i3 Verticals, Inc.

Good day, everyone, and welcome to the I3 Vertical's first quarter 2021 earnings conference call. Today's call is being recorded, and a replay will be available starting today through February 16th. The number for the replay is 719-457-0820, and the code is 392-0238. The replay may also be accessed for 30 days at the company's websites. At this time for opening remarks, I would like to turn the call over to Mr. Scott Merriweather, Chief Operating Officer. Please go ahead, sir.

Good morning and welcome to the first quarter 2021 conference call for I3 Verticals. Joining me on this call are Greg Daley, our Chairman and CEO, Clay Whitson, our CFO, and Rick Stanford, our President. To the extent any non-GAAP financial measure is discussed in today's call, You will also find a reconciliation of that measure to the most directly comparable financial measure calculated according to GAAP by reviewing yesterday's earnings release. It is the company's intent to provide non-GAAP financial information to enhance understanding of its consolidated financial information as prepared in accordance with GAAP. This non-GAAP information should be considered by each individual in addition to, but not instead of, the financial statements prepared in accordance with GAAP. 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 and the expected and potential impact of the COVID-19 pandemic. 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, including risk and uncertainties associated with the COVID-19 pandemic. Consequently, actual operations and results may differ materially from the results 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. And now I'll turn the call over to the company's Chairman and CEO, Greg Daly.

Thanks, Scott, and good morning to all of you. We're pleased with our first quarter 2021 results. i3's focus has been to be squarely in the intersection of software and payments. Our IPO gave us the ability to further pursue our vision of being a software-led company. We are executing on that strategy. In Q1 of 2018, 12% of our net revenue was from software-related revenue. Our first fiscal quarter of 2021, 36% of our net revenue was from software-related revenue. We expect this revenue stream to increase in the future. These statistics do not include the payments revenue driven by our own software. Our integrated payment volume has grown to 56% and we expect continued growth in this area. We believe software and integrated payments are the future in our market. Our core business continues to recover. As expected, there was volatility in our payment volume in the first fiscal quarter as COVID-19 restrictions were reinstituted around the holiday season. We will see some of these effects in our second fiscal quarter, but are encouraged by the discussions to reopen more of the economy. The progress in vaccinations, financial stimulus talks should also aid in the return in our core business. The increases in our software revenue that I mentioned previously have offset some of the impact of our payment volume volatility. Approximately half of our payment revenue within K through 12 comes from lunch payments and free lunch program for students will continue through the end of the current school year. We are hopeful about the coming school year and remain committed to this vertical. After pausing our M&A activity at the onset of COVID in early 2020, we began to re-engage on the M&A front and have completed eight acquisitions since July 1. Our most recent acquisition was BIS. It's our largest acquisition to date. The purchase consideration for this transaction included both cash and stock, so we have continued headroom under our credit facility covenants to continue future M&A deals. BIS has a variety of public sector software offerings, some of which include clerk solutions, DMV solutions, and property assessment and tax solutions. BIS expands our state level and local level product offerings. We can now market to public sector vertical at all levels. We have software that performs for individual courts, for cities and municipalities and for statewide systems. We welcome the DIS employees to the I3 family and are excited about the impact they will have on I3. The events of the last year have cemented the I3 vision to execute our acquisition strategy, continue our vertical focus, increase our integrated software and payments, improve our organic growth metrics, and maintain a healthy and entrepreneurial culture. This vision is our foundation. I'll now turn this call over to Clay and he will provide more details on our first quarter financial performance. Following Clay's comments, Rick will provide an M&A update and then we'll open up the call for questions.

Thanks, Greg. The following pertains to the first quarter of fiscal year 21, which is the three-month period ended December 31, 2020. Please refer to the slide presentation titled Supplemental Performance on our website for reference with this discussion. I will start with a sequential discussion, then transition to year-over-year. For the first quarter ended in December, Adjusted net revenues improved to $44.9 million from $38.4 million for Q4, the September quarter, benefiting from four acquisitions completed during the quarter. Likewise, adjusted EBITDA improved to $10.9 million for Q1 from $9.7 million for Q4. Pro forma adjusted diluted earnings per share increased sequentially to $0.22 for Q1, from 20 cents in Q4. Again, please refer to the press release for a full description and reconciliation. Volumes have regained most of the altitude they lost in the spring, but the recovery has been slower than we had hoped when we last reported. With resurgent COVID cases over the holidays, many state and local governments renewed lockdowns in many geographic markets. On a year-over-year basis, September and October were down 3% and 4% respectively, but November weakened to 6% and December 7%. The laggards for us have been education, retail, and hospitality, which a number of companies have experienced. We've taken an aggressive approach during the pandemic, renewing acquisition activity that was postponed in the spring. We have completed eight acquisitions since June 30th, pushing public sector to 45% of our business today. We also fulfilled our goals of owning software and two additional verticals, healthcare and nonprofit, which gives us runway beyond the public sector vertical. Our integration percentage improved to 56% for Q1 from 42% for Q1 fiscal year 18 pre-IPO. The most notable move in a metric for the quarter was Q1 software and related services, which represented 36% of total adjusted net revenues, up from 26% last quarter, Q4, reflecting the heavy software weighting of recent acquisitions, particularly ImageSoft. This percentage will move into the 40s, 40% when the BIS acquisition is included, approaching our goal of achieving 50% adjusted software revenues. Adjusted software revenues continued to build during the quarter and well exceeded pre-COVID levels. The bright spot for us continues to be public sector, which dominates our proprietary software segment results. Our nonprofit acquisition had another impressive quarter with high growth over the previous year, and our healthcare acquisition turned in a strong first quarter. On a year-over-year basis, adjusted net revenues increased 8% to $44.9 million for Q1 2021 from $41.6 million for Q1 2020, reflecting acquisitions completed after June 30th, which contributed $9 million during the quarter. High integrated POS declined $1.4 million, reflecting not only the COVID impact in California, but also our ongoing transition to a SAS offering. Our net revenue yield, defined as adjusted net revenues divided by payment volume, increased to 118 basis points for Q1 2021 from 108 basis points for Q1 2020, reflecting software-heavy acquisitions completed since June the 30th. Adjusted EBITDA declined 8% to 10.9 million for Q1 2021, from 11.9 million for Q1 2020, primarily due to weakness in education, hospitality, and retail. Please see the press release for a reconciliation between net income and adjusted EBITDA. Adjusted EBITDA as a percentage of adjusted net revenues was 24.2% for Q1 2021, down from 28.5% for Q1 2020, reflecting fixed cost spread over lower net revenues due to the COVID-19 impact. Corporate expenses as a percentage of adjusted net revenues increased slightly to 6.8% for Q1 2021 from 6.2% for Q1 2020, although the percentage improved sequentially with higher sequential revenues. In the normal course, we expect to improve our adjusted EBITDA margin in the absence of acquisitions, which alter the mix. Segment performance. In our proprietary software and payment segment, adjusted net revenues increased 47% to $20.3 million for Q1 2021, from $13.8 million for Q1 2020, principally reflecting growth in our thriving public sector vertical. but also the inclusion of our nonprofit and healthcare acquisitions for the quarter. Adjusted EBITDA improved 17% to 6.1 million for Q1 2021, from 5.2 million for Q1 2020, reflecting mainly public sector growth, but also the nonprofit and healthcare acquisitions. For Q1, public sector represented over 80% of adjusted EBITDA in the segment. The adjusted EBITDA margin fell to 30% for Q1 2021 from 38% for Q1 2020, reflecting a drop in education profitability and the inclusion of ImageSoft, which carries a margin below 20%. We expect the inclusion of BIS, which carries a margin close to 50%, will lift the segment margin back to the mid-30s percentage points. These gains were partially offset by the decline in our education vertical. On our last conference call, we devoted some time to the outlook for education. And it's playing out about as expected. Many districts like Nashville reopened but sent students home after Thanksgiving and will be returning in phases over the next month. A recent Wall Street Journal article stated that 56% of public school districts were exclusively remote as of December 18th. As mentioned earlier, the USDA has extended its free lunch program for all students for the remainder of the school year, which means we will not see a meaningful increase in payments until the new school year in August. Regardless of how this school year unfolds, we remain committed to the vertical and believe it will perform very well over the medium and long term. Net revenues for our merchant services segment declined 11% to $25.1 million for Q1 2021 from $28.2 million for Q1 2020. Our hospitality vertical was hardest hit with the exposure to California and the transition to a SAS model. Other non-integrated face-to-face business and markets such as retail, restaurant, and T&E have been slower to recover. Adjusted EBITDA for our merchant services segment declined 15% to $7.8 million for Q1 2021 from $9.2 million for Q1 2020. The adjusted EBITDA margin was 31% for Q1 2021 versus 33% for Q1 2020, again reflecting fixed cost spread over a smaller revenue base. Our balance sheet has allowed us to continue to execute our acquisition strategy. On December 31st, we had 49 million borrowed under our revolver, which is a 275 million facility. We have since borrowed 53 million for the BIS acquisition. The face value of our convertible notes are 117 million. Taking into account the BIS acquisition, our pro forma total leverage ratio, which includes the convertible notes, is currently less than four times, while the current constraint is 5.0 times. Multiple paid on the BIS deal conform to less than 10 times adjusted EBITDA. The interest rate for the convertible notes are 1%, while the interest rate for the revolver is currently less than 4%. Over time, we expect to convert roughly two-thirds of adjusted EBITDA into free cash flow, which can either be used for more acquisitions or debt repayment. Looking forward, we've decided to reintroduce guidance for fiscal year 2021. It excludes future acquisitions and transaction-related costs and adjusts for write downs of deferred revenues, deferred software revenues in connection with purchase accounting. Adjusted net revenues, $198 million to $214 million. Adjusted EBITDA, 50 million to 56 million. Depreciation and internally developed software amortization, 4.25 million to 4.75 million. Cash interest expense, 4.25 million to 4.75 million. Proforma adjusted diluted shares, 32.5 million to 34.5 million. and proforma-adjusted diluted EPS 93 cents to $1.06. The economic recovery during the pandemic has been slow and frustrating for most companies, including i3. Against this backdrop, we would expect continued sluggishness in the March quarter and gradual improvement in the June and September quarters, leading to a stronger second half than first half. In our education vertical, we do not expect meaningful improvement until fiscal Q4, when we will anticipate the resumption of paid lunch for a portion of the student population. Since the COVID-19 outbreak, we have announced aid acquisitions which have altered our business mix. To give a better understanding of our current run rates, we have estimated the following representative net revenues by vertical. Public sector, 45%. Healthcare, 10%. B2B, 10%. Hospitality, 10%. Retail, 5%. Education, 5%. Nonprofit, 5%. And other, 10%. We believe we are well positioned for recovering. Our largest vertical is public sector, and we feel increasingly well positioned there. Education has been challenging, but the bright side is that we expect a bigger rebound when normal attendance resumes because we have continued to add districts this year. We now own software and healthcare and nonprofits, so we have a good platform for future growth, and B2B will continue to grow over time. Hospitality and retail only represent 15% of our book now, but they also represent rebound opportunities when the economy normalizes. The convergence of software and payments will continue, and we are on the leading edge of that trend. I'll now turn over to Rick for company updates and M&A activity.

Thank you, Clay. Good morning, everyone. I want to highlight recent progress on a few operational items before I talk about our M&A status, including a few updates on things I've addressed on previous calls. First, a progress update on our unified product offering, or UPO, in our public sector vertical. Our goal is to make a comprehensive suite of products available to each county and city. Examples of our progress include expanding our law enforcement, revenue cycle management, and online dispute resolution systems across all case management systems clients. Distributing a new proprietary electronic signature product across our public sector vertical. This product came with one of our recent acquisitions and it will be a valuable tool for our customers. Lastly, we are extending direct sales into four new states for our utility billing platform. We are motivated by these early UPO accomplishments and are gaining momentum in cross-pollination. On the ISV front, our total number of signed and integrated ISVs at the end of our first fiscal quarter was 73, with four more in the process of integration. Our pipeline for ISVs continues to grow quarter over quarter, and we are actively pursuing additional integrations. Sales are the lifeblood of any organization, and we are dedicated to supporting our sales staff. This past week, over 750 of our sales and non-sales employees from across the country came together for our first virtual sales conference, which was themed Rise Up 2021. We included our non-sales employees to emphasize the importance of our sales efforts and foster a greater sense of community among our people, especially since the pandemic has made it difficult to interact. We had experts speak to resilience, sales activity, and best-in-class customer service. We also had many new proprietary product demos and instruction-based classes. With that, I'll switch gears now and give some detail on our M&A efforts. On Friday, February 5th, we announced the acquisition of Business Information Systems. BIS is based in East Tennessee and provides software and electronic payment solutions to several state and local governments. BIS resides within our public sector vertical. The company was founded in 1977. Over the last 44 years, BIS has continued to grow and succeed with unparalleled products and support designed to meet the needs of their customers. Their products include a motor vehicle solution that offers fully integrated software solutions that facilitate vehicle titling and registration, electronic insurance verification, and print-on-demand dealer drive-out easy tags, land records management software with title search capabilities and property fraud alerts, payment solutions, namely court fee pay, web fee pay for tag renewals, marriage license fees, motor vehicle charges, notary application fees, Concert tickets, park shelter rentals, decal fees, recreational facility enrollment fees, utility flex, and much more. Self-service multifunction kiosks used by county clerks, courts, and trustees. A tax billing and collection system that's a complete software package for collecting real and personal property taxes. And lastly, Smart Tax, a business tax program that allows for tax billing and collections. Both Chris Lazor, CEO, and Gary Shipley, CFO, have put together an amazing business driven by many talented people, and we're excited to have them as part of the I3 team. It should be noted, as Clay said earlier, we continue to be disciplined in our approach, and the BIS deal was completed within our standard multiple range. Finally, our M&A pipeline is very healthy and has an emphasis on public sector, healthcare, and education. We look forward to sharing more on the acquisition front in the near term. This concludes my comments, Michelle. At this time, we'll open the call for Q&A, please.

Thank you. The question and answer session will be conducted electronically. If you would like to ask a question, please press star followed by the digit 1. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Once again, star 1, and we'll pause for just a moment. And our first caller today, we'll hear from John Davis with Raymond James.

Hey, good morning, guys. Good morning. Rick and Greg, maybe just want to touch a little bit on the BIS acquisition and maybe what products they have that you can then cross-sell through the rest of your public sector business. You know, just basically what's the revenue synergy opportunity above kind of their normal run rate today?

Good question. They have four or five states that they have big presence in. And we don't feel like that we're going to be able to sell their product across our installed base quite yet. But they are very excited about selling our products into their installed base. So they are a level or two above where we normally are. We're usually in the county, city, They're more at the state level, larger contracts. And so they have built their business around very key relationships. I met with them Friday, and they feel very confident that there are four or five of their products that they're going to have a bonanza being able to sell into their existing client base.

Okay, that's helpful. So it's more taking your products into theirs versus vice versa, but still some synergy opportunity on the top line. Okay. And then, Clay, appreciate all the color on the monthly trends. I think you said December was down seven. Any update on January that you can give, at least relative to December?

Well, January was down again. February in the first part of the month seems to be up. So I think it's a little early to say what the March quarter, I mean, the March quarter is going to look like in total, but things do seem to be improving now, but January was, was weak, just like December. Okay.

That's helpful. And then, you know, maybe just a comment, generally speaking on public sector, organic growth. If I think back to before you went public, I think it was less than 20% of your revenue. We said 45% historically, you've said that your acquisitions are growing faster. So if I just look at your public sector business in a vacuum, and obviously try and I guess somewhat normalized for COVID is, you know, is that where your organic growth profile of that piece slightly above kind of the high single digit range in line with the high single digit? Just trying to think now it's almost half the business. How should we think about organic growth for public sector?

Yeah, we think in terms of 10% growth for the public sector vertical, which is above the rest of our business.

Okay, great. And then last one for me, I think, you know, 4Q REVs were definitely stronger than I was expecting, as well as kind of the guide Just curious, what's going better? Any positive surprises? You know, is this mostly image soft? Just curious there on any color, because I think the revenue outlook for the year is certainly better than most expect, especially when you adjust for 50% margins at BIS.

Yeah, so image soft is a needle mover for sure, and BIS will be as well. But software is what's going well for us. It really ramped up in Q4. We've always had an internal goal of getting to 50% software and 50% payments. And we're getting pretty close now. So we're excited about that. And it couldn't have come at a better time. Software revenues have been so much more resilient than payments revenues during the pandemic.

Okay, super helpful. Thanks, guys. Thank you.

And next, we'll move to Peter Heckman with Davidson.

Hey, good morning, gentlemen. Thanks for taking the question. So just for clarification, I'm just doing some back-to-the-envelope math here, but the annual revenue run rate related to BIS might be kind of high teens to $20 million. Does that seem about right?

Yeah, I would use the standard math here we've mentioned on some previous calls that if you take the purchase price and divide by 10 for EBITDA and then multiply times two for revenues, their margin is very close to 50%.

Okay, got it. And then just in terms of that higher ed product for tuition payments, Certainly the fourth quarter would be an off-seasonal quarter, but can you talk about any progress you've made there and if you expect that to be a contributor in the 2Q?

Yeah, so you're right. We got a good contribution from that in the September quarter. We did not this quarter, but we will again in the March quarter as tuition ramps up. It's mainly ACH, bigger ticket items. Parents tend to gravitate more to ACH. And so the profit contribution is thinner than normal business, but it will give us some pretty good volume in the March quarter.

Got it. Got it. Okay. And then just lastly on BIS, who would you say now that between the BIS, ImageSoft, some of the other businesses, would that be most similar in terms of kind of competitors to maybe like a Central Square or a Tyler? Is that the right competitive level at the state and local or at the municipal level?

Yeah, I think your Tyler example is a perfect fit. Great. Okay, thanks much. Thanks, Pete.

And next, we'll move to George Mihalos with Cowan.

Good morning. This is Allison on for George. Thank you for taking my questions. Just to follow up to the last question, given the size of the BIS acquisition, since this is a larger acquisition than we've seen in the past, is the right way to think about the strategy going forward that this is the new normal since you're now a bigger company? Or was this more of a unique situation?

I wish that that was, we have more of those. You know, I think we'll do four or five a year. One of them per year may be this size. but the other three or four will be kind of in our sweet spot of two to five million of EBITDA.

Okay, great. Thank you. That's helpful. And then just one follow-up from me on the outlook. The midpoint of the outlook suggests a 20-bit of margin expansion from fiscal year 20. What is driving that to be lower than your long-term outlook? I know you mentioned mix earlier in your commentary, but any more color there would be helpful. Thank you.

Well, I think in the first half, our comparisons will be below last year margin-wise, like you saw this quarter, with BIS being the main driver and education being down. In the second half, I think we'll have favorable margin comparisons and BIS being the big driver there. So netting out for the year, it's pretty similar to last year, but it's It's all driven by mix. When we get back into a growing economy, we'll get leverage on that corporate expense line and we'll get back to, I think you're referring to, we traditionally said we expect in the normal course to expand our margins 50 to 100 basis points a year.

Okay, great. Thank you for taking my questions.

And next, I move to Jason Kupferberg with Bank of America.

Hi, this is Cassie Chan on for Jason this morning. So first, I just wanted to ask a clarification question. I don't know if you've already asked this, but how much M&A is kind of baked into your fiscal 21 guidance at this point? And yeah, so that's just my first question.

Yeah, that's a good thing for me to clarify. We don't bake in any acquisitions that have not closed. So that guidance only is comprised of companies that we already own.

Oh, okay. Got it. Got it. So that just means that BIS is already baked in there, but nothing else. Okay. That's good. And then secondly, I just wanted to ask on margins. I know it kind of dips a bit quarter over quarter. Is that within your expectations and the Are there sort of salary increases or investments, you know, that we can kind of expect or saw this quarter? And at this point, are all the costs that were taken out, you know, fully baked back into the business?

The costs are fully baked into the business now. We are beginning to reinvest. If you follow the previous conference calls, we – went through some cost containment and didn't pay bonuses this past year. We expect to resume that this year. And we have hired select people, and we have resumed a normal raise environment. But what you're seeing in the fourth quarter, in the December quarter, is a fully baked expense load going forward, with the exception of BIS, of course.

Got it, got it. And then just a final question for me to slip in there. How much, I know you guys don't break apart, you know, revenue by vertical, but how much of a collective headwind to growth was education and retail and hospitality for the quarter? And what kind of growth are you assuming in your 2021 forecast? Thank you.

Well, hospitality, we did give a number that it declined 1.4 million. let me find that yeah 1.4 million was the decline in hospitality and part of that is we're transitioning to a SAS model so that was a headwind there I think we'll have a flat year in hospitality in 2022 and it'll resume growth in 2023 that's I mainly a function of the SAS transition. Education, we said last quarter we expected 50% of what we normally get from education. And the payment side of that is about $10 million a year. And so we're missing $5 million from that. But we do have fixed costs in education. So the profit impact is more like 75%. And so education's profitable, but not very right now. And then T&E, you know, travel, restaurants, that sort of thing. It's all down, I would estimate, 20%. It really varies by region. We've got pretty heavy exposure in California. But when the economy normalizes, we'll get a bounce back there as well.

Thanks, guys. Very helpful.

Thank you.

And next, we'll move to Josh Beck with KeyBank.

Thanks, team, for taking the question. Clay, I wanted to unpack your software comment a little bit. It sounds like that's an area of the business that is performing really well. Maybe you could just help us. kind of double click within that software revenue stream, maybe help us understand, you know, maybe just qualitatively what's the composition between say perpetual and SAS and what are the, you know, going to be the major drivers of success in that slug of business moving forward.

We're about half perpetual and half SAS right now. But I will say, most all of our businesses are transitioning more and more to SAS. ImageSoft's a good example of that. They started the transition maybe two years ago. And over the next two years, they'll become almost all SAS. I'll put it this way, all their new business is now SAS. BIS, I would estimate, 80% of their revenues are SaaS as opposed to Perpetual. So that's where we stand now. You know, it really depends on the customer. Some of them prefer Perpetual. Some of them, most nowadays, prefer SaaS. But we do have a big swap of customers that still want Perpetual.

We're pushing SaaS. I mean, that's what we're leading with. And in is being received well.

Okay, that's helpful. And just trying to unpack some of the guidance commentary, I think it's really helpful that you were able to put out the number for the full year, so I appreciate you doing that. With respect to the March quarter, just trying to understand what is a good starting point obviously you said it's a little too early to probably predict, but at least, you know, maybe from, I'm not sure if you just, for example, run rated what's happened so far, if we'd be kind of flattish sequentially, if we'd be down, obviously there's seasonal factors, M&A factors, there's many moving parts. So any, you know, other color you can share just to maybe help us shape up our models a little bit, particularly with respect to your fiscal 2Q?

Well, it will increase. ImageSoft, we only have two months in the December quarter. We have November, December, so we'll get three months of ImageSoft Q in the March quarter. BIS will get two months in the March quarter, but three months in the June quarter. They start at February 1st. So those are the two main things to tweak. Volumes tend to be weaker January, February, March than they do October, November, December. But retail restaurant where you see a lot of that is becoming a smaller part of our business. So the two adjustments I would make if I were you are ImageSoft and PIS. And then from a margin perspective, I think it'll be pretty similar to Q1. And then the second half will be noticeably better.

Okay. That is really helpful. Thank you for that, Clay. And then just, you know, when you think about, you know, what's transpired in the last year, Obviously, you've had some really good momentum in public sector and some nice break-ins into healthcare. I'm just curious if it's, and you obviously met with many companies, potential acquisition candidates. Has it made you in any ways want to reorient or emphasize different sectors that you want to focus on, say, maybe not necessarily this year, but more in the mid to long term? I'm just curious if it's maybe made retail, for example, less interesting and maybe some of these more perhaps non-discretionary areas more appealing. Just curious strategically if it's driven any notable change on where you want to take the business in a longer term horizon.

Sure. I think we are in the early innings, and we do tweak our pipeline. We would like to do more in healthcare and nonprofit, but our pipelines, probably 20, 25% of that, 50% is still public sector. We really like utility billing. You know, I think we've told everybody that we love D2D, but it's expensive. And so I'm not optimistic about doing any further deals in D2D. I'm in love with what we have. But that's kind of, you know, focusing on public sector because with VIS and ImageSoft, We're ready for just about anything. We're growing up quickly. And our existing companies that we have had for a year or two performed phenomenally well through the pandemic. So, you know, we're excited with these latest two additions being ImageSoft and BIS to put up some big numbers in the public sector.

Thanks, Craig. That's really helpful. Thank you.

And as a reminder, please press star 1 if you would like to ask your question. Next, we'll move to Chris Donat with Piper Sandler.

Good morning, gentlemen. Thanks for taking my questions. I wanted to just follow up on the last comment about the B2B sector being more expensive. I've heard from some larger payments companies when they think about their acquisition strategy that they've seen a valuations bid up some of that is from the the SPAC activity and some just from other sources but but if you think about targets out there beyond b2b have you seen acquisition sort of normal or are they getting bid up as sort of a knock-on effect from SPAC activity well we're in a little unique situation we self source all of our deals we're looking for companies that aren't for sale and

our lead source comes from our CEOs of companies that we already own. So, you know, we go in with what we feel like is a very fair proposition with our story, giving them autonomy, they're part of a team, taking care of their key employees, and that seems to be received well from older software companies, and you really don't see that in the B2B world. We're not focused on acquiring anything else in that space at this time.

Okay. Thanks for that. And then just one clarification on the revenue mix play that you gave. That is revenue mix as of fiscal first quarter, right? That's not sort of a normalized revenue base post pandemic in terms of like the 45% of revenue being public sector. I'm just asking because we think about the future that like education should theoretically double right in the second half of the year or in September quarter.

I'm glad you asked that question. It's a fiscal year 21 mix, including BIS, so it is normalized for BIS, but it's not a post-COVID thing. The education assumption is that it comes part of the way back in the September quarter, but not all the way back. I still think we're going to have some social distancing and whatnot in schools, so I don't see it being 100% of what it was.

uh two years ago or last year and and well 2019 um but yeah it's sort of a run rate i guess that's the best way to think about it okay and then just one last one for me on the the software uh being about 20 million of revenue for the quarter should we should we think about that as a run rate or is there anything special in the the december quarter um I know it bounces around a little bit, but it certainly seems more sustainable and with the SAS model, just trying to think about future quarters for software.

I used to call out when there was big one-time revenues like perpetual licenses or whatever so people could normalize for that. We have so many different software companies, it's hard to keep up with. We are publishing that monthly thing. And if you look at that in the supplement, you can see that November, December took a step up. And ImageSoft is the main reason for that. So we'll get three months of that this March quarter. And then with VIS, we'll take another step up. But no, nothing out of the ordinary in the December quarter, for sure.

Okay, thanks very much.

And that will conclude the question and answer session. At this time, I would like to turn the call back over to Mr. Greg Daley for any additional or closing remarks.

Again, thank you guys for joining us this morning. I'd like to give a shout out to our team that has performed phenomenally well over the past 12 months in the pandemic. And especially Rick Stanford, our Tom Brady of M&A, has done an amazing job. So thank you guys for your support. We'll talk to you next quarter.

And that will conclude today's call. We thank you for your participation. You may now disconnect.