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i3 Verticals (IIIV): analysis traps
Where its figures could mislead a reader, and what to check before taking them at face value · Data: Q3 FY26, to Jun 30, 2026, filed Aug 7, 2026; rules v1.1
i3 Verticals (IIIV): 2 rules of 10 triggered on the filings to Jun 30, 2026: adjusted profit = economic profit; stock compensation added back = no economic cost. 1 to review; 1 with insufficient data; 3 not applicable. Each is a question to verify, with the normal explanation that would produce the same figures.
Check these first
Adjusted profit = economic profit Triggered · severity high · confidence low
Adjusted EPS was at least 10% above GAAP in 3 of the last 3 quarters (on average 66% above). Costs excluded every quarter (restructuring, stock compensation, amortisation of acquired intangibles, litigation) are a recurring cost of the business, not a one-off.
Innocent reading: A genuine one-off this year (an impairment, a settlement) that happens to span several quarters.
Stock compensation added back = no economic cost Triggered · severity medium · confidence high
Stock compensation was $18M, 8.6% of revenue, in FY25; buybacks were $38M (2.0× the SBC) and the diluted share count still rose 0.9%. 'Adjusted' figures that add SBC back treat pay in shares as free; the cost is borne by every shareholder as dilution, or by the cash spent to buy the shares back.
Innocent reading: A young company paying in equity while it scales; intensity falls as revenue grows.
A precise DCF value = the true value To review · confidence high
The DCF's point value is 3.98 a share (price 15.98); 29% of it is the terminal value, a number about years no one has seen. Moving operating margin by ±3 pts alone takes it from -0.30 to 8.06; across every method the research ran the range is -38 to 123. The value is a range; the decimals are not information.
Innocent reading: A stable, mature business with a narrow range of outcomes, where the point value is a fair summary.
Every rule
A01 FCF growth = the business improved Not triggered confidence high
Free cash flow did not rise ($45M → $4M): the trap does not arise.
The figures and how they are read
| Fiscal year before | FY24 |
| Fiscal year | FY25 |
| Operating cash flow, year before | $48M |
| Operating cash flow | $6M |
| Capex, year before | $3M |
| Capex | $2M |
| Free cash flow, year before | $45M |
| Free cash flow | $4M |
| Change in FCF | −$42M |
| Change in capex | −$1M |
| Working capital: change in its cash contribution | −$76M |
FCF = operating cash flow − cash capex; ΔFCF = ΔOCF − ΔCapEx; the working-capital part is the change in the cash-bridge items (receivables, inventory, payables, accruals), with the sign of the cash flow statement
Source: FY25 (cash flow statement, fiscal year) · FY24 (cash flow statement, fiscal year before)
A07 Stock compensation added back = no economic cost Triggered severity medium · confidence high
Stock compensation was $18M, 8.6% of revenue, in FY25; buybacks were $38M (2.0× the SBC) and the diluted share count still rose 0.9%. 'Adjusted' figures that add SBC back treat pay in shares as free; the cost is borne by every shareholder as dilution, or by the cash spent to buy the shares back.
The figures and how they are read
| Fiscal year | FY25 |
| Stock compensation | $18M |
| Revenue | $213M |
| SBC / revenue | +8.6% |
| Buybacks | $38M |
| Buybacks / SBC | 2.0 |
| Diluted shares, year before | 33.9M shares |
| Diluted shares | 34.2M shares |
| Diluted shares: change | +0.9% |
SBC / revenue from the cash flow statement's add-back; the diluted weighted share count year over year; buybacks from the financing section
Source: FY25 (stock compensation, buybacks and the diluted share count, fiscal year)
What would explain it innocently
- A young company paying in equity while it scales; intensity falls as revenue grows
- Buybacks at prices below intrinsic value make up for the dilution over time
- A one-off grant (an acquisition, a founder award) rather than a steady level
What to look for in the filing
- The share count after the latest buybacks (the next 10-Q's cover)
- The price paid for the buybacks against the shares' value
- Unvested awards outstanding
What would show the trap does not apply
- The diluted share count falls over two years with buybacks at least equal to the stock compensation
- Stock compensation falls as a share of revenue in each of the next two years
Look again: next filing.
B02 Receivables growing = future cash is certain Not triggered confidence medium
Receivables grew -2% against revenue 2% in Q3 FY26; DSO 89 against a median of 90: collections are keeping pace with sales.
The figures and how they are read
| Quarter | Q3 FY26 |
| Revenue, year over year | +2.2% |
| Receivables, year over year | -1.9% |
| Quarter before | Q2 FY26 |
| Revenue y/y, quarter before | +6.2% |
| Receivables y/y, quarter before | -2.5% |
| Days sales outstanding | 89.0 |
| DSO, median of eight quarters | 90.0 |
| Receivables | $49M |
| Revenue | $53M |
receivables and revenue against the same quarter a year earlier; DSO = receivables / quarterly revenue × days, against the median of the eight quarters before
Source: Q3 FY26 (receivables and revenue) · Q3 FY25 (the same quarter a year earlier)
B08 Adjusted profit = economic profit Triggered severity high · confidence low
Adjusted EPS was at least 10% above GAAP in 3 of the last 3 quarters (on average 66% above). Costs excluded every quarter (restructuring, stock compensation, amortisation of acquired intangibles, litigation) are a recurring cost of the business, not a one-off.
The figures and how they are read
| Quarter / adjusted EPS / GAAP EPS / gap | 2025-12-31 / 0.26 / 0.02 / 0.923; 2026-03-31 / 0.32 / 0.07 / 0.781; 2026-06-30 / 0.25 / 0.18 / 0.28 |
| Quarters with adjusted ≥ 10% above GAAP | 3 |
| Quarters compared | 3 |
| Latest gap | +28.0% |
the analysts' 'actual' (usually the company's adjusted EPS) against GAAP net income ÷ diluted shares for the matching quarter; a gap of 10% or more counts (the stand-in until three releases' reconciliation tables are on file)
Source: 2025-12-31 (adjusted 0.26 vs GAAP 0.02) · 2026-03-31 (adjusted 0.32 vs GAAP 0.07) · 2026-06-30 (adjusted 0.25 vs GAAP 0.18)
What would explain it innocently
- A genuine one-off this year (an impairment, a settlement) that happens to span several quarters
- Amortisation of acquired intangibles, which many investors also exclude by choice
- The analysts' 'actual' is not the company's own adjusted figure
What to look for in the filing
- The reconciliation table in the earnings release: which items, how much, how often
- Whether the same items were excluded in earlier years
What would show the trap does not apply
- The reconciliation shows the excluded items ending (a restructuring with its final charge, a settlement paid) and the gap to GAAP closes in the next quarters
- The excluded items are only amortisation of acquired intangibles and the cash paid for the deals is in the investing cash flow
Look again: next filing.
C02 Low net debt = no refinancing risk Insufficient data
no debt figure could be read from the balance sheet (the filing may tag it in other lines)
D03 EPS growth = profit growth Not triggered confidence high
EPS fell 53% and net income fell 73% in Q3 FY26; the share count fell 42.4%: EPS growth follows profit growth.
The figures and how they are read
| Quarter | Q3 FY26 |
| Quarter before | Q3 FY25 |
| EPS, year before | $0.38 |
| EPS | $0.18 |
| Net income, year before | $13M |
| Net income | $3M |
| Diluted shares, year before | 33.9M shares |
| Diluted shares | 19.5M shares |
| EPS growth | -53.2% |
| Net income growth | -73.0% |
| Diluted shares: change | -42.4% |
| eps from profit | -$0.28 |
| eps from share count | $0.08 |
EPS and net income against the same quarter a year earlier; the EPS bridge attributes the change to profit first, then to the share count (the order is fixed and disclosed)
Source: Q3 FY26 (net income, diluted shares, EPS) · Q3 FY25 (the same quarter a year earlier)
E02 Low P/E at a cyclical peak = undervalued Not applicable
a loss on a trailing or mid-cycle basis: the P/E has no meaning
E07 A precise DCF value = the true value To review confidence high
The DCF's point value is 3.98 a share (price 15.98); 29% of it is the terminal value, a number about years no one has seen. Moving operating margin by ±3 pts alone takes it from -0.30 to 8.06; across every method the research ran the range is -38 to 123. The value is a range; the decimals are not information.
The figures and how they are read
| dcf value | 3.98 |
| price | 15.98 |
| terminal value share | +28.9% |
| swing by input | Operating margin / ±3 pts / -0.3 / 8.06; Revenue growth (each year) / ±5 pts / 2.67 / 5.5; WACC / ±1 pt / 3.19 / 5.13; Capex (share of revenue) / ±1 pt / 3.47 / 4.49 |
| range all methods | -38.15; 122.71 |
the DCF's point value against the share of it that is the terminal value and the value at each input moved by one step (growth ±5 pts, WACC ±1 pt, margin ±3 pts …); the range across every method the research ran
Source: 2026-11-08 (valuation research)
What would explain it innocently
- A stable, mature business with a narrow range of outcomes, where the point value is a fair summary
- The inputs that matter most are themselves well known (a regulated return, a long contract)
What to look for in the filing
- Which input you believe differs from the research's and why
- What the price implies for growth (the reverse DCF on the fair-value page)
What would show the trap does not apply
- The DCF's value is robust to the terminal growth and discount rate (the range's low end is still above the price)
- The company's cash flows over the next three years track the DCF's early years
Look again: next filing.
J06 A bank's low P/E and high profit = safe Not applicable
not a bank
J08 A REIT's low net income = the dividend is unsafe Not applicable
not a REIT
What the statuses mean
Triggered: the filings show the pattern; read the normal explanations and the missing evidence before concluding anything. To review: one quarter or a weak signal; a reader's judgement, not a pattern. Not triggered: the pattern is absent on these figures. Insufficient data: the filings read so far do not hold what the rule needs; this is not a clean bill. Not applicable: the rule is not meant for this kind of company (a bank's working capital, a loss-making quarter's EPS growth). Out of date: the latest filing is more than fifteen months old.
Severity is what the pattern could mean for cash, value or solvency; confidence is how reliable the inputs and the reading are. The two are kept apart.
Record a view
A reader's judgement, grounds, what would change it and the next review; kept in the browser (needs JavaScript).
Every rule and the companies it triggers on → i3 Verticals: cash flow → Earnings quality score →
Each rule reads the company's own filings by a fixed formula and says what would explain the same figures innocently. A triggered rule is a question to verify, not a finding of manipulation, and not a view on the stock. Missing data is shown as missing, never as clear. Not investment advice.