A maker of cloud-native software and payment processing for state and local governments, i3 Verticals serves the JusticeTech, utilities, education, transportation, and public administration markets. Its products let public agencies run operations and process payments, including tools like PaySchools for school payments. After selling its merchant services and healthcare billing units, the company now focuses purely on software for the public sector, built on a multi-cloud setup with its own payment gateway.
I3 Verticals swung to an operating loss in Q3 FY2026 as a $9.9M investment gain masked a 2.2% revenue rise and a doubling of interest expense.
growth slowed to a crawl. Revenue rose 2.2% to $53.1 million as a $3.3 million increase in was nearly wiped out by a $2.2 million decline in non-recurring revenue, while a $9.9 million on a minority investment turned an operating loss into of $3.5 million. The core software business is barely growing, and the bottom line now depends on paper gains.
Key takeaways
rose 2.2% to $53.1 million, as a $3.3 million increase in was largely offset by a $2.2 million decline in non-recurring revenue, leaving the top line nearly flat.
The company swung to a $0.9 million loss from operations, a $3.9 million improvement from the prior-year quarter, driven entirely by a $4.2 million drop in selling, general and administrative expenses as M&A-related costs fell.
reached $3.5 million, up 58.7% from the prior-year quarter, but the result was driven by a $9.9 million on a minority equity investment revalued after a third-party investment—without it, the quarter would have shown a loss.
Section summaries
Management's Discussion and Analysis
Q3 FY2026 revenue rose 2.2% to $53.1M driven by recurring software growth; operating loss narrowed sharply on lower M&A costs and an investment gain.
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increased 2.2% to $53.1M, with up $3.3M offsetting a $2.2M decline in non-recurring revenue.
more than doubled to $1.8 million from $0.8 million a year ago, reflecting a higher average debt balance after the company drew on its to fund the $60 million transportation acquisition.
Annualized grew 8.3% to $174.1 million, a deceleration from the 11.6% growth rate reported in the prior quarter.
rose 94% to $14.3 million and rose 90.3% to $13.0 million, recovering from the prior-year period when cash flow was depressed by tax payments tied to the Merchant Services sale.
What changed
The 8.3% growth rate this quarter marks a clear deceleration from the 11.6% reported in Q2 FY2026, suggesting the momentum flagged in prior quarters is fading.
The $60 million transportation acquisition closed in Q1 FY2026 has now contributed to two quarters of results, yet total growth remains in the low single digits, raising the question of whether the deal added enough to return the company to the 9-12% growth rates seen in FY2025.
The $9.9 million unrealized investment gain is a new and material item not present in any prior quarter, introducing volatility to reported that is disconnected from operating performance.
has now more than doubled for two consecutive quarters, from $0.4 million in Q1 FY2026 to $1.1 million in Q2 FY2026 to $1.8 million in Q3 FY2026, as the debt taken on to fund the transportation acquisition increasingly weighs on the .
What to watch
Whether the 8.3% growth rate stabilizes or continues to decelerate, and whether total can return to growth above the low single digits without another acquisition.
The trajectory of , which has now doubled for two straight quarters, and whether the $114.3 million in floating-rate debt becomes a material drag if rates remain elevated.
Whether the $9.9 million unrealized investment gain reverses in future quarters, exposing the underlying operating loss that it masked this period.
The outcome of the CFPB scrutiny and class action lawsuit on K-12 school payment fees, which remains an unchanged risk factor and could force changes to fee structures in the Public Sector vertical.
Loss from operations improved by $3.9M to a $0.9M loss, primarily due to a $4.2M drop in selling, general and administrative expenses driven by lower M&A-related costs.
Other income surged to $9.9M from $4.6M, largely reflecting a $9.9M on a minority equity investment revalued after a third-party investment.
more than doubled to $1.8M due to a higher average outstanding debt balance.
grew 8.3% to $174.1M.
Liquidity remained strong with $285.7M available under the and a total of 1.9x.
Quantitative and Qualitative Disclosures About Market Risk
Interest-rate risk from floating-rate debt is the primary market risk; foreign-currency exposure is not yet material.
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As of June 30, 2026, the company had $114.3 million outstanding under its floating-rate 2023 Senior Secured .
A hypothetical 1.0% increase or decrease in the applicable -based interest rate would impact results by approximately $1.1 million.
The facility also provides a $400 million line, of which $285.7 million remained available subject to financial covenants.
The company states its international operations are not yet material, and a 10% change in foreign exchange rates would not materially affect consolidated results, financial position, or cash flows.
No commodity-price or equity-price risk exposures are disclosed in this section.
The information required with respect to this item can be found in Note 11 to the accompanying unaudited condensed consolidated financial statements contained in this report and is incorporated by reference into this Part II, Item 1. 61
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The information required with respect to this item can be found in Note 11 to the accompanying unaudited condensed consolidated financial statements contained in this report and is incorporated by reference into this Part II, Item 1.
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There have been no material changes to the risk factors disclosed under the heading “Risk Factors” in our Form 10-K for the fiscal year ended September 30, 2025 filed with the SEC on November 21, 2025.
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There have been no material changes to the risk factors disclosed under the heading “Risk Factors” in our Form 10-K for the fiscal year ended September 30, 2025 filed with the SEC on November 21, 2025.