I3 Verticals Inc

NASDAQ:IIIV

Earnings Call Analysis

Revenue, EBITDA, and ARR Growth with Solid Guidance

In Q1 fiscal '24, revenue and EBITDA both rose by 7% year-over-year, reaching $92 million and $25.2 million respectively, while ARR grew by 9% to a new record of $317 million. The company is progressing with the sale of Merchant Services assets, focusing on core markets of Public Sector, Healthcare, and Education. Software licenses shrank, shifting towards higher-yielding recurring revenue streams. Adjusted EBITDA for the merchant segment grew 14%, reflecting cost control and improved yield. A strong balance sheet, highlighted by a solidified leverage ratio of 3.6x and strategic repurchasing of convertible notes, positions the company favorably. Fiscal year '24 guidance anticipates revenues between $385 million to $400 million, with adjusted EBITDA of $109 million to $115 million, and pro forma adjusted diluted EPS of $1.52 to $1.64.

Software and Services Segment Demonstrates Growth

The company's Software and Services segment showed a positive trajectory, with revenues increasing by 6% to $56.6 million in Q1 '24, up from $53.2 million in Q1 '23. This segment saw growth in healthcare and public sector markets, including education. Despite a strike in Manitoba causing project interruptions, the segment's performance remained robust, indicating resilience and a diversified source of income with payment revenues contributing to 25% of the segment's revenues.

Pro Forma Adjusted Earnings per Share Experience Modest Decline

There was a slight decrease in pro forma adjusted diluted earnings per share, down to $0.36 in Q1 '24 from $0.37 in Q1 '23. The marginal drop suggests stable profitability in the face of operational challenges such as the Manitoba strike.

Company Offers Steadfast Guidance for Fiscal Year '24

Looking into fiscal year '24, the company has expressed confidence in its projections, anticipating revenues between $385 million to $400 million, and adjusted EBITDA ranging from $109 million to $115 million. Furthermore, they forecast a pro forma adjusted diluted EPS between $1.52 and $1.64, which represents a reliable earnings outlook for investors making future valuation estimates.

Earnings Call Transcript 2024-Q1

[Operator]

Good day, everyone, and welcome to the i3 Verticals First Quarter 2024 Earnings Conference Call. Today's call is being recorded, and a replay will be available starting today through February 16. The number of the replay is [phone] and the code is 4184683, again, for the replay [phone] with the code 4184683. The replay may also be accessed for 30 days at the company's website. At this time, for opening remarks, I would like to turn the call over to Geoff Smith, Senior Vice President of Finance. Please go ahead, sir.

[Geoffrey Smith, executive]

Good morning, and welcome to the First Quarter 2024 conference call for i3 Verticals. Joining me on this call are Greg Daily, our Chairman and CEO; Clay Whitson, our CFO; Rick Stanford, our President; and Paul Christians, our COO. [indiscernible] sent any non-GAAP financial measure is discussed in today's call, you will also find a reconciliation to the most directly comparable GAAP financial measure are reviewing yesterday's earnings release.

It is the company's intent to provide non-GAAP financial information to enhance understanding of its consolidated GAAP financial information. This non-GAAP financial information should be considered by each individual in addition to but not instead of the GAAP financial statements. This conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements, among others, regarding the company's expected financial and operating performance.

For this purpose, any statements made during this call that are not statements of historical fact may be deemed to be forward-looking statements. You are hereby cautioned that these forward-looking statements may be affected by the important factors, among others, set forth in the company's earnings release and in reports that are filed or furnished to the SEC.

Consequently, actual operations and results may differ materially from those discussed in the forward-looking statements. Finally, the information shared on this call is valid as of today's date, and the company undertakes no obligation to update it, except as may be required under applicable law. I will now turn the call over to the company's Chairman and CEO, Greg Daily.

[Gregory Daily, executive]

Thanks, Jeff, and good morning to all of you on the call. We have some big and exciting things to discuss with you this morning, but first, I'd like to highlight the results of our first quarter of fiscal year '24. Revenue and EBITDA were both 7% higher in Q1 over the same quarter last year, and ARR grew at 9%. We're laser focused on nurturing recurring revenue streams such as SaaS and transaction-based revenue. Sometimes, these come at the expense of license revenue, which you will notice is much lower this quarter. I'm sure many of you saw our disclosure yesterday as we are well along in the process to sell certain assets related to our Merchant Services business. Rick is going to give you a full rundown of the process.

And first, I want to make a few points. First, our routes line deep in Merchant Services. We started this company and we knew the business well. We understood the power of consistent recurring revenue that could be unlocked when we add value to our customers and take care of them. We have built and acquired best-in-class technologies, attracted amazing customers, and most importantly, assembled an incredible team.

I'm extremely proud of the i3 Merchant Services business and what we've accomplished together. Second, our Merchant Services capabilities have set the stage for us to build something very special in vertical market software. We've always believed in our scale and our expertise and payments gave us an edge. We're not just looking for any buyer of our merchant services business with a long-term partner who wants to help us continue to unlock payment opportunities within our current software businesses. Third, we like the opportunity of the sale because we believe it is beneficial to our customers, our employees and our shareholders if we focus.

By this narrowing of our focus to our core markets of Public Sector, Healthcare and Education, we will be better poised to capitalize on the expansive opportunities within each. Now I'll turn the call over to Rick, and he will provide you more details on the ongoing process. And then when he finishes, Clay will discuss our financial performance, and then we'll open up the call for questions.

[Rick Stanford, executive]

Thank you, Greg. Good morning, everyone. I'll start by talking briefly about the process mentioned in last night's press release and then cover M&A. As previously announced, the company's Board of Directors has directed i3 management to explore the sale of certain assets related to our Merchant Services business. This decision was made after careful consideration by our Board with input from management and the company's financial adviser and is consistent with the company's strategic focus on vertical market software.

Consistent with the strategy, the Board believes that the sale of this discrete portion of our business and no other part of the business or i3 as a whole, is in the best interest of the company and its shareholders. Merchant Services business includes all payment-related assets, not tethered to proprietary vertical market software, including the associated payments technology. This is a leader in the market, and we believe it has tremendous potential with increased attention and resources of external ownership.

It has led by highly respected industry veterans with decades of experience and their sales and technology teams are formidable and top-notch. This business has appropriate leadership, sales and support to operate on a stand-alone basis, and we are confident that it will be attractive to many potential buyers. The sale of the Merchant Services business would generate capital that the company would expect to deploy to pay down debt and can be used with additional strategic application towards M&A in our 3 target verticals.

Our focus will continue to be growing our industry-leading software businesses in Public Sector, Healthcare and Education, which we believe are the optimal platforms to deliver enhanced shareholder value over the long term. Each of these verticals includes a large addressable market, a decentralized competitive landscape and is underserved by technology. We believe these businesses have significant opportunities for growth.

Our board with the benefit of input from management and our financial adviser has directed us to initiate this process solely to explore the sale of our Merchant Services business as the best path to create value for our shareholders. As we explore the potential sale of the merchant services business, we will continue to fully support current payments clients and the payments technology platforms.

Our clients should not be affected by this decision and if the sale transaction does occur, it would be a seamless transition for them. Further, as part of any transaction, we would expect to execute an agreement for ongoing payment partnership with a potential buyer so that we continue to offer this value-added integrated payment service that our customers expect from us. After this call, i3 does not intend to make any further disclosure concerning these matters unless or until a definitive transaction agreement is reached or until i3 determines that additional disclosure is appropriate and warranted.

All inquiries from potential third-party purchasers concerning our merchant services business should be directed to Raymond James & Associates. Regarding M&A, we continue to look at opportunities over the last quarter for potential targets for acquisition. Most of them were in Public Sector with a few in Healthcare and Education. Our pipeline continues to be robust with target companies largely in Public Sector and Healthcare verticals. I'll now turn the call over to Clay, and he'll provide more details on the first quarter financial performance.

[Clay Whitson, executive]

Thanks, Rick. The following pertains to the first quarter of our fiscal year 2024, which is the quarter ended December 31, 2023. Please refer to the slide presentation titled Supplemental Information on our website for reference with this discussion. Revenues for the first quarter of fiscal '24 increased 7% to $92 million from $86 million for Q1 2023, reflecting organic growth and acquisitions. Organic revenue growth for this quarter was a little above 5%.

Revenues from software licenses fell to just $0.7 million for Q1 2024 from $1.2 million for Q1 2023 and an average of $2.7 million per quarter in fiscal '23. As we have communicated in the past, software license sales are the most variable and difficult revenue stream for us to forecast. It can be feast or famine on this line depending on customer schedules, particularly in the public sector.

We have been deliberately replacing onetime software sales with recurring revenues such as SaaS and currently expect onetime software sales to be $5 million lower in fiscal '24 compared with fiscal '23. The transition is happening a little faster than expected. SaaS grew 13% for Q1 '24 versus Q1 '23. ARR increased 9% to $317 million for Q1 '24, a new record, compared to $290 million for Q1 '23. Over 80% of our revenues in the quarter continued to come from recurring sources.

Our revenue yield improved modestly to 148 basis points for the quarter from 145 basis points for Q1 '23. Software and related services represented 47% of total revenues for Q1 with payments 48% and other 5%. Adjusted EBITDA increased 7% to $25.2 million for Q1 '24 from $23.6 million for Q1 '23. Adjusted EBITDA as a percentage of revenues remained steady at 27.4% for Q1 '24 in 2023.

The adjusted EBITDA margins in both the Software and Services segment and Merchant Services segment improved but were offset by an increase in our corporate expenses, principally healthcare insurance costs and duplicative hosting costs as we transition from our private cloud with Rackspace to AWS and Microsoft Azure. Pro forma adjusted diluted earnings per share was $0.36 for Q1 '24 compared to $0.37 for Q1 '23.

Again, please refer to the press release for a full description and reconciliation. Segment performance. Revenues in our Software and Services segment increased 6% to $56.6 million for Q1 '24 from $53.2 million for Q1 '23, reflecting growth in healthcare and public sector, including education. The Celtic acquisition anniversaried this quarter and declined by $1 million Q1 to Q1, reflecting the strike in Manitoba, which we discussed on our Q4 conference call.

While the strike has ended, our projects have not yet resumed. Payment revenues represented 25% of the Software and Services segment's revenues. The segment's adjusted EBITDA improved 7% to $20.2 million for Q1 2024 from $18.9 million for Q1 2023. Adjusted EBITDA as a percentage of revenues improved to 35.6% for Q1 '24 from 35.4% for Q1 '23, reflecting cost efficiencies gained from an internal realignment within verticals we discussed on the Q4 call.

Revenues for our Merchant Services segment increased 8% to $35.4 million for Q1 '24 from $32.8 million for Q1 '23, reflecting broad-based growth in our ISO, ISV, B2B and POS channels. Adjusted EBITDA for our Merchant Services segment increased 14% to $10.7 million for Q1 '24 from $9.4 million for Q1 '23, outpacing revenues. Our revenue yield moved up a few basis points with continued expense control. The balance sheet. Our balance sheet remains strong and well positioned for '24. During January, we repurchased $90.8 million base value of convertible notes, utilizing the revolver for a discounted amount of approximately $86.6 million.

There are $26.2 million of notes remaining, 19% of the original $138 million issued, which addresses a springing maturity clause in our revolving credit agreement. We currently expect to allow the remaining notes to remain outstanding until maturity. While we saved roughly $4 million from the repurchase, we will have a similar amount of additional interest expense for fiscal '24 associated with the higher interest rate from the revolver.

As of December 31, borrowings under the revolver, net of cash and pro forma for the repurchases in January approximated $348 million. Our total leverage ratio pro forma for the note repurchase was 3.6x. The current constraint is 5x under our $450 million revolving credit. The interest rate for the convertible notes is 1%, while the interest rate for the revolver is currently around 8.5%. We have remained disciplined in our approach to growth and acquisitions. Our estimate for earn-out payments for the remainder of fiscal 2024 is approximately $5 million.

In the absence of acquisitions, we currently expect to finish fiscal '24 with a leverage ratio around 3x. We want to be clear on our rationale for the proposed merchant services sale. Once the sale is completed, we should have very little, if any, remaining debt. This will free up even more resources to deploy towards the Public Sector, Education and Healthcare verticals. We believe that the remaining public companies should trade at a higher EBITDA multiple as a pure-play Software and Services company.

Outlook. Looking forward, our Q1 results gives us confidence in the following guidance for fiscal year '24. It excludes acquisitions that have not yet closed, transaction-related costs and the potential asset sale discussed on this call. Revenues, $385 million to $400 million, adjusted EBITDA, $109 million to $115 million; depreciation and internally developed software amortization, $11 million to $13 million; cash interest expense, $26 million to $29 million; pro forma adjusted diluted EPS $1.52 to $1.64.

From a seasonal standpoint, we currently expect the quarters of fiscal year '24 to follow a similar pattern to those of fiscal year '23. Although actual results on this onetime software line can vary significantly, our current expectations for software license sales are $800,000 for Q2, $1 million for Q3 and $3 million for Q4.

We currently expect to resume high single-digit organic revenue growth in fiscal '25 as Manitoba gets back to a normal cadence, our opportunities in the utilities market progresses and the SaaS transition becomes less of a short-term drag. This concludes my comments, Marlese. At this time, we will open the call for Q&A, please.

[Operator]

Thank you very much. [Operator Instructions]. Our first question comes from John Davis from Raymond James.

[John Davis, analyst]

Maybe first, Clay, just on the lower revenue outlook. It sounds like it's just $5 million less of license revenue this year. Anything else to call out on the kind of the reduced outlook for the top line?

[Clay Whitson, executive]

No, I think you've -- that's the correct point. And just to do some math around that, if what would have been $5 million of onetime license revenue might turn into $800,000 of SaaS revenue because let's assume a 3-year contract and maybe it comes in halfway through the year. So it's quite a short-term headwind, although in the long term, it's a much better model.

[John Davis, analyst]

Okay. That's helpful. And then as we think about the margin guide, I think it's about for about 150 basis points of expansion year-over-year. I think margins were roughly flat in the first quarter. So how should we think about kind of the cadence of the margin expansion throughout the rest of the year? And kind of what gives you confidence? And what's driving the higher margins in the back 3 quarters here in '24?

[Clay Whitson, executive]

Well, onetime revenues is a big factor when looking at a quarter's margin, 90% of that, maybe even 95% of that revenue drops to the bottom line. So in a quarter light on onetime revenues, it's remarkable, we could keep the margin as we did, flat. The internal realignment is ongoing and continues and so we'll get the full effect of that as the quarters progress in '24.

[John Davis, analyst]

Okay. And then last one for me quickly. Just on the EPS guide. It looks like the majority of that is just higher interest expense, $0.08 or $0.09 and a few pennies for slightly lower EBITDA. Just curious if that's the right way to think about it or anything else that's going on the EPS line.

[Clay Whitson, executive]

That's correct. It's about $4 million -- more than $4 million of interest expense for the 8.5 months from mid-January. We did get a $4 million discount approximately on our bond repurchase. But one hits the balance sheet and the other hits the P&L.

[Operator]

And our next question comes from Peter Heckmann from DA Davidson.

[Peter Heckmann, analyst]

Wanted to see if you could maybe provide a little bit finer detail in terms of the portion of the Merchant Services business that is being considered for divestiture. If I heard correctly, it's those portions that either are not integrated with software or not integrated with i3's proprietary software. Could you confirm that? And then just maybe give a little bit of better idea of what we're talking about in terms of percent of revenue and potentially percent of EBITDA for 2023 or 2024.

[Clay Whitson, executive]

Peter, it corresponds pretty closely to the Merchant Services segment. We don't know exactly what assets will be included depending on a buyer for example, they might not want the PayFac platform if they already have one, and we'd love to keep the PayFac platform. So there's a little bit of play. But for planning purposes, I would just use the segment's revenues and EBITDA.

[Peter Heckmann, analyst]

Okay. Okay. Great. And then in terms of the kind of the determination of whether or not you proceed, certainly valuation is a part of that. But how do you think about then kind of that long-term partnership and how that might work in terms of servicing current clients? Is that a significant part of your decision making process?

[Clay Whitson, executive]

Yes. I mean our customers still want bundled payments since integrated software. And we intend to continue to provide that. In our Software and Services segment, 25% of our revenues are payment revenues. We just don't feel like we have to own the payments capability. So we would like to partner with whoever we sell the business to continue to provide that to our customers.

[Peter Heckmann, analyst]

Got it. Got it. And so just -- and then just for me, I heard this right, but you believe that divestiture could eliminate the majority or all of the company's debt, a divestiture would probably be modestly dilutive or somewhat dilutive to earnings, but eliminating the debt could really provide the company with a lot of flexibility going forward in terms of thinking about alternatives, primarily M&A, right?

[Gregory Daily, executive]

Yes. I mean we -- number one, goal, we want to be a software business. Number two, we fix our balance sheet. To your point, in debt free, if not close. And then -- we've been public 6 years. We have to make a change. And this -- we're very excited about it. This should put us in a good spot over the next 3 or 4 years.

[Operator]

And now we will proceed with the question from Matt VanVliet from BTIG. Matt, you may proceed.

[Matthew VanVliet, analyst]

I guess when you look at the Public Sector software market out there, given the backdrop of the quarter's performance, how are you, I guess, assessing the demand environment out there? Which areas or sub verticals of Public Sector are still driving the results here? And maybe where are you seeing either elongated sales cycles or just sort of indecisiveness on behalf of customers?

[Gregory Daily, executive]

So there's a lot of exciting stuff going on in utilities and education. Healthcare is great. The Public Sector dealing with counties, municipalities, states, that seems to be a lower -- a slower process. We've got a huge pipeline. There's been a lot of delays. It seems like things have pushed back. And most of it is at the state or the county level.

[Clay Whitson, executive]

I think Courts are a big opportunity on top of utilities going forward.

[Gregory Daily, executive]

Yes, that could be huge.

[Matthew VanVliet, analyst]

Okay. Very helpful. And then maybe just one more on the potential sale of the Merchant Services. I guess it seems like over the last couple of years being able to go in with a combination offering of powerful software with embedded payments into it would run a little counter to then being -- looking to sell off the business.

So I guess, what type of stipulations or contractual obligations might you include in terms of keeping that -- the payment side of the business if sold to a third party involved in kind of what you're doing, maybe more importantly, on the growth pipeline ahead. And then how does that change your go-to-market strategy if it's not an internally owned Merchant Services attached to the software?

[Gregory Daily, executive]

Okay. Great question. I'm glad it's -- so let's make this clear. We're still in the payments business. We're still selling payments every day through our software and Public Sector, government, utilities, Education and Healthcare. We're selling everything else. So we're keeping payments in our owned software within public sector. But if there was a business that's not in those verticals, that's where we're selling.

[Rick Stanford, executive]

And a good way to think about it is we're going to continue to sell the payments in our primary verticals. Once the sale is complete, then we'll flip it over the fence for onboarding and support thereafter with the buyer.

[Gregory Daily, executive]

Our plan is to go to market mine software companies and then the cream on top is being able to sell payments into their installed base and new customers...

[Operator]

And now we have a question from Charles Nabhan from Stephens.

[Charles Nabhan, analyst]

I wanted to follow-up Pete's earlier question around a potential deal. And I could appreciate that there's a range of possible outcomes, but curious how we should think about the breakout of corporate across the segments?

[Clay Whitson, executive]

Corporate -- annual corporate expenses in the low $20 million, we think 20% of that might be reduced with the sale of the Merchant Services segment.

[Charles Nabhan, analyst]

Roughly?

[Clay Whitson, executive]

That's what we've identified so far. That number will likely we'll guide over time as we examine it a little more closely.

[Charles Nabhan, analyst]

Got it. Okay. And good to see the strike in Manitoba has been resolved. But curious if you could quantify the impact that's had on the -- on financials thus far this year, speak to your expectations in terms of like getting things up and running again there as well as what that can mean for growth?

[Geoffrey Smith, executive]

Yes. This is Jeff. So while the strike is over, the project has continued to push out as they kind of had to ramp back up and get people back to the table, get stakeholders factory engaged. So there's 3 phases to it. The second phase will go live later this year. It's been ready for the better part of the last year, but the strike delayed all of that.

And then the requirements for the third phase will be getting built out later this year. There won't be a lot of revenue from that until the following year, and it'll trail out from there. It's a meaningful amount of revenue that has pushed back out of this year from when we guided back in the fall, ballpark nearly $2 million just from that one deal.

[Charles Nabhan, analyst]

Okay. And if I could speak -- if I could sneak in one more. Any comments you can make on the vertical or channel exposure within Merchant Services? I know a chunk of it is restaurant. But any color you could provide based on previous disclosures would be, I think would be helpful.

[Clay Whitson, executive]

Well, we have what we think of as partners, ISOs and ISVs, POS is a good portion of the business. We're a reseller of Aloha and we have our own proprietary POS system, B2B is a good category. But those would be the biggest portion on it.

[Operator]

And our next question comes from Alex Markgraff from KeyBanc Capital Markets.

[Alexander Markgraff, analyst]

Greg, just wanted to follow up on your earlier comment on kind of the go-to-market thought process in the event of the sale of merchant services business. It sounds like the kind of bottom line is little to no change. I'm just curious, categorically, are there any sort of dis-synergies associated with that potential sale? I mean, again, it sounds like no, but I just want to maybe put a finer point on that topic of dis-synergies.

[Gregory Daily, executive]

There's not. I mean obviously, 100% of our focus being on Public Sector, Education and Healthcare, I think, is a primary goal also. So better balance sheet, 100% focused on our software businesses. The Merchant Service has been a great business, steady fantastic team. They've always kind of been separate from our software business.

[Alexander Markgraff, analyst]

Okay. That's great. And then just one more quick one on the exploration of the sale. I mean it sounds like, as you all have shared this morning, just more narrow and focused on certain aspects of software. I guess, is there any way that the -- your MO around M&A might change in the event of a sale? I mean -- or is it simply just kind of accelerating and pushing further into the pipeline than you maybe could have with the Merchant Services business on board?

[Gregory Daily, executive]

Yes. I mean since going public, all we've done is software businesses, that will continue. Most of them will be Public Sector, but we do have some things in our pipeline of Education and Healthcare.

[Clay Whitson, executive]

I don't think any change...

[Gregory Daily, executive]

No.

[Alexander Markgraff, analyst]

Okay. So nothing that, I mean, I guess, is not addressable today, having the Merchant Services business in the model, it's more just pushing further into that pipeline. Is that a fair characterization?

[Clay Whitson, executive]

Yes...

[Operator]

[Operator Instructions] We'll proceed with a question from Rufus Hone from BMO Capital Markets.

[Rufus Hone, analyst]

Just 2 quick ones. You mentioned using the proceeds of any sale mostly going to paying down debt. I don't know if you could give us a sense of the leverage ratio you're potentially going to be targeting as a pure Software and Services business. And then the second question is really around the size of target acquisitions you're expecting to complete this year. I know in the past, you've talked about sort of $1 million to $5 million of EBITDA being your sweet spot? Just seeing if there's any update to that.

[Clay Whitson, executive]

Well, our leverage will start off at near 0. I think we haven't put a number on it, but I don't think we will run quite as high in the future, and that's a big driver for doing this. As far as acquisition size, I don't think much changes. It's still our sweet spot, $1 million to $5 million. But we've done larger deals. We've done $10 million. I really don't think that changes in the future.

[Operator]

And we have a follow-up question from Peter Heckmann from D.A. Davidson.

[Peter Heckmann, analyst]

So just to put a little bit of, again, a finer point on it, and I know that any sale is going to be contingent on the buyer and what assets they want and don't want. But if we look at fiscal '23 under your kind of alternative revenue breakdown, payments was 45% of revenue last year and the merchant services was 37%. So if you consider divesting majority of Merchant Services, then kind of on a pro forma basis, payments would go from being 45% of the revenue stream to kind of maybe like 15% to 20% with the vast majority of the rest being software, maintenance or SaaS. Is that the way to think about it?

[Clay Whitson, executive]

Well, that's very close, Peter. In the last quarter, payments were 25% of the Software and Services segment. So that's probably a better number to use.

[Peter Heckmann, analyst]

Okay. Okay. 25%. All right. All right. We will -- and do you have any time line for this type of transaction? Should we expect to hear something in the next 3 to 4 months? Or could it take longer?

[Gregory Daily, executive]

Hopefully, it's sooner.

[Peter Heckmann, analyst]

Great. Okay. We'll look forward to hearing more details.

[Operator]

And we have a question now from James Faucette from Morgan Stanley.

[James Faucette, analyst]

I just wanted to ask, just from a -- like you guys -- and you've highlighted multiple times just that you've been focused on building out the software part of your business and that kind of thing. And from a strategic focus, associated in the direction you'd like to go. I think that's consistent. I'm just wondering how you're thinking about the proceeds in capital allocation? And if you're able to execute a sale, should we expect that, that pace of acquisition and can accelerate?

Or are you feeling like this is something that makes sense given what you're seeing in the -- from a valuation perspective in the market. Just wondering if there's pricing and capital related considerations in the timing? Or is this purely just you've reached the stage of mix and strategic focus that now is the right time? Just trying to tease out that nuance.

[Gregory Daily, executive]

So I think our timing is good. We do plan to spend around $100 million a year. It feels about right. That's what we're able to digest. We're not going to do stock buybacks. It's going to be -- our capital is going to be deployed toward M&A in our software verticals.

[Operator]

And this concludes our question-and-answer session. I would like to turn the conference back over to Greg Daily for some closing remarks.

[Gregory Daily, executive]

Well, thanks, guys. This has been a very interesting 3 or 4 months to be able to get to this point. We're excited about the next couple of months and...

[Operator]

And the conference has now concluded. Thank you very much for attending today's presentation. You may now disconnect, and have a great day.