Public Sector Digitization And Acquisitions Will Fuel Future Transformation

Key Takeaways

• Strategic focus on public sector modernization, software integration, and AI-driven solutions positions the company for recurring revenue growth and margin expansion.
  
• Active M&A and product innovation support market differentiation, increased cross-sell, long-term stability, and scalable growth in targeted government and enterprise verticals.
  
• Dependence on acquisitions, sector concentration, rising competition, and regulatory challenges threaten margins, revenue growth, and operational stability.

Catalysts

i3 Verticals, Inc. builds, acquires, and grows software solutions in the public sector and healthcare vertical markets in the United States and Canada.

• The company's concentrated pivot into the public sector and divestiture of lower-growth, lower-margin segments positions it to benefit from accelerating modernization efforts and digital transformation among state and local governments, a trend likely to support sustained high single-digit organic revenue growth and expanding recurring revenue streams.
  
• Strong growth in SaaS revenues (23% YoY) and mix shift toward high-margin integrated software positions i3 Verticals to capture higher recurring revenue and improve EBITDA margins; this is underpinned by demand for digitized, automated payment and workflow solutions, a multi-year trend for government and enterprise clients.
  
• Recent acquisitions (such as the cloud-based utility billing platform) open new geographies and deepen product integration, driving cross-sell opportunities, ARPU expansion, and long-term operating leverage through synergy realization and platform scaling-supporting both top-line and margin growth.
  
• i3 Verticals' domain-specific SaaS model, coupled with ongoing investment in AI-powered automation and compliance-driven features, aligns with a market-wide push toward more secure, compliant, and user-centric solutions, reducing churn risk and enabling premium pricing to support stable net margins.
  
• Strong balance sheet with capacity for further M&A-combined with a robust acquisition pipeline in fragmented public sector verticals-enables accretive growth and diversification without excessive leverage, likely to drive both EPS growth and long-term earnings stability.

i3 Verticals Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming i3 Verticals's revenue will grow by 1.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from -28.3% today to 13.8% in 3 years time.
• Analysts expect earnings to reach $34.8 million (and earnings per share of $0.72) by about July 2028, up from $-68.3 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 40.5x on those 2028 earnings, up from -10.0x today. This future PE is lower than the current PE for the US Software industry at 43.1x.
• Analysts expect the number of shares outstanding to grow by 2.65% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.94%, as per the Simply Wall St company report.

i3 Verticals Future Earnings Per Share Growth

Risks

• The company's long-term reliance on frequent, smaller tuck-in acquisitions to drive growth could expose it to integration challenges and possible dilution of operational focus; failure to execute and integrate these consistently may lead to margin compression and unpredictable earnings over time.
  
• After divestiture of its healthcare and merchant services businesses, i3 Verticals is now highly concentrated in public sector, utility, and education verticals-making it increasingly vulnerable to budget cycles, funding volatility, procurement delays (such as the cited setbacks with the Manitoba contract), and shifting government regulations, which can drive erratic revenue growth.
  
• Intensifying competition within public sector-focused SaaS and payments-particularly as larger, better-capitalized players pursue horizontal/vertical consolidation and new fintech entrants leverage cutting-edge technologies like AI, blockchain, or open-banking-could threaten i3 Verticals' ability to sustain pricing power and revenue expansion if it cannot continually invest in innovation.
  
• Potential commoditization and price pressure across integrated software and payment solutions-especially as more workflow and payment features become standard in the market-may make it more difficult for i3 Verticals to maintain current gross margins and net margin profile in the long run.
  
• Increased regulatory scrutiny, tightening data privacy requirements, and escalating cybersecurity threats (as seen throughout the sector) could elevate ongoing compliance and remediation costs, weighing on operating margin and creating risks to customer trust and long-term recurring revenue streams.

Valuation

• The analysts have a consensus price target of $32.0 for i3 Verticals based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $35.0, and the most bearish reporting a price target of just $25.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $251.3 million, earnings will come to $34.8 million, and it would be trading on a PE ratio of 40.5x, assuming you use a discount rate of 7.9%.
• Given the current share price of $28.07, the analyst price target of $32.0 is 12.3% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.