i3 Verticals (IIIV) recently entered into a definitive agreement to sell its merchant of record payments business to Payroc WorldAccess, LLC, in an all-cash deal worth $440 million. The proceedings from the transaction will provide i3 Verticals with a substantial infusion of liquidity that will help it meet immediate financial needs. IIIV's merchant of record payments business uses application programming interfaces ("API") to simplify transaction processes. These APIs eliminated the need for Payment card i ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2024 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number: 001-38532 i3 Verticals, Inc. (Exact name of registrant as specified in its charter) Delaware 82-4052852 (State or other jurisdiction of incorp ...

i3 VERTICALS REPORTS SECOND QUARTER 2024 FINANCIAL RESULTS NASHVILLE, Tenn. (May 10, 2024) – i3 Verticals, Inc. (Nasdaq: IIIV) ("i3 Verticals" or the "Company") today reported its financial results for the fiscal second quarter ended March 31, 2024. Highlights for the second quarter and six months ended March 31, 2024 vs. 2023 -MORE- • Second quarter revenue was $94.5 million, an increase of 0.7% over the prior year's second quarter. Revenue for the six months ended March 31, 2024, was $186.5 million, an in ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 2023 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number: 001-38532 i3 Verticals, Inc. (Exact name of registrant as specified in its charter) Indicate by check mark whether the registrant (1) has f ...

Part I [Business](index=8&type=section&id=Item%201.%20Business) i3 Verticals provides integrated software and payment solutions to strategic vertical markets, primarily the Public Sector and Healthcare - The company builds, acquires, and grows software solutions in strategic vertical markets, with a focus on integrating payment platforms[20](index=20&type=chunk) - Revenue from software and related services grew to **50% of total revenue** for the twelve months ended September 30, 2023, a significant increase from **5%** in fiscal 2017[21](index=21&type=chunk) - A core growth strategy is disciplined acquisitions, with **48** completed since 2012, which have expanded market presence and solution capabilities[22](index=22&type=chunk) [Our Segments](index=10&type=section&id=Item%201.%20Business%23Segments) The company reports its operations in two primary segments: Software and Services, providing vertical market software solutions, and Merchant Services, offering comprehensive payment solutions - Software and Services segment: Delivers vertical market software solutions, often with embedded payments or recurring services[24](index=24&type=chunk) - Merchant Services segment: Provides comprehensive payment solutions, including third-party integrated and traditional merchant processing[25](index=25&type=chunk) [Our Products and Solutions](index=10&type=section&id=Item%201.%20Business%23Products%20and%20Solutions) i3 Verticals offers diverse software and payment technology solutions tailored to its strategic vertical markets, including Public Sector and Healthcare - Public Sector solutions include software for judiciary, motor vehicles, utility billing, finance/ERP, and public safety, often with embedded payments[28](index=28&type=chunk)[29](index=29&type=chunk)[35](index=35&type=chunk) - Healthcare solutions cater to providers and payers, offering EHR, practice management, revenue cycle management, and patient engagement tools[30](index=30&type=chunk)[31](index=31&type=chunk)[32](index=32&type=chunk) - The company's payment technology includes a proprietary platform with an API suite for merchant processing, ACH, and payment facilitation, featuring point-to-point encryption and PCI-compliant security[33](index=33&type=chunk)[34](index=34&type=chunk)[36](index=36&type=chunk) [Human Capital](index=14&type=section&id=Item%201.%20Business%23Human%20Capital) As of November 21, 2023, i3 Verticals employed approximately 1,663 people across 42 states and two countries, with none represented by unions - As of November 21, 2023, the company had approximately **1,663 employees** in 42 states and two countries[53](index=53&type=chunk) Workforce Demographics as of September 30, 2023 | Category | Percentage | | :--- | :--- | | **Gender** | | | Female | 48% | | Male | 52% | | **Ethnicity** | | | White | 66% | | Asian | 15% | | Black or African American | 8% | | Hispanic or Latino | 6% | | Other | 5% | [Government Regulation](index=14&type=section&id=Item%201.%20Business%23Government%20Regulation) The company operates in a complex regulatory environment, subject to laws governing financial services, data privacy, and healthcare - Subject to the Dodd-Frank Act, including the Durbin Amendment which caps debit card interchange fees for large issuers[56](index=56&type=chunk) - Compliance with numerous federal and state privacy laws is required, including GLBA, FCRA, and state-specific laws like CCPA/CPRA, which regulate the collection, use, and security of personal information[58](index=58&type=chunk)[59](index=59&type=chunk) - As a 'business associate' in the Healthcare vertical, the company is directly liable under HIPAA for protecting patient health information (PHI) and is also subject to the AKS, FCA, and the Cures Act's information blocking rules[63](index=63&type=chunk)[64](index=64&type=chunk)[69](index=69&type=chunk) - Must adhere to payment network rules from Visa, Mastercard, and NACHA, and is registered through sponsor banks. This includes compliance with PCI DSS and EMV standards[89](index=89&type=chunk)[90](index=90&type=chunk)[91](index=91&type=chunk) [Risk Factors](index=21&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks across its business, regulatory environment, debt structure, and organization [Risks Related to Our Business and Industry](index=23&type=section&id=Item%201A.%20Risk%20Factors%23Business%20and%20Industry) The company is exposed to significant business and industry risks including cybersecurity threats, intense competition, and reliance on third-party partners - Cybersecurity threats, including ransomware, pose a significant risk. The company is currently a defendant in a lawsuit filed by the State of Louisiana related to a third-party software product and alleged cybersecurity inadequacies[102](index=102&type=chunk)[103](index=103&type=chunk)[104](index=104&type=chunk) - The company operates in a highly competitive environment against peers like Tyler Technologies, Global Payments, and EverCommerce, which may have greater financial and marketing resources[119](index=119&type=chunk)[120](index=120&type=chunk)[121](index=121&type=chunk) - A core growth strategy of acquisitions carries risks, including difficulty identifying targets, integration challenges, and uncovering unforeseen liabilities during due diligence[146](index=146&type=chunk)[149](index=149&type=chunk) - The company faces potential for significant chargeback liability if its customers are unable to reimburse chargebacks, a risk heightened for its smaller customers who conduct more card-not-present transactions[134](index=134&type=chunk)[135](index=135&type=chunk)[136](index=136&type=chunk) [Risks Related to Regulation](index=36&type=section&id=Item%201A.%20Risk%20Factors%23Regulation) Extensive and evolving government regulations, including financial, healthcare, and data privacy laws, impose significant compliance costs and risks - Failure to comply with extensive government regulations can lead to penalties, suspension of services, and increased costs[164](index=164&type=chunk) - Healthcare operations are subject to laws like HIPAA, the federal Anti-Kickback Statute (AKS), and the False Claims Act (FCA), where violations can lead to substantial civil and criminal penalties[170](index=170&type=chunk)[173](index=173&type=chunk)[174](index=174&type=chunk) - The 21st Century Cures Act and its Information Blocking Rule impose significant requirements on the company's HIT developer subsidiary, with penalties up to **$1 million** per violation[182](index=182&type=chunk)[184](index=184&type=chunk) - Evolving data privacy laws at the federal and state levels, such as the CCPA/CPRA, increase compliance costs and litigation risk, particularly regarding data breaches[201](index=201&type=chunk)[203](index=203&type=chunk)[205](index=205&type=chunk) [Risks Related to Our Indebtedness](index=46&type=section&id=Item%201A.%20Risk%20Factors%23Indebtedness) The company's debt, including its Senior Secured Credit Facility and Exchangeable Notes, poses risks to financial health and operational flexibility - The 2023 Senior Secured Credit Facility imposes restrictive covenants, including maintaining specified financial ratios (interest coverage and total leverage), which limit the company's ability to incur liens, take on more debt, and make certain investments[213](index=213&type=chunk)[218](index=218&type=chunk) - The company may not have the ability to raise the necessary funds to repurchase its Exchangeable Notes upon a fundamental change or to settle exchanges in cash, which could constitute a default under the indenture[220](index=220&type=chunk)[221](index=221&type=chunk) - If the conditional exchange feature of the Exchangeable Notes is triggered, the company may be required to settle in cash, which could adversely affect liquidity and require reclassification of the debt as a current liability[222](index=222&type=chunk) [Risks Related to Our Organizational Structure](index=49&type=section&id=Item%201A.%20Risk%20Factors%23Organizational%20Structure) The company's holding company structure and Tax Receivable Agreement create unique financial and operational risks - i3 Verticals, Inc. is a holding company with no independent operations, relying on distributions from i3 Verticals, LLC to pay taxes and expenses. These distributions could be restricted by debt agreements[224](index=224&type=chunk)[225](index=225&type=chunk) - The Tax Receivable Agreement (TRA) requires payments to Continuing Equity Owners that may be accelerated in a change of control, potentially forcing payments greater than the actual tax benefits realized and impacting liquidity[228](index=228&type=chunk)[229](index=229&type=chunk) - Failure to maintain effective internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act, could lead to a loss of investor confidence and a decline in stock price[232](index=232&type=chunk)[233](index=233&type=chunk) [Properties](index=52&type=section&id=Item%202.%20Properties) The company's corporate headquarters is in Nashville, Tennessee, and it leases numerous other offices across various states - Corporate headquarters are in Nashville, Tennessee, with a lease for approximately **16,000 square feet** expiring in 2027[250](index=250&type=chunk) - The company leases properties in multiple states for operational, sales, and administrative purposes and believes its facilities are adequate for its needs[250](index=250&type=chunk)[251](index=251&type=chunk) [Legal Proceedings](index=52&type=section&id=Item%203.%20Legal%20Proceedings) The company is involved in legal proceedings, notably the S&S Litigation concerning a third-party software product and cybersecurity practices - The company is a defendant in a lawsuit filed by the State of Louisiana and a putative class of law enforcement districts against its subsidiary, i3-Software & Services, LLC ("S&S"), concerning a third-party software product and cybersecurity practices[596](index=596&type=chunk) - The S&S litigation seeks monetary damages for network remediation, return of purchase prices, and other expenses. The case was remanded to state court, and the company's petition for rehearing is pending[596](index=596&type=chunk) - Management believes that ongoing legal matters, including the S&S litigation, will not have a material impact on the company's consolidated balance sheet, results of operations, or cash flows[594](index=594&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=53&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) i3 Verticals' Class A common stock trades on Nasdaq, with no cash dividends paid or planned due to growth strategy and debt restrictions - Class A common stock is traded on the Nasdaq Global Select Market under the symbol 'IIIV'[256](index=256&type=chunk) - The company has never declared or paid a cash dividend and intends to retain earnings to finance growth. The 2023 Senior Secured Credit Facility also restricts dividend payments[264](index=264&type=chunk) - No shares of Class A or Class B common stock were repurchased during the quarter ended September 30, 2023[263](index=263&type=chunk) Cumulative Total Shareholder Return Comparison | Date | i3 Verticals, Inc. | S&P 500 | S&P 500 Information Technology | | :--- | :--- | :--- | :--- | | Sep 30, 2018 | $100.00 | $100.00 | $100.00 | | Sep 30, 2019 | $87.55 | $102.15 | $106.91 | | Sep 30, 2020 | $109.88 | $115.41 | $155.40 | | Sep 30, 2021 | $105.35 | $147.82 | $198.46 | | Sep 30, 2022 | $87.16 | $123.05 | $157.32 | | Sep 30, 2023 | $91.99 | $147.15 | $219.78 | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=54&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management's discussion highlights revenue growth driven by acquisitions and organic expansion, resulting in a narrowed net loss and strong liquidity for fiscal year 2023 [Acquisitions](index=58&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%23Acquisitions) Acquisitions are a core component of the company's growth strategy, with significant purchases in FY2023 and FY2022 expanding Public Sector and Healthcare offerings - In FY 2023, acquired Celtic Cross Holdings, Inc. and Celtic Systems Pvt. Ltd. for **$85.0 million** in cash[270](index=270&type=chunk) - Completed two other acquisitions in FY 2023 for **$19.8 million** (**$17.0M** cash, **$2.0M** stock, **$0.8M** contingent consideration)[271](index=271&type=chunk) - In FY 2022, acquired three businesses for **$107.7 million** (**$101.4M** cash, **$6.3M** contingent consideration)[272](index=272&type=chunk) [Key Performance Indicators](index=59&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%23Key%20Performance%20Indicators) Key indicators show positive trends, including 11.3% ARR growth, 50% software revenue, and 8% payment volume increase in FY2023 Key Performance Indicators (FY2023 vs FY2022) | Indicator | FY 2023 | FY 2022 | Growth | | :--- | :--- | :--- | :--- | | Annualized Recurring Revenue (ARR) (as of Q4) | $312.9 million | $281.2 million | 11.3% | | Software & Related Services as % of Total Revenue | 50% | 49% | +1 ppt | | Payment Volume | $24.4 billion | $22.6 billion | 8.0% | | Processing Margin | $333.3 million | $282.7 million | 17.9% | [Results of Operations (FY2023 vs FY2022)](index=62&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%23Results%20of%20Operations) Revenue increased 16.5% to $370.2 million, with operating income turning positive and net loss significantly narrowing Consolidated Results of Operations (in millions) | | Year ended Sep 30, 2023 | Year ended Sep 30, 2022 | Change (%) | | :--- | :--- | :--- | :--- | | **Revenue** | **$370.2 million** | **$317.9 million** | **16.5%** | | Income (loss) from operations | $22.7 million | ($2.4 million) | n/m | | Interest expense, net | $25.1 million | $14.8 million | 70.1% | | Net loss | ($2.7 million) | ($23.2 million) | (88.6)% | | **Net loss attributable to i3 Verticals** | **($0.8 million)** | **($17.1 million)** | **(95.3)%** | - Revenue growth of **$52.4 million** was driven by **$21.5 million** from acquisitions completed in FY2023 and FY2022, with the remainder from organic growth in software services and increased payment volume[289](index=289&type=chunk) - Selling, general and administrative expenses increased by **$25.9 million** (**13.4%**), mainly due to a **$22.4 million** rise in employment expenses from increased headcount and stock compensation[295](index=295&type=chunk) - The change in fair value of contingent consideration was a charge of **$10.8 million**, significantly lower than the **$23.7 million** charge in the prior year, contributing to improved operating income[297](index=297&type=chunk) [Liquidity and Capital Resources](index=64&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%23Liquidity%20and%20Capital%20Resources) As of September 30, 2023, the company had $3.1 million in cash and $177.5 million available under its $450 million 2023 Senior Secured Credit Facility, with primary cash needs for working capital and acquisitions - As of September 30, 2023, liquidity included **$3.1 million** in cash and **$177.5 million** available under the 2023 Senior Secured Credit Facility[303](index=303&type=chunk) Cash Flow Summary (in millions) | | Year ended Sep 30, 2023 | Year ended Sep 30, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $34.5 million | $45.8 million | | Net cash used in investing activities | ($121.5 million) | ($113.0 million) | | Net cash provided by financing activities | $75.7 million | $73.0 million | - Entered into a new **$450 million** 2023 Senior Secured Credit Facility in May 2023. As of September 30, 2023, the company was in compliance with its financial covenants (total leverage ratio of **3.77x** vs. limit of **5.0x**)[314](index=314&type=chunk)[315](index=315&type=chunk) Material Cash Requirements as of September 30, 2023 (in millions) | Material Cash Requirements | Total | Less than 1 year | 1 to 3 years | 3 to 5 years | More than 5 years | | :--- | :--- | :--- | :--- | :--- | :--- | | 2023 Senior Secured Credit Facility and interest | $386.4 million | $23.9 million | $48.0 million | $314.5 million | $— | | Exchangeable Notes and interest | $118.6 million | $1.2 million | $117.4 million | $— | $— | | Facility leases | $16.6 million | $5.1 million | $7.9 million | $2.4 million | $1.3 million | | Contingent consideration | $8.2 million | $6.8 million | $1.4 million | $— | $— | | **Total** | **$534.9 million** | **$41.5 million** | **$175.2 million** | **$316.8 million** | **$1.3 million** | [Quantitative and Qualitative Disclosures About Market Risk](index=67&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest rate fluctuations on its variable-rate debt, with minor foreign currency exposure - The company is exposed to interest rate risk on its 2023 Senior Secured Credit Facility, which has a variable interest rate based on Term SOFR or a base rate[345](index=345&type=chunk)[346](index=346&type=chunk) - As of September 30, 2023, a **1.0%** increase or decrease in the **$272.5 million** of outstanding borrowings would have a **$2.7 million** impact on the business[347](index=347&type=chunk) - Exposure to foreign currency exchange rate risk is not considered material to the consolidated results of operations[348](index=348&type=chunk) [Financial Statements and Supplementary Data](index=68&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section contains the company's audited consolidated financial statements and the independent auditor's report [Consolidated Financial Statements](index=71&type=section&id=Item%208.%20Financial%20Statements%23Financial%20Statements) The consolidated financial statements present the company's financial position and results, showing total assets of $881.5 million and a net loss attributable to i3 Verticals, Inc. of $0.8 million for fiscal year 2023 Consolidated Balance Sheet Data (in millions) | | Sep 30, 2023 | Sep 30, 2022 | | :--- | :--- | :--- | | Total Current Assets | $85.5 million | $83.8 million | | Goodwill | $409.6 million | $353.6 million | | Total Assets | $881.5 million | $770.3 million | | Total Current Liabilities | $93.5 million | $111.3 million | | Long-term debt, net | $385.1 million | $287.0 million | | Total Liabilities | $553.2 million | $462.6 million | | Total Equity | $328.3 million | $307.7 million | Consolidated Statement of Operations Data (in millions) | | FY 2023 | FY 2022 | FY 2021 | | :--- | :--- | :--- | :--- | | Revenue | $370.2 million | $317.9 million | $224.1 million | | Income (loss) from operations | $22.7 million | ($2.4 million) | ($0.0 million) | | Net loss | ($2.7 million) | ($23.2 million) | ($7.8 million) | | Net loss attributable to i3 Verticals, Inc. | ($0.8 million) | ($17.1 million) | ($4.5 million) | [Notes to Consolidated Financial Statements](index=77&type=section&id=Item%208.%20Financial%20Statements%23Notes%20to%20Financial%20Statements) The notes provide detailed explanations of the company's accounting policies and financial data, covering acquisitions, debt, income taxes, and segment performance - Note 4 (Acquisitions): In FY2023, the company acquired Celtic for **$85.0 million** in cash and two other businesses for **$19.8 million**. In FY2022, it acquired three businesses for **$107.7 million**[457](index=457&type=chunk)[462](index=462&type=chunk)[469](index=469&type=chunk) - Note 10 (Long-Term Debt): As of Sep 30, 2023, long-term debt included **$272.5 million** outstanding on the 2023 Senior Secured Credit Facility and **$117.0 million** in **1.0%** Exchangeable Senior Notes due 2025[505](index=505&type=chunk) - Note 11 (Income Taxes): The company has a Tax Receivable Agreement (TRA) with Continuing Equity Owners, resulting in a liability of **$40.1 million** as of Sep 30, 2023[552](index=552&type=chunk)[558](index=558&type=chunk)[601](index=601&type=chunk) Segment Processing Margin (in millions) | Segment | FY 2023 | FY 2022 | FY 2021 | | :--- | :--- | :--- | :--- | | Software and Services | $219.1 million | $181.2 million | $107.0 million | | Merchant Services | $114.3 million | $101.5 million | $90.5 million | | **Total** | **$333.3 million** | **$282.7 million** | **$195.3 million** | [Controls and Procedures](index=119&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that disclosure controls and internal control over financial reporting were effective as of September 30, 2023 - The CEO and CFO concluded that disclosure controls and procedures were effective as of September 30, 2023[630](index=630&type=chunk) - Management assessed internal control over financial reporting based on the COSO framework and concluded it was effective as of September 30, 2023[632](index=632&type=chunk) - The independent auditor, Deloitte & Touche LLP, issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting[633](index=633&type=chunk)[638](index=638&type=chunk) Part III [Directors, Executive Compensation, Security Ownership, and Related Transactions](index=122&type=section&id=Item%2010-14) Information for these items is incorporated by reference from the forthcoming 2024 Proxy Statement - Information for Items 10, 11, 12, 13, and 14 is incorporated by reference from the forthcoming 2024 Proxy Statement[648](index=648&type=chunk)[650](index=650&type=chunk)[651](index=651&type=chunk)[652](index=652&type=chunk)[653](index=653&type=chunk) Part IV [Exhibits and Financial Statement Schedules](index=123&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists exhibits filed with the Form 10-K, with financial statement schedules omitted as information is included elsewhere - All required financial statement schedules have been omitted as the information is not applicable or is included elsewhere in the report[656](index=656&type=chunk) - A list of exhibits filed with the report is provided, including key agreements such as the 2023 Senior Secured Credit Facility and the Indenture for the Exchangeable Notes[657](index=657&type=chunk)[658](index=658&type=chunk)

PART I. FINANCIAL INFORMATION [Item 1. Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents the unaudited condensed consolidated financial statements, including the balance sheets, statements of operations, changes in equity, and cash flows, along with detailed notes explaining the company's accounting policies, acquisitions, debt, equity, and other financial commitments [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section provides a snapshot of the company's financial position, detailing total assets, liabilities, and equity at specific reporting dates Balance Sheet Summary (in thousands) | Metric | June 30, 2023 (in thousands) | September 30, 2022 (in thousands) | | :--------------------------------------- | :----------------------------- | :-------------------------------- | | Total Assets | $875,824 | $770,312 | | Total Liabilities | $562,882 | $462,624 | | Total Equity | $312,942 | $307,688 | | Goodwill | $409,042 | $353,639 | | Long-term debt, less current portion and debt issuance costs, net | $389,569 | $287,020 | [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This section outlines the company's financial performance over specific periods, including revenue, net loss, and earnings per share Statements of Operations Summary (in thousands) | Metric | Three months ended June 30, 2023 (in thousands) | Three months ended June 30, 2022 (in thousands) | Change (%) | | :--------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | :--------- | | Revenue | $93,931 | $80,553 | 16.6% | | Net loss attributable to i3 Verticals, Inc. | $(5,155) | $(3,728) | 38.3% | | Basic Net Loss Per Share | $(0.22) | $(0.17) | - | | Diluted Net Loss Per Share | $(0.22) | $(0.17) | - | Statements of Operations Summary (in thousands) | Metric | Nine months ended June 30, 2023 (in thousands) | Nine months ended June 30, 2022 (in thousands) | Change (%) | | :--------------------------------------- | :------------------------------------------- | :------------------------------------------- | :--------- | | Revenue | $273,832 | $232,612 | 17.7% | | Net loss attributable to i3 Verticals, Inc. | $(5,359) | $(13,629) | (60.7)% | | Basic Net Loss Per Share | $(0.23) | $(0.62) | - | | Diluted Net Loss Per Share | $(0.23) | $(0.62) | - | [Condensed Consolidated Statement of Change in Equity](index=6&type=section&id=Condensed%20Consolidated%20Statement%20of%20Change%20in%20Equity) This section details the changes in the company's equity components, including additional paid-in capital and accumulated deficit, over time Statement of Change in Equity Summary (in thousands) | Metric | June 30, 2023 (in thousands) | September 30, 2022 (in thousands) | | :--------------------------------------- | :----------------------------- | :-------------------------------- | | Total Equity | $312,942 | $307,688 | | Additional Paid-In Capital | $239,917 | $241,958 | | Accumulated Deficit | $(17,492) | $(23,582) | - Adoption of ASU 2020-06 on October 1, 2022, resulted in a decrease in additional paid-in capital of **$23,382 thousand** and a decrease in accumulated deficit of **$11,449 thousand**[18](index=18&type=chunk)[75](index=75&type=chunk) - Equity-based compensation for the nine months ended June 30, 2023, totaled **$20,846 thousand**[18](index=18&type=chunk)[158](index=158&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section summarizes the cash inflows and outflows from operating, investing, and financing activities, reflecting the company's liquidity and solvency Cash Flow Summary (in thousands) | Cash Flow Activity | Nine months ended June 30, 2023 (in thousands) | Nine months ended June 30, 2022 (in thousands) | | :--------------------------------------- | :------------------------------------------- | :------------------------------------------- | | Net cash provided by operating activities | $29,623 | $35,840 | | Net cash used in investing activities | $(115,415) | $(109,350) | | Net cash provided by financing activities | $82,229 | $85,695 | | Cash, cash equivalents and restricted cash at end of period | $20,202 | $30,116 | - Net cash provided by operating activities decreased by **$6.2 million**, primarily due to a decrease in non-cash contingent consideration and an increase in the provision for income taxes, partially offset by an increase in depreciation and amortization[260](index=260&type=chunk) - Net cash used in investing activities increased by **$6.1 million**, mainly driven by **$102.0 million** used for acquisitions, net of cash acquired, in 2023[261](index=261&type=chunk) [Notes to the Unaudited Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20the%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures regarding the accounting policies, significant transactions, and financial commitments underlying the consolidated financial statements [Note 1. ORGANIZATION AND OPERATIONS](index=10&type=section&id=Note%201.%20ORGANIZATION%20AND%20OPERATIONS) i3 Verticals, Inc. was formed in 2018 as a Delaware corporation for its IPO and operates as a holding company, controlling i3 Verticals, LLC, which provides integrated software and payment solutions. The company consolidates i3 Verticals, LLC's financial results and reports a non-controlling interest - i3 Verticals, Inc. was formed on January 17, 2018, as a Delaware corporation for its IPO[29](index=29&type=chunk) - The Company operates as a holding company, controlling i3 Verticals, LLC, which delivers integrated software and payment solutions[30](index=30&type=chunk) - i3 Verticals, Inc. consolidates the financial results of i3 Verticals, LLC and reports a non-controlling interest for common units held by other owners[30](index=30&type=chunk) [Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=10&type=section&id=Note%202.%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This note outlines the company's significant accounting policies, including the basis of presentation under GAAP and SEC rules, principles of consolidation, and specific treatments for restricted cash, settlement assets and obligations, inventories, acquisitions, leases, and revenue recognition. It also details the adoption of ASU 2020-06, which simplified accounting for convertible instruments - The unaudited condensed consolidated financial statements are prepared in accordance with GAAP for interim financial information and SEC rules[31](index=31&type=chunk) - Revenue is recognized as performance obligations are satisfied, disaggregated by product (Software and related services, Payments, Other) and timing of transfer (over time, at a point in time)[46](index=46&type=chunk)[47](index=47&type=chunk)[60](index=60&type=chunk) - The company adopted ASU 2020-06 on October 1, 2022, simplifying accounting for convertible instruments, which resulted in an increase in long-term debt and adjustments to additional paid-in capital and accumulated deficit[75](index=75&type=chunk) [Note 3. ACQUISITIONS](index=19&type=section&id=Note%203.%20ACQUISITIONS) During the nine months ended June 30, 2023, the company completed several acquisitions, including residual buyouts ($462 thousand), referral agreements ($420 thousand), and the significant acquisition of Celtic Cross Holdings, Inc. and Celtic Systems Pvt. Ltd. for $85.0 million to expand its Public Sector software offerings. Additionally, two other businesses were acquired for $19.8 million. These acquisitions contributed $13.4 million in revenue and $3.7 million in net income for the period - Acquired **$462 thousand** in residual buyouts during the nine months ended June 30, 2023, with an estimated amortization period of eight years[78](index=78&type=chunk) - Completed the acquisition of Celtic Cross Holdings, Inc. and Celtic Systems Pvt. Ltd. for **$85.0 million** in cash to expand software offerings in the Public Sector vertical[80](index=80&type=chunk) - Acquired two other businesses for **$19.8 million**, including **$17.0 million** in cash, **$2.0 million** in Class A Common Stock, and **$0.8 million** in contingent consideration[85](index=85&type=chunk) - Acquisitions completed during the nine months ended June 30, 2023, contributed **$13.4 million** in revenue and **$3.7 million** in net income[40](index=40&type=chunk) [Note 4. PREPAID EXPENSES AND OTHER CURRENT ASSETS](index=22&type=section&id=Note%204.%20PREPAID%20EXPENSES%20AND%20OTHER%20CURRENT%20ASSETS) This note provides a summary of the company's prepaid expenses and other current assets, which increased slightly from $19.4 million at September 30, 2022, to $20.1 million at June 30, 2023, primarily driven by increases in prepaid licenses and inventory Prepaid Expenses and Other Current Assets (in thousands) | Asset Category | June 30, 2023 (in thousands) | September 30, 2022 (in thousands) | | :--------------------------------------- | :----------------------------- | :-------------------------------- | | Inventory | $4,537 | $4,121 | | Prepaid licenses | $7,813 | $5,743 | | Prepaid insurance | $1,126 | $736 | | Notes receivable — current portion | $5,106 | $4,930 | | Other current assets | $1,475 | $3,915 | | **Total Prepaid expenses and other current assets** | **$20,057** | **$19,445** | [Note 5. GOODWILL AND INTANGIBLE ASSETS](index=23&type=section&id=Note%205.%20GOODWILL%20AND%20INTANGIBLE%20ASSETS) Goodwill increased by $55.4 million to $409.0 million as of June 30, 2023, primarily due to acquisitions. The company's identifiable intangible assets, totaling $224.6 million, are mainly composed of merchant relationships with amortization periods ranging from 9 to 25 years Goodwill and Intangible Assets (in thousands) | Metric | June 30, 2023 (in thousands) | September 30, 2022 (in thousands) | | :--------------------------------------- | :----------------------------- | :-------------------------------- | | Goodwill | $409,042 | $353,639 | | Total identifiable intangible assets | $224,588 | $195,919 | - Goodwill increased by **$55,403 thousand** during the nine months ended June 30, 2023, primarily due to preliminary purchase price adjustments and acquisitions[98](index=98&type=chunk) - Merchant relationships constitute the largest portion of finite-lived intangible assets (**$216,695 thousand**), with amortization periods of **9 to 25 years**[98](index=98&type=chunk) - Amortization expense for intangible assets was **$15,315 thousand** for the nine months ended June 30, 2023, up from **$13,303 thousand** in the prior year[98](index=98&type=chunk) [Note 6. ACCRUED EXPENSES AND OTHER LIABILITIES](index=24&type=section&id=Note%206.%20ACCRUED%20EXPENSES%20AND%20OTHER%20LIABILITIES) The company's accrued expenses and other current liabilities decreased from $57.8 million at September 30, 2022, to $46.5 million at June 30, 2023, mainly due to a reduction in accrued contingent consideration and escrow liabilities. Long-term liabilities significantly increased, driven by a higher deferred tax liability Accrued Expenses and Other Liabilities (in thousands) | Liability Category | June 30, 2023 (in thousands) | September 30, 2022 (in thousands) | | :--------------------------------------- | :----------------------------- | :-------------------------------- | | Accrued expenses and other current liabilities | $46,505 | $57,833 | | Accrued contingent consideration — current portion | $16,680 | $21,385 | | Escrow liabilities | $3,915 | $12,285 | | Total other long-term liabilities | $24,151 | $9,540 | | Deferred tax liability — long-term | $22,687 | $7,896 | [Note 7. LONG-TERM DEBT, NET](index=24&type=section&id=Note%207.%20LONG-TERM%20DEBT,%20NET) The company's total long-term debt, net, increased to $389.6 million as of June 30, 2023. This includes $277.4 million outstanding under the new 2023 Senior Secured Revolving Credit Facility, which replaced the prior facility in May 2023, and $117.0 million in 1% Exchangeable Senior Notes due 2025. The estimated fair value of the Exchangeable Notes was $108.2 million Long-Term Debt Summary (in thousands) | Debt Instrument | Maturity | June 30, 2023 (in thousands) | September 30, 2022 (in thousands) | | :--------------------------------------- | :------- | :----------------------------- | :-------------------------------- | | Revolving lines of credit (2023 Senior Secured Credit Facility) | May 8, 2028 | $277,400 | $0 | | Revolving lines of credit (Prior Senior Secured Credit Facility) | May 9, 2024 | $0 | $185,017 | | 1% Exchangeable Senior Notes due 2025 | Feb 15, 2025 | $117,000 | $104,557 | | Debt issuance costs, net | - | $(4,831) | $(2,554) | | **Total long-term debt, net of issuance costs** | - | **$389,569** | **$287,020** | - The 2023 Senior Secured Revolving Credit Facility provides aggregate commitments of **$450 million**[117](index=117&type=chunk) - The estimated fair value of the Exchangeable Notes was **$108,206 thousand** as of June 30, 2023, classified as Level 2[110](index=110&type=chunk) [Note 8. INCOME TAXES](index=29&type=section&id=Note%208.%20INCOME%20TAXES) i3 Verticals, Inc. is taxed as a corporation, while i3 Verticals, LLC operates as a pass-through entity for federal income tax purposes. The company recorded a provision for income taxes of $2.1 million for the three months ended June 30, 2023, compared to a benefit of $1.8 million in the prior year. The Tax Receivable Agreement (TRA) obligates the company to pay 85% of certain tax benefits to Continuing Equity Owners, with a total liability of $40.9 million as of June 30, 2023, and expected annual payments of $0 to $3.3 million over 24 years - i3 Verticals, Inc. is taxed as a corporation, while i3 Verticals, LLC is a pass-through entity for federal income tax purposes[134](index=134&type=chunk) Income Tax Provision (Benefit) (in thousands) | Metric | Three months ended June 30, 2023 (in thousands) | Three months ended June 30, 2022 (in thousands) | | :--------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Provision for (benefit from) income taxes | $2,077 | $(1,810) | - The Tax Receivable Agreement (TRA) obligates the company to pay **85%** of certain tax benefits to Continuing Equity Owners, with a total liability of **$40,915 thousand** as of June 30, 2023[136](index=136&type=chunk)[140](index=140&type=chunk) - Payments under the TRA are expected to range from **$0 to $3,321 thousand** per year and are projected to be paid over the next **24 years**[141](index=141&type=chunk) [Note 9. LEASES](index=31&type=section&id=Note%209.%20LEASES) The company's leases primarily consist of real estate operating leases. As of June 30, 2023, the weighted-average remaining lease term was four years, and the weighted-average discount rate used for lease liabilities was 7.7%. Total operating lease costs for the nine months ended June 30, 2023, were $4.3 million - The weighted-average remaining lease term was **four years** as of June 30, 2023[142](index=142&type=chunk) - The weighted-average discount rate used for lease liabilities was **7.7%** as of June 30, 2023[143](index=143&type=chunk) Operating Lease Costs (in thousands) | Metric | Nine months ended June 30, 2023 (in thousands) | Nine months ended June 30, 2022 (in thousands) | | :--------------------------------------- | :------------------------------------------- | :------------------------------------------- | | Operating lease costs | $4,287 | $4,415 | - The present value of lease liability was **$15,882 thousand** as of June 30, 2023[148](index=148&type=chunk) [Note 10. FAIR VALUE MEASUREMENTS](index=32&type=section&id=Note%2010.%20FAIR%20VALUE%20MEASUREMENTS) The company applies ASC 820 for fair value measurements, classifying financial instruments into a three-tier hierarchy. Contingent consideration obligations are Level 3 measurements, valued using Monte Carlo simulations and probability forecasts, with an accrued amount of $17.9 million as of June 30, 2023. The Exchangeable Notes are classified as Level 2, with an estimated fair value of $108.2 million - Contingent consideration obligations are classified as **Level 3** financial instruments, valued using Monte Carlo simulations and probability forecasts due to unobservable inputs[154](index=154&type=chunk) Accrued Contingent Consideration (in thousands) | Metric | June 30, 2023 (in thousands) | September 30, 2022 (in thousands) | | :--------------------------------------- | :----------------------------- | :-------------------------------- | | Accrued Contingent Consideration | $17,856 | $22,833 | - The estimated fair value of the Exchangeable Notes was **$108,206 thousand** as of June 30, 2023, classified as Level 2[156](index=156&type=chunk) [Note 11. EQUITY-BASED COMPENSATION](index=34&type=section&id=Note%2011.%20EQUITY-BASED%20COMPENSATION) Equity-based compensation expense for the nine months ended June 30, 2023, totaled $20.8 million, primarily from stock options and restricted stock units (RSUs) granted under the 2018 and 2020 Equity Incentive Plans. Unrecognized compensation expense for unvested stock options and RSUs amounts to $28.8 million and $13.2 million, respectively Equity-Based Compensation Expense (in thousands) | Metric | Nine months ended June 30, 2023 (in thousands) | Nine months ended June 30, 2022 (in thousands) | | :--------------------------------------- | :------------------------------------------- | :------------------------------------------- | | Stock options | $18,341 | $19,065 | | Restricted stock units | $2,505 | $615 | | **Total equity-based compensation expense** | **$20,846** | **$19,680** | - Total unrecognized compensation expense for unvested stock options was **$28,792 thousand**, expected to be recognized over **2.08 years**[166](index=166&type=chunk) - Total unrecognized compensation expense for unvested RSUs was **$13,244 thousand**, expected to be recognized over **3.31 years**[167](index=167&type=chunk) [Note 12. COMMITMENTS AND CONTINGENCIES](index=35&type=section&id=Note%2012.%20COMMITMENTS%20AND%20CONTINGENCIES) The company has various commitments, including $3.3 million in minimum processing commitments and a conditional buyout agreement for a third-party business capped at $29.0 million, plus potential additional consideration. The S&S Litigation, seeking $22.0 million in damages related to alleged cybersecurity inadequacies, is ongoing, but the company does not anticipate a material adverse effect on its financial condition Minimum Processing Commitments (in thousands) | Commitment | Total (in thousands) | Less than 1 year (in thousands) | | :--------------------------------------- | :------------------- | :------------------------------ | | Minimum Processing Commitments | $3,302 | $3,031 | - The company has conditionally committed to a future buyout of a third-party business, capped at **$29,000 thousand**, with potential additional consideration of up to **$9,000 thousand**[172](index=172&type=chunk) - The S&S Litigation involves claims for **$15,000 thousand** from the State of Louisiana and **$7,000 thousand** from Sheriffs for network remediation related to alleged cybersecurity inadequacies[176](index=176&type=chunk) - The company is unable to predict the outcome of the S&S litigation but does not believe it will have a material adverse effect on its business or financial condition[178](index=178&type=chunk) [Note 13. RELATED PARTY TRANSACTIONS](index=37&type=section&id=Note%2013.%20RELATED%20PARTY%20TRANSACTIONS) The primary related party transaction is the Tax Receivable Agreement (TRA) with the Continuing Equity Owners, which obligates the company to pay 85% of certain tax benefits. As of June 30, 2023, the total amount due under the TRA was $40.9 million - The Tax Receivable Agreement (TRA) with the Continuing Equity Owners is the primary related party transaction[180](index=180&type=chunk) - The TRA obligates the company to pay **85%** of certain tax benefits to the Continuing Equity Owners[180](index=180&type=chunk) - As of June 30, 2023, the total amount due under the TRA was **$40,915 thousand**[182](index=182&type=chunk) [Note 14. SEGMENTS](index=38&type=section&id=Note%2014.%20SEGMENTS) The company operates through two primary segments: Software and Services, which provides vertical market software solutions with embedded payments, and Merchant Services, offering comprehensive payment solutions. The 'Other' category includes corporate overhead. Processing margin is the key metric for measuring operating performance - The company's operating segments are Software and Services, and Merchant Services[184](index=184&type=chunk)[185](index=185&type=chunk) - The Software and Services segment delivers vertical market software solutions, often including embedded payments[184](index=184&type=chunk) - The Merchant Services segment provides comprehensive payment solutions, including third-party integrated and traditional merchant processing services[185](index=185&type=chunk) Segment Revenue and Processing Margin (in thousands) | Segment | Nine months ended June 30, 2023 (in thousands) | Nine months ended June 30, 2022 (in thousands) | | :--------------------------------------- | :------------------------------------------- | :------------------------------------------- | | Software and Services Revenue | $172,911 | $141,575 | | Merchant Services Revenue | $100,968 | $91,071 | | Total Processing Margin | $246,988 | $207,388 | [Note 15. NON-CONTROLLING INTEREST](index=41&type=section&id=Note%2015.%20NON-CONTROLLING%20INTEREST) i3 Verticals, Inc. consolidates the financial results of i3 Verticals, LLC and reports a non-controlling interest for the Common Units held by other owners. As of June 30, 2023, i3 Verticals, Inc. held a 69.6% economic ownership interest in i3 Verticals, LLC - i3 Verticals, Inc. owned **69.6%** economic ownership interest in i3 Verticals, LLC as of June 30, 2023[194](index=194&type=chunk) Net Loss Attributable to Non-Controlling Interest (in thousands) | Metric | Nine months ended June 30, 2023 (in thousands) | Nine months ended June 30, 2022 (in thousands) | | :--------------------------------------- | :------------------------------------------- | :------------------------------------------- | | Net loss attributable to non-controlling interest | $(742) | $(5,178) | [Note 16. EARNINGS PER SHARE](index=41&type=section&id=Note%2016.%20EARNINGS%20PER%20SHARE) Basic and diluted net loss per share for Class A common stock were $(0.22) for the three months and $(0.23) for the nine months ended June 30, 2023. All potentially dilutive securities, including Class B common stock, stock options, and restricted stock units, were anti-dilutive and thus excluded from the diluted EPS calculation for both periods Net Loss Per Share | Metric | Three months ended June 30, 2023 | Nine months ended June 30, 2023 | | :--------------------------------------- | :------------------------------- | :------------------------------ | | Basic Net Loss Per Share | $(0.22) | $(0.23) | | Diluted Net Loss Per Share | $(0.22) | $(0.23) | - All potentially dilutive securities (Class B common stock, stock options, and restricted stock units) were anti-dilutive and excluded from the diluted net loss per share calculation[197](index=197&type=chunk)[198](index=198&type=chunk) [Note 17. SIGNIFICANT NON-CASH TRANSACTIONS](index=43&type=section&id=Note%2017.%20SIGNIFICANT%20NON-CASH%20TRANSACTIONS) Significant non-cash transactions for the nine months ended June 30, 2023, included $760 thousand in acquisition date fair value of contingent consideration, the $284.0 million replacement of the prior credit facility with the 2023 Senior Secured Credit Facility, and $1.7 million in right-of-use assets obtained from operating lease obligations Significant Non-Cash Transactions (in thousands) | Non-Cash Transaction | Nine months ended June 30, 2023 (in thousands) | Nine months ended June 30, 2022 (in thousands) | | :--------------------------------------- | :------------------------------------------- | :------------------------------------------- | | Acquisition date fair value of contingent consideration | $760 | $6,281 | | Replacement of the Prior Senior Secured Credit Facility with the 2023 Senior Secured Credit Facility | $284,000 | $0 | | Right-of-use assets obtained in exchange for operating lease obligations | $1,702 | $7,720 | [Note 18. SUBSEQUENT EVENTS](index=43&type=section&id=Note%2018.%20SUBSEQUENT%20EVENTS) The company has evaluated subsequent events through the filing date of this Quarterly Report on Form 10-Q and determined that no events have occurred that would require adjustments to its financial statements disclosures - No events requiring adjustments to financial statements disclosures were identified through the filing date of the Quarterly Report on Form 10-Q[205](index=205&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=44&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition and results of operations, highlighting revenue and expense trends, liquidity, recent acquisitions, key performance indicators, and the impact of economic factors. It also discusses the company's debt structure and critical accounting estimates [Executive Overview](index=45&type=section&id=Executive%20Overview) This section introduces the company's business model, strategic vertical markets, and core offerings of integrated software and services - i3 Verticals delivers seamlessly integrated software and services to customers in strategic vertical markets[212](index=212&type=chunk) - Primary strategic verticals include Public Sector (including Education) and Healthcare[212](index=212&type=chunk) [Economic Trends](index=46&type=section&id=Economic%20Trends) This section discusses the potential impact of broad economic uncertainties, such as inflation, interest rates, and geopolitical situations, on the company's financial performance - The company acknowledges broad economic uncertainty due to inflationary pressures, elevated interest rates, monetary policy, and geopolitical situations[213](index=213&type=chunk) - These conditions could worsen if the U.S. and global economies enter recessionary periods[213](index=213&type=chunk) - The future magnitude, duration, and effects of these conditions are difficult to predict, making the potential impact on financial results unpredictable[213](index=213&type=chunk) [Liquidity](index=46&type=section&id=Liquidity) This section assesses the company's ability to meet its short-term and long-term financial obligations, detailing cash, available credit, and compliance with financial covenants Liquidity Metrics (in millions) | Metric | June 30, 2023 (in millions) | | :--------------------------------------- | :-------------------------- | | Cash and cash equivalents | $5.0 | | Available capacity under 2023 Credit Agreement | $172.6 | | Consolidated interest coverage ratio | 4.31x | | Total leverage ratio | 4.00x | - The company was in compliance with its financial covenants as of June 30, 2023[214](index=214&type=chunk) [Acquisitions](index=46&type=section&id=Acquisitions) This section summarizes the company's acquisition activities, including the strategic rationale and financial impact of recent business purchases - During the nine months ended June 30, 2023, the company acquired Celtic Cross Holdings, Inc. and Celtic Systems Pvt. Ltd. for **$85.0 million** in cash to expand its Public Sector software offerings[215](index=215&type=chunk) - Two other businesses were acquired for **$19.8 million**, including **$17.0 million** in cash, **$2.0 million** in Class A Common Stock, and **$0.8 million** in contingent consideration[216](index=216&type=chunk) - During the nine months ended June 30, 2022, three businesses were acquired for **$107.7 million**, including **$101.4 million** in cash and **$6.3 million** in contingent consideration[217](index=217&type=chunk) [Our Revenue and Expenses](index=46&type=section&id=Our%20Revenue%20and%20Expenses) This section describes the primary sources of the company's revenue and the major categories of its operating expenses - Revenue is generated from software and related services (subscriptions, recurring services, licenses, installation) and volume-based payment processing fees[218](index=218&type=chunk) - Other costs of services include processing and bank sponsorship costs, residual payments to distribution partners, and losses from excessive chargebacks[220](index=220&type=chunk) - Selling, general and administrative expenses cover salaries, professional services, rent, utilities, and other operating costs[221](index=221&type=chunk) - Depreciation and amortization includes investments in property, equipment, computer hardware/software, and acquired intangible assets[222](index=222&type=chunk) [How We Assess Our Business](index=47&type=section&id=How%20We%20Assess%20Our%20Business) This section explains the company's operational structure and key segments, including Software and Services and Merchant Services, used for performance evaluation - The Software and Services segment delivers vertical market software solutions, often with embedded payments or other recurring services[224](index=224&type=chunk) - The Merchant Services segment provides comprehensive payment solutions, including third-party integrated and traditional merchant processing services[225](index=225&type=chunk) - The 'Other' category includes corporate overhead expenses[226](index=226&type=chunk) [Key Performance Indicators](index=47&type=section&id=Key%20Performance%20Indicators) This section presents critical metrics used to evaluate the company's operational and financial performance, such as annualized recurring revenue and payment volume Annualized Recurring Revenue (in millions) | KPI | June 30, 2023 (in millions) | June 30, 2022 (in millions) | Growth Rate (%) | | :--------------------------------------- | :-------------------------- | :-------------------------- | :-------------- | | Annualized Recurring Revenue (ARR) | $311.4 | $266.7 | 16.8% | Software and Related Services Revenue Percentage | KPI | Three months ended June 30, 2023 | Three months ended June 30, 2022 | | :--------------------------------------- | :------------------------------- | :------------------------------- | | Software and related services revenue as % of total revenue | 50.32% | 48.42% | Payment Volume (in billions) | KPI | Three months ended June 30, 2023 (in billions) | Three months ended June 30, 2022 (in billions) | Growth Rate (%) | | :--------------------------------------- | :------------------------------------------- | :------------------------------------------- | :-------------- | | Payment volume | $6.3 | $5.9 | 5.8% | Payment Volume (in billions) | KPI | Nine months ended June 30, 2023 (in billions) | Nine months ended June 30, 2022 (in billions) | Growth Rate (%) | | :--------------------------------------- | :------------------------------------------ | :------------------------------------------ | :-------------- | | Payment volume | $18.1 | $16.6 | 9.5% | [Results of Operations](index=48&type=section&id=Results%20of%20Operations) This section provides a comparative analysis of the company's financial performance across different reporting periods, detailing revenue and expense trends [Three Months Ended June 30, 2023 Compared to Three Months Ended June 30, 2022](index=48&type=section&id=Three%20Months%20Ended%20June%2030,%202023%20Compared%20to%20Three%20Months%20Ended%20June%2030,%202022) Revenue increased by 16.6% to $93.9 million, driven by acquisitions and growth in software and related services. However, net loss attributable to i3 Verticals, Inc. increased by 38.3% to $5.2 million, primarily due to a 78.5% increase in net interest expense and a shift from an income tax benefit to a provision Three-Month Comparative Results (in thousands) | Metric | 2023 (in thousands) | 2022 (in thousands) | Change (Amount) | Change (%) | | :--------------------------------------- | :------------------ | :------------------ | :-------------- | :--------- | | Revenue | $93,931 | $80,553 | $13,378 | 16.6% | | Other costs of services | $20,532 | $19,749 | $783 | 4.0% | | Selling, general and administrative | $55,426 | $47,775 | $7,651 | 16.0% | | Depreciation and amortization | $9,158 | $7,506 | $1,652 | 22.0% | | Change in fair value of contingent consideration | $6,183 | $8,254 | $(2,071) | (25.1)% | | Income (loss) from operations | $2,632 | $(2,731) | $5,363 | n/m | | Interest expense, net | $6,725 | $3,767 | $2,958 | 78.5% | | Provision for (benefit from) income taxes | $2,077 | $(1,810) | $3,887 | n/m | | Net loss attributable to i3 Verticals, Inc. | $(5,155) | $(3,728) | $(1,427) | 38.3% | - Revenue from acquisitions contributed **$5.0 million** to the increase, primarily within the Software and Services segment[231](index=231&type=chunk) - Selling, general and administrative expenses increased by **$7.7 million**, mainly due to a **$6.9 million** increase in employment expenses from headcount growth and higher stock compensation[237](index=237&type=chunk) [Nine Months Ended June 30, 2023 Compared to Nine Months Ended June 30, 2022](index=50&type=section&id=Nine%20Months%20Ended%20June%2030,%202023%20Compared%20to%20Nine%20Months%20Ended%20June%2030,%202022) Revenue increased by 17.7% to $273.8 million, driven by $17.1 million from acquisitions and organic growth in software and payment volumes. Net loss attributable to i3 Verticals, Inc. significantly decreased by 60.7% to $5.4 million, primarily due to a substantial 59.9% reduction in the change in fair value of contingent consideration, despite an 78.8% increase in net interest expense Nine-Month Comparative Results (in thousands) | Metric | 2023 (in thousands) | 2022 (in thousands) | Change (Amount) | Change (%) | | :--------------------------------------- | :------------------ | :------------------ | :-------------- | :--------- | | Revenue | $273,832 | $232,612 | $41,220 | 17.7% | | Other costs of services | $59,531 | $52,890 | $6,641 | 12.6% | | Selling, general and administrative | $163,633 | $142,878 | $20,755 | 14.5% | | Depreciation and amortization | $26,849 | $21,823 | $5,026 | 23.0% | | Change in fair value of contingent consideration | $9,905 | $24,684 | $(14,779) | (59.9)% | | Income (loss) from operations | $13,914 | $(9,663) | $23,577 | n/m | | Interest expense, net | $18,414 | $10,298 | $8,116 | 78.8% | | Provision for (benefit from) income taxes | $1,896 | $(1,154) | $3,050 | n/m | | Net loss attributable to i3 Verticals, Inc. | $(5,359) | $(13,629) | $8,270 | (60.7)% | - Revenue from acquisitions contributed **$17.1 million** to the increase, all within the Software and Services segment[243](index=243&type=chunk) - Selling, general and administrative expenses increased by **$20.8 million**, primarily due to a **$16.6 million** increase in employment expenses from headcount growth and higher stock compensation[248](index=248&type=chunk) [Seasonality](index=52&type=section&id=Seasonality) This section describes the recurring seasonal patterns that influence the company's revenue and net income fluctuations throughout the year - The company experiences seasonal fluctuations in revenue, with the first calendar quarter (second fiscal quarter) typically seeing a decrease due to lower holiday and vacation spending[254](index=254&type=chunk) - Revenue in the Education vertical is strongest at the start of each semester (August, September, October, January, and February) and weakest in the summer months (June and July)[254](index=254&type=chunk) - Operating expenses show less seasonal fluctuation, leading to net income being subject to the same seasonal factors as revenues[254](index=254&type=chunk) [Liquidity and Capital Resources](index=52&type=section&id=Liquidity%20and%20Capital%20Resources) This section outlines the company's sources of funds and its primary cash requirements, including strategies for funding operations and acquisitions - The company's liquidity sources include net cash from operating activities, current cash and cash equivalents, and available borrowing capacity under the 2023 Credit Agreement[255](index=255&type=chunk)[256](index=256&type=chunk) - Primary cash needs are for working capital, technology infrastructure investments, acquisitions, debt principal and interest payments, and tax distributions[256](index=256&type=chunk) - The company expects its liquidity sources to be sufficient to fund operations, planned capital expenditures, and debt obligations for at least the next twelve months and the foreseeable future[256](index=256&type=chunk) - Acquisitions are expected to be funded through a combination of net cash from operating activities, borrowings under the 2023 Credit Agreement, and the issuance of equity and debt securities[256](index=256&type=chunk) [Cash Flows](index=52&type=section&id=Cash%20Flows) This section provides a detailed breakdown of cash generated from or used in operating, investing, and financing activities Cash Flow Summary (in thousands) | Cash Flow Activity | Nine months ended June 30, 2023 (in thousands) | Nine months ended June 30, 2022 (in thousands) | | :--------------------------------------- | :------------------------------------------- | :------------------------------------------- | | Net cash provided by operating activities | $29,623 | $35,840 | | Net cash used in investing activities | $(115,415) | $(109,350) | | Net cash provided by financing activities | $82,229 | $85,695 | - Net cash provided by operating activities decreased by **$6.2 million**, primarily due to a decrease in non-cash contingent consideration and an increase in the provision for income taxes[260](index=260&type=chunk) - Net cash used in investing activities increased by **$6.1 million**, mainly driven by **$102.0 million** used for acquisitions, net of cash acquired, in 2023[261](index=261&type=chunk) - Net cash provided by financing activities decreased by **$3.5 million**, primarily due to an increase in payments on the revolving credit facility, partially offset by increased proceeds from the facility and decreased cash paid for contingent consideration[262](index=262&type=chunk) [2023 Senior Secured Revolving Credit Facility](index=53&type=section&id=2023%20Senior%20Secured%20Revolving%20Credit%20Facility) This section details the terms, interest rates, and financial covenants of the company's new $450 million senior secured revolving credit facility - On May 8, 2023, i3 Verticals, LLC entered into a new **$450 million** senior secured revolving credit facility (the '2023 Credit Agreement')[263](index=263&type=chunk) - Borrowings accrue interest at the Adjusted Term SOFR rate or the base rate, plus applicable margins ranging from **2.00% to 3.00%** for Term SOFR and **1.00% to 2.00%** for the base rate, depending on the consolidated total net leverage ratio[267](index=267&type=chunk)[268](index=268&type=chunk)[269](index=269&type=chunk) - The facility includes financial covenants requiring a minimum consolidated interest coverage ratio of **3.0 to 1.0** and a maximum total net leverage ratio of **5.0 to 1.0**[264](index=264&type=chunk) - As of June 30, 2023, the company was in compliance with these covenants, with a consolidated interest coverage ratio of **4.31x** and a total leverage ratio of **4.00x**[264](index=264&type=chunk) [Exchangeable Notes](index=55&type=section&id=Exchangeable%20Notes) This section provides information on the company's outstanding 1% Exchangeable Senior Notes due 2025, including their principal amount and settlement terms - i3 Verticals, LLC issued **$138.0 million** aggregate principal amount of **1.0%** Exchangeable Senior Notes due February 15, 2025, on February 18, 2020[276](index=276&type=chunk) - As of June 30, 2023, **$117.0 million** aggregate principal amount of the Exchangeable Notes remained outstanding[276](index=276&type=chunk) - The company has irrevocably elected to settle the principal portion of its Exchangeable Notes only in cash upon conversion[276](index=276&type=chunk) [At-the-Market Program](index=55&type=section&id=At-the-Market%20Program) This section describes the company's equity offering program for selling Class A common stock and its remaining capacity - The company has an at-the-market (ATM) offering sales agreement to issue and sell up to **$125 million** of Class A common stock[277](index=277&type=chunk) - No Class A common stock was sold under the ATM Program during the quarter ended June 30, 2023[277](index=277&type=chunk) - As of June 30, 2023, the company had a remaining capacity to sell up to **$107 million** of Class A common stock under the ATM Program[277](index=277&type=chunk) [Material Cash Requirements](index=55&type=section&id=Material%20Cash%20Requirements) This section outlines the company's significant contractual obligations and their expected cash payment schedules Contractual Obligations (in thousands) | Contractual Obligations | Total (in thousands) | Less than 1 year (in thousands) | 1 to 3 years (in thousands) | 3 to 5 years (in thousands) | More than 5 years (in thousands) | | :--------------------------------------- | :------------------- | :------------------------------ | :-------------------------- | :-------------------------- | :------------------------------- | | Processing minimums | $3,302 | $3,031 | $271 | $0 | $0 | | Facility leases | $17,635 | $5,163 | $8,075 | $2,951 | $1,446 | | 2023 Credit Agreement and related interest | $391,715 | $22,755 | $45,780 | $323,180 | $0 | | Exchangeable Notes and related interest | $118,901 | $1,170 | $117,731 | $0 | $0 | | Contingent consideration | $17,856 | $16,680 | $1,176 | $0 | $0 | | **Total** | **$549,409** | **$48,799** | **$173,033** | **$326,131** | **$1,446** | [Tax Receivable Agreement](index=56&type=section&id=Tax%20Receivable%20Agreement) This section details the company's obligations under the Tax Receivable Agreement to pay a percentage of certain tax benefits to continuing equity owners - The company is obligated under a Tax Receivable Agreement (TRA) to pay **85%** of certain tax benefits to the Continuing Equity Owners[280](index=280&type=chunk) - As of June 30, 2023, the total amount due under the TRA was **$40.9 million**[281](index=281&type=chunk) - Payments to the Continuing Equity Owners related to exchanges through June 30, 2023, are expected to range from **$0 to $3.3 million** per year and are projected to be paid over the next **24 years**[281](index=281&type=chunk) [Critical Accounting Estimates](index=56&type=section&id=Critical%20Accounting%20Estimates) This section highlights the key accounting estimates and judgments that significantly impact the company's financial statements - The company's financial statements rely on estimates and judgments, particularly for revenue recognition, goodwill and intangible assets, contingent consideration, and equity-based compensation[282](index=282&type=chunk) - No significant changes to critical accounting estimates were disclosed as of June 30, 2023, compared to the Form 10-K filed on November 18, 2022[283](index=283&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=54&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section discusses the company's exposure to market risks, primarily interest rate risk associated with its 2023 Senior Secured Credit Facility and foreign currency exchange rate risk from international operations [Interest Rate Risk](index=56&type=section&id=Interest%20Rate%20Risk) This section assesses the company's exposure to fluctuations in interest rates, particularly concerning its variable-rate debt - The company's 2023 Senior Secured Credit Facility, with **$277.4 million** outstanding as of June 30, 2023, accrues interest at variable rates (Term SOFR or base rate plus margins)[285](index=285&type=chunk)[287](index=287&type=chunk) - A **1.0%** increase or decrease in the interest rate applicable to borrowings under the 2023 Credit Agreement would have a **$2.8 million** impact on the business results[287](index=287&type=chunk) - As of June 30, 2023, the company was in compliance with its financial covenants, including a minimum consolidated interest coverage ratio of **3.0 to 1.0** and a maximum total leverage ratio of **5.0 to 1.0**[286](index=286&type=chunk)[287](index=287&type=chunk) [Foreign Currency Exchange Rate Risk](index=57&type=section&id=Foreign%20Currency%20Exchange%20Rate%20Risk) This section discusses the company's exposure to risks arising from changes in foreign currency exchange rates due to international operations - The company is exposed to foreign currency exchange rate risks due to its international operations[288](index=288&type=chunk) - A **10%** change in foreign currency exchange rates would not have a material impact on the company's consolidated results of operations, financial position, or cash flows for the three months ended June 30, 2023[288](index=288&type=chunk) [Item 4. Controls and Procedures](index=57&type=section&id=Item%204.%20Controls%20and%20Procedures) This section details the evaluation of the company's disclosure controls and procedures and reports on any changes in internal control over financial reporting [Evaluation of Disclosure Controls and Procedures](index=57&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) This section reports on the effectiveness of the company's controls designed to ensure timely and accurate disclosure of financial information - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of June 30, 2023[289](index=289&type=chunk) - These controls ensure that information required to be disclosed in SEC reports is recorded, processed, summarized, and reported timely and accurately[289](index=289&type=chunk) [Changes in Internal Control over Financial Reporting](index=57&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) This section reports on any material changes to the company's internal control over financial reporting during the quarter - There have been no changes in the company's internal control over financial reporting during the quarter ended June 30, 2023, that materially affected, or are reasonably likely to materially affect, its internal control over financial reporting[290](index=290&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=57&type=section&id=Item%201.%20Legal%20Proceedings) Information regarding legal proceedings is incorporated by reference from Note 12 to the unaudited condensed consolidated financial statements - Information required for this item is incorporated by reference from Note 12 to the accompanying unaudited condensed consolidated financial statements[292](index=292&type=chunk) [Item 1A. Risk Factors](index=57&type=section&id=Item%201A.%20Risk%20Factors) The company reports no material changes to the risk factors previously disclosed in its Annual Report on Form 10-K for the fiscal year ended September 30, 2022 - There have been no material changes to the risk factors disclosed in the company's Form 10-K for the fiscal year ended September 30, 2022[293](index=293&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=59&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reports no unregistered sales of equity securities or use of proceeds during the period - None[294](index=294&type=chunk) [Item 3. Defaults Upon Senior Securities](index=59&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reports no defaults upon senior securities during the period - None[295](index=295&type=chunk) [Item 4. Mine Safety Disclosures](index=59&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[296](index=296&type=chunk) [Item 5. Other Information](index=59&type=section&id=Item%205.%20Other%20Information) The company reports no other information to disclose, specifically noting that no director or officer adopted or terminated any Rule 10b5-1 or non-Rule 10b-5 trading arrangements during the three months ended June 30, 2023 - No other information to disclose[297](index=297&type=chunk) - No director or officer adopted or terminated any Rule 10b5-1 or non-Rule 10b-5 trading arrangements during the three months ended June 30, 2023[297](index=297&type=chunk) [Item 6. Exhibits](index=59&type=section&id=Item%206.%20Exhibits) This section provides an index of exhibits filed with the Quarterly Report on Form 10-Q, including corporate governance documents, credit agreements, and various certifications - Includes Amended and Restated Certificate of Incorporation and Bylaws[298](index=298&type=chunk) - Includes the Credit Agreement and Security and Pledge Agreement, both dated May 8, 2023[298](index=298&type=chunk) - Includes certifications from the Chief Executive Officer and Chief Financial Officer (Exhibits 31.1, 31.2, 32.1, 32.2) and XBRL-related documents[298](index=298&type=chunk) SIGNATURES [SIGNATURES](index=61&type=section&id=SIGNATURES) This section formally certifies the accuracy and completeness of the Quarterly Report on Form 10-Q by authorized officers - The report was signed by Clay Whitson, Chief Financial Officer, on behalf of i3 Verticals, Inc[303](index=303&type=chunk) - Date of signature: August 9, 2023[303](index=303&type=chunk)

VERTICALS Revenue Composition See footnotes continued on the next slide Annualized Recurring Revenue ("ARR") 3 Although these non-GAAP financial measures assist in measuring the Company's operating results and assessing its financial performance, they are not necessarily comparable to similarly titled measures of other companies due to potential inconsistencies in the method of calculation. The Company believes that its provision of these non-GAAP financial measures provides investors with important key fin ...

Financial Data and Key Metrics Changes - Revenues for Q2 2023 increased by 20% to $93.9 million from $78.1 million in Q2 2022, driven by organic growth and acquisitions [12] - Adjusted EBITDA rose by 27% to $24.7 million for Q2 2023 from $19.5 million for Q2 2022, reflecting continued momentum in the Software & Services segment [51] - Annual recurring revenues (ARR) grew by 20% to $305.7 million for Q2 2023 compared to $254.5 million for Q2 2022 [12] Business Line Data and Key Metrics Changes - Software & Services segment revenues increased by 24% to $60.8 million for Q2 2023 from $49 million for Q2 2022, primarily due to growth in the public sector vertical [36] - Merchant Services segment revenues increased by 13% to $33.1 million for Q2 2023 from $29.2 million for Q2 2022, driven by growth in ISO, ISV, and B2B channels [52] Market Data and Key Metrics Changes - The education sub-vertical within the public sector saw a strong rebound, benefiting from organic sales to new school districts and higher fees at existing districts [36] - Over 80% of revenues in the quarter continued to come from recurring sources, indicating a stable revenue base [12] Company Strategy and Development Direction - The company is focusing on enhancing its software and services offerings, which now represent over 50% of total revenue, and aims to increase this percentage to 60-65% over the next few years [94] - The acquisition strategy remains active, with discussions ongoing for larger deals than historically pursued, targeting businesses with $10 million to $12 million in EBITDA [60][91] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the public sector's demand for technology modernization, driven by positive budget levels and the need for improved infrastructure [106] - The company anticipates that the strong first half of the fiscal year will support its guidance for fiscal year 2023, with revenues projected between $360 million and $380 million [53] Other Important Information - The company successfully upsized its revolving credit facility to $450 million, providing greater flexibility for future acquisitions [49][80] - Adjusted EBITDA as a percentage of revenues improved to 26.3% for Q2 2023 from 25% for Q2 2022, reflecting margin improvement [51] Q&A Session Summary Question: Did you disclose organic growth in the second quarter? - Yes, organic growth for the quarter was approximately 12%, benefiting from strong software license sales [86] Question: What defines larger deals in your acquisition strategy? - The company is looking at deals as high as $10 million or $12 million in EBITDA, compared to historical targets of $2 million to $5 million [60] Question: How sustainable are the strong public sector budgets? - The company sees continued demand for technology upgrades in local governments, but the sustainability may be affected by the expiration of American rescue plan dollars by the end of 2024 [106] Question: How is the integrated software and payment solutions helping win deals? - The integration of software and payment solutions is crucial for winning contracts, as local governments seek comprehensive solutions to modernize their operations [106] Question: What is the expected impact of the new unified RFP team on bookings and revenue? - The timing for new bookings can vary significantly, but the company aims to improve response times and win rates through a more structured approach to RFPs [110]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2023 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number: 001-38532 i3 Verticals, Inc. (Exact name of registrant as specified in its charter) Delaware 82-4052852 (State or other jurisdiction of incorp ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number: 001-38532 i3 Verticals, Inc. (Exact name of registrant as specified in its charter) Delaware 82-4052852 (State or other jurisdiction of inc ...