i3 Verticals (IIIV): A High-Growth Pure-Play Public Sector Software Play

In the evolving landscape of public sector software, i3 Verticals (IIIV) has emerged as a standout player, leveraging strategic focus, AI-driven innovation, and a robust recurring revenue model to deliver consistent EBITDA and EPS growth. As governments accelerate digital transformation to meet modern demands, i3 Verticals is uniquely positioned to capitalize on its mission-critical software solutions, now operating as a streamlined, single-segment business after divesting non-core operations.

Strategic Refocusing: From Diversification to Core Strengths

i3 Verticals' decision to exit the Healthcare Revenue Cycle Management (RCM) and Merchant Services businesses in 2024–2025 has sharpened its focus on the public sector. This move has not only simplified its business model but also unlocked value by concentrating on high-growth verticals like transportation, utilities, and education. The company now operates with a 100% public sector SaaS revenue mix, a shift that has driven 12.4% year-over-year revenue growth in Q3 2025 and 13.1% growth in the first nine months of 2025.

The financial benefits of this refocusing are evident: adjusted EBITDA from continuing operations rose 18.0% in Q3 2025 and 20.3% for the first nine months, with EBITDA margins expanding to 24.5% and 27.3%, respectively. These metrics outpace many peers in the software sector, reflecting disciplined cost management and a high-margin recurring revenue model.

AI-Driven Innovation: The Engine of Differentiation

i3 Verticals' strategic pivot is underpinned by aggressive AI integration. The company has developed a generative AI bot for transportation management, enabling real-time traffic optimization and predictive maintenance for government infrastructure. This innovation, coupled with AI-powered analytics in education and utilities, has enhanced customer stickiness and operational efficiency.

For example, in the education vertical, AI-driven tools for payment processing and student services have streamlined workflows, reducing administrative burdens for school districts. Similarly, in utilities, AI-powered billing systems with anomaly detection have improved customer satisfaction and reduced churn. These innovations are not just incremental—they are redefining what government agencies expect from their software partners.

The financial impact is clear: SaaS revenue grew 24% year-over-year in Q3 2025, with recurring software license sales surging from $0.4 million in Q1 2024 to $2.7 million in Q1 2025. This shift to recurring revenue has created a predictable cash flow engine, with Annualized Recurring Revenue (ARR) reaching $160.8 million in Q3 2025, up 12% year-over-year.

Recurring Revenue and Margin Expansion: A Path to Sustainable Growth

i3 Verticals' recurring revenue model is a key driver of its financial resilience. With 80% of revenue now derived from SaaS offerings, the company benefits from long-term contracts and high customer lifetime value. This model has translated into adjusted EBITDA margins of 26.5% in Q1 2025, up from 24.2% in the prior year, and net income of $4.1 million in the first nine months of 2025, compared to a $22.4 million loss in the same period in 2024.

The company's balance sheet further reinforces its growth trajectory. With $50 million in cash reserves and $450 million in borrowing capacity, i3 Verticals has the flexibility to fund innovation, strategic acquisitions (like its recent utility billing software purchase), and share repurchases without diluting shareholders.

Investment Thesis: A High-Conviction Play

For investors, i3 Verticals offers a compelling combination of strategic clarity, technological differentiation, and financial discipline. Its AI-driven solutions are not only addressing immediate operational needs in the public sector but also future-proofing its offerings against commoditization. The company's 2025 guidance of $207–217 million in revenue and $55–61 million in adjusted EBITDA reflects confidence in its ability to sustain growth, even as it scales.

Risks and Considerations

While the outlook is strong, investors should monitor regulatory risks in the public sector and potential competition from larger tech firms entering government software markets. However, i3 Verticals' deep vertical expertise and embedded AI capabilities provide a durable moat.

Conclusion: A Buy for the Long-Term

i3 Verticals is a rare combination of a high-growth SaaS business and a mission-driven public sector play. Its strategic refocusing, AI-led innovation, and recurring revenue model position it to deliver double-digit EBITDA and EPS growth for years to come. For investors seeking exposure to the digital transformation of government services, IIIV offers a high-conviction opportunity with clear financial metrics and a strong balance sheet to back it up.

Investment Recommendation: Buy. Target price: $25–$30 (based on 12x 2025 EBITDA guidance).