DA Davidson has reaffirmed a Buy rating on i3 Verticals with a $35.00 price target following the firm’s review of the company’s fiscal first-quarter performance. At the time of the rating, the $35 target implies roughly 67% upside from the prevailing share price of $20.97, and the stock was trading close to its 52-week low of $19.89.
For the quarter ended December 2025, i3 Verticals reported total revenue of $52.7 million on a pro forma basis - a 1% increase versus the year-ago quarter after adjusting for divestitures completed in September 2024 and May 2025. That top-line result topped DA Davidson’s internal forecast by $0.2 million and exceeded consensus estimates by $0.5 million.
Breaking the revenue mix down, recurring revenue was a notable driver, rising 8% year-over-year on a pro forma basis to $42.4 million and accounting for 81% of total revenue. Within recurring streams, software subscription revenue showed particularly robust expansion, climbing 24% year-over-year to $12.0 million and representing 21% of the quarterly total.
By contrast, non-recurring revenue fell 22% year-over-year to $10.3 million. Within that category, professional services revenue declined 27% to $7.0 million and software license fees decreased 16% to $2.3 million. Management had previously signaled expectations for lower non-recurring revenue in fiscal 2026, and the quarterly results were consistent with that guidance.
On the profitability front, the company delivered first-quarter fiscal 2026 earnings per share of $0.26, ahead of the analyst consensus of $0.24 - an 8.33% earnings surprise. Revenue likewise beat expectations, coming in at $52.7 million versus the anticipated $52.16 million. Despite these beats, the revenue improvement was modest at just 1% year-over-year on a pro forma basis.
Over the past 18 months i3 Verticals has materially reshaped its business through a series of divestitures. Those transactions generated in excess of $530 million in gross proceeds, proceeds that were used to eliminate the company’s debt. As a result, more than 96% of i3 Verticals’ remaining revenue is derived from software, services, and integrated payment solutions for the Public Sector - including K-12 Education.
Balance-sheet metrics reflected the impact of the divestiture program. InvestingPro data cited by analysts shows the company now holds more cash than debt, a debt-to-equity ratio of approximately 0.01, and a current ratio of 1.61.
Market participants and research shops reacted to the company’s results and guidance with mixed assessments. DA Davidson’s Buy rating and $35 target were reiterated following the report. Separately, Benchmark maintained its Buy stance and a $39.00 price objective.
Nevertheless, investors and analysts flagged margin compression and elevated hosting costs as issues. Declining EBITDA margins and higher hosting expenses were reflected in the market response to the quarter, highlighting that while earnings and revenue exceeded expectations, cost pressures and margin trends represent near-term uncertainties.
In sum, the quarter delivered a set of encouraging signs - stronger recurring revenue, outsized subscription growth and a materially de-levered balance sheet - alongside offsetting headwinds in non-recurring revenue and margin performance. The combination leaves the fundamental picture mixed: improved earnings execution and financial flexibility versus operating cost challenges that warrant monitoring.
Key points
- DA Davidson reaffirmed a Buy rating on IIIV with a $35 price target, implying about 67% upside from $20.97.
- Q1 revenue was $52.7 million (pro forma), up 1% year-over-year; recurring revenue rose 8% to $42.4 million, with software subscriptions up 24% to $12.0 million.
- The firm has used more than $530 million in divestiture proceeds to eliminate debt; balance sheet shows cash exceeds debt, debt-to-equity of 0.01 and current ratio of 1.61.
Risks and uncertainties
- Declining EBITDA margins - margin compression was cited as a market concern and could affect profitability in the near term.
- Higher hosting costs - increased hosting expenses were explicitly noted as a factor weighing on operating results and investor sentiment.
- Modest top-line growth - revenue expanded just 1% year-over-year on a pro forma basis, underscoring limited near-term organic growth momentum.