On Monday, KeyBanc Capital Markets adjusted their financial outlook for i3 Verticals (NASDAQ:IIIV), a technology-driven payment solutions company, lifting the price target to $32.00 from the previous $27.00. The firm maintained an Overweight rating on the stock, indicating a positive expectation for the company’s performance. The optimism appears well-founded, as InvestingPro data shows the stock has delivered an impressive 51.88% return over the past year, with particularly strong momentum in recent weeks, gaining 13.02% in the past week alone.
Alex Markgraff, an analyst at KeyBanc, provided insights into the decision, noting that i3 Verticals reported first-quarter revenue that surpassed Wall Street’s expectations, primarily due to the timing of license revenue recognition. Adjusted EBITDA for the first quarter also exceeded forecasts, and the company’s Annual Recurring Revenue (ARR) experienced a slight acceleration. Despite these positive results, the company’s guidance for fiscal year 2025 remained unchanged. According to InvestingPro data, the company maintains impressive gross profit margins of 91.53% and has achieved revenue growth of 20.85% over the last twelve months. While currently unprofitable, analysts tracked by InvestingPro expect the company to turn profitable this fiscal year.
Organic revenue growth was approximately 10%, or around 7% after adjusting for the license revenue timing benefit. Markgraff expressed optimism regarding the company’s organic growth trajectory, improved margins, and commentary on the sales pipeline. He highlighted the firm’s success in engaging with larger-than-usual customers for certain products.
The analyst also pointed out that the company’s strategy for future price increases should support its high single-digit growth target. While price increases are not the highest quality growth factor, they are a standard practice within the software industry. Historically, i3 Verticals has seen little to no growth contribution from pricing changes.
i3 Verticals is on track with its balance sheet deleveraging and is moving forward with its anticipated three to five acquisitions planned for fiscal year 2025. Following the company’s first-quarter performance, KeyBanc’s estimates have remained largely the same, except for an increase in expected adjusted EBITDA.
Concluding the assessment, Markgraff justified the higher price target by assigning a multiple of 4.0 times the company’s projected calendar year 2025 revenue. This adjustment reflects confidence in i3 Verticals’ organic growth and favorable sales momentum, leading to the reaffirmation of the Overweight rating. InvestingPro subscribers can access 14 additional investment tips for IIIV, along with comprehensive valuation metrics and the detailed Pro Research Report, which provides deep-dive analysis of the company’s financial health and growth prospects.
In other recent news, i3 Verticals, Inc. has undertaken a series of recapitalization actions to address its excess cash situation. This follows a tax distribution related to the sale of its merchant services business in September 2024, which left the company with additional cash. The Nashville-based company made a capital contribution of approximately $21.4 million to its subsidiary, i3 Verticals, LLC, in exchange for newly-issued common units. Subsequently, a reverse unit split was implemented to maintain the alignment between the common units and the outstanding shares of Class A common stock. As a result of these actions, i3 Verticals now holds approximately 70.83% of the outstanding common units, an increase from its previous ownership. These recent developments have been confirmed by the company’s Chief Financial Officer, Geoff Smith, in an SEC filing. The strategic move aims to optimize the company’s cash position for operational purposes.
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