have a follow-up, AI and just how it impacts the M&A math. Yeah. It's always hard to say on the M&A front. We always are open to it and excited about it. We have been slower in our cadence, largely because of price. Sure. Just really tried to be disciplined on that. Frankly, we've had a really attractive alternative for the last year and change, which has been share buybacks. Right. We've bought back fully, I think we're up to nearly 23% of our outstanding shares from peak. That's been really attractive. We won't do that forever. I would love for that to not be so attractive, but I think it's going to be for a little bit here. Then the M&A stuff will be opportunistic, as it always has been. Yeah. But we used to say we could see ourselves doing four deals a year. Yeah. That feels pretty distant right now. Okay. I'll say that. Okay. Just to fold in one more AI related question around M&A. When you think about what some of these deals bring to i3 product, customers, geo expansion, the product piece, maybe it's a leap, but increasingly, so something that can be accomplished organically. Does the development. Does the build or buy conversation change, or is it more so anchored around customer expansion, geo expansion? It's an interesting point. On the build or buy side, I think it's absolutely true that the cost of building software is going down, and so we talked about this earlier. We might green light more things. Our customers in our market, they're very loyal. They're very sticky. Customer acquisition can absolutely be an appealing reason to do a piece of M&A. It also might be opening an adjacent market. I think we're going to stay as focused as we can in the five spots that we are. Okay. But there are pockets within that where we would love to acquire another customer base that has- Yeah it's something adjacent, like maybe it's something in public safety or something like that. We have a little bit there. It would cross-sell so well with our courts. We'd love to find something else there. Okay. We're definitely open to that. We'll see. Okay, great. Any final questions from the audience before we wrap up? [I got one question. I'm so sorry. That is our time. We do have to rotate for the next presentation. Any questions can be addressed outside. Sorry about that.] Okay. I will follow back up with you. Sure. Thanks everyone. Thank you.