IIIV

ANALYST NOTE: IIIV (i3 Verticals, Inc.) Date: 2026-06-13 Current Price: $19.82

1. Structural Readiness

Conservative Entry: — (Awaiting breakout confirmation) Aggressive/Pre-Breakout Entry: — (Not actionable on setup alone) Breakout Level: — (Not yet established) Current Price: $19.82 Extension: — (No breakout has occurred to measure extension from entry) ATR Current: 5.0% (High)

Structural Assessment:

2. Thesis Layer

Thesis Classification: TACTICAL / SETUP-LED Macro Thesis: None. Analysis: There is no named secular macro thesis attached to this name as of 2026-06-13. This is a tactical, setup-led name. The conviction must be derived entirely from the quality of the structural setup (once defined) and the underlying business fundamentals. We do not invent a thesis; we judge the name on its ability to execute its current business model and the technical readiness of the price structure. The absence of a named macro driver means the trade relies on idiosyncratic execution and sector-specific tailwinds rather than a broad market regime shift.

3. The Business

Company Overview: i3 Verticals, Inc. provides mission-critical enterprise software solutions and integrated payment processing to public sector entities. The company operates across five primary verticals: Courts and Public Safety, Public Administration, Utilities, Transportation, and Schools.

Business Model & Revenue Mix: The company generates revenue through a hybrid model of software subscriptions and transaction-based fees.

• Recurring Revenue: Approximately 76% of revenue from continuing operations is considered recurring, derived from software subscriptions, ongoing support, and licenses.
• Transaction Revenue: The company utilizes a proprietary payment facilitator platform to process court, tax, registration, utility, school, and other payments, generating volume-based "discount fees."
• Growth Drivers: As of Q2 2026 (reported May 8, 2026), Annual Recurring Revenue (ARR) increased 12% year-over-year to $183.5 million. SaaS revenues specifically grew 37%, while transaction-based revenue grew 7%.

Market Position & Recent Activity:

• Footprint: The company maintains thousands of software installations across all 50 U.S. states and Canada, positioning it as a leader in the public sector vertical.
• Acquisition Strategy: A recent acquisition expanded the company's footprint as the market-leading insurance verification provider, enabling tighter integration with payments and shared data services.
• Sector Demand: Management reports healthy demand driven by government agencies prioritizing modernization, improved constituent experience, and platforms that reduce operational complexity. Justice Tech remains a high-activity market supported by court modernization.

Financial Health (as of March 31, 2026):

• Liquidity: $7.1 million in cash and cash equivalents.
• Debt Capacity: $319.0 million available under the 2023 Senior Secured Credit Facility.
• Covenants: The company is in compliance with financial covenants, reporting a consolidated interest coverage ratio of 16.2x and a total leverage ratio of 1.2x.

4. Archetype and Conviction

Archetype: Quality Compounder Rationale: The name fits the "Quality Compounder" archetype due to its high recurring revenue mix (76%), consistent double-digit growth in ARR, and a business model that benefits from the stickiness of mission-critical government software. The management team has provided clear guidance on margin expansion, expecting adjusted EBITDA as a percentage of revenue to improve for the remainder of FY 2026, with a long-term expectation of 50 to 100 basis points of improvement annually.

Valuation & Conviction Stack:

• Evidence Quality: High. The evidence base is robust, supported by Q2 2026 earnings transcripts and SEC filings confirming revenue growth, margin expansion, and strong balance sheet covenants.
• Rerating Potential: Moderate. The market is pricing in the "Quality Compounder" narrative, but the stock has not yet broken out to confirm a new valuation regime. The forward consensus EPS for FY1 is $1.13768 and FY2 is $1.27175, suggesting the market expects continued earnings growth.
• Conviction: The fundamental case is strong (growing ARR, expanding margins, healthy balance sheet), but the technical setup is incomplete. The conviction is currently weighted toward the business fundamentals rather than the technical breakout.

5. Invalidations, Strengths, and Gaps

What Would Strengthen the Case:

• Fundamental: Confirmation that the "two long-delayed transaction-based revenue opportunities" in the transportation market (expected to turn on near the end of FY 2026) begin contributing to revenue in Q3 2026, ahead of the 2027 impact timeline.
• Margin: Management reiterating or raising the EBITDA margin guidance beyond the 50-100 bps annual improvement expectation.

What Would Invalidate the Case:

• Fundamental: A significant slowdown in SaaS growth (currently 37%) or a contraction in the recurring revenue mix below 70%.
• Operational: Failure to integrate the recent insurance verification acquisition or a breach of credit facility covenants (currently at 1.2x leverage, well below typical triggers, but a spike would be a red flag).

Gaps in Evidence:

• Forward Guidance Specifics: While management expects double-digit recurring revenue growth, specific dollar targets for the remainder of FY 2026 are not detailed in the provided excerpts.
• Transportation Catalyst Timing: The exact timing of the "turn on" for the transportation transaction-based revenue is noted as "near the end of fiscal 2026," but the specific quarter or month is not specified.

PRIVATE ANALYST CALL

Judgment: Speculative Confidence: medium Key evidence: ARR grew 12% to $183.5M in Q2 2026 with SaaS up 37%; 76% of revenue is recurring; management expects EBITDA margin expansion of 50-100 bps annually. Sizing hint: Position size should be conservative given the unconfirmed breakout and high volatility; wait for structural definition before adding. Expected path: Management expects recurring revenue to grow double-digits through FY 2026; margin expansion should continue as the insurance verification acquisition integrates. Expected horizon: 6 to 12 months for the structural setup to resolve and for the transportation catalysts to begin impacting the top line.