Business Segments - The company has two reportable segments: Public Sector and Healthcare, with an Other category after the sale of the Merchant Services Business[28] - The Public Sector segment serves state and local customers across the U.S. and parts of Canada, focusing on efficient information flow and responsive services[29] - The Public Sector segment includes five sub-verticals: JusticeTech and Public Safety, Transportation, Utilities, Enterprise Resource Planning (ERP), and Education[30] - The Healthcare segment focuses on integrated solutions for providers and payers, emphasizing process efficiency and compliance[33] - The Healthcare segment includes two sub-verticals: Provider Software Solutions and Payer Software Solutions[34][35] Payment Technology and Platforms - The company’s proprietary payment facilitator platform integrates payments across various products, enabling efficient processing of court, tax, registration, utility, and school payments[31] - The company’s payment technology platform supports ACH, EMV, PayPal, and Venmo payments, with unified APIs and PCI-compliant security[46] - The company has invested significant resources to ensure compliance with the EMV mandate, which requires chip-enabled card processing and sets new data security standards[105] - The company must be registered with payment networks through a sponsor bank and is subject to network operating rules and guidelines, including those from NACHA[106] Cloud and Technology Strategy - The company’s cloud-first strategy leverages AWS and Azure, with AWS cloud consolidation nearing completion, enhancing scalability and flexibility[40][41] Workforce Demographics - As of September 30, 2024, the company’s workforce is 54% female and 46% male, with 62% White, 22% Asian, 8% Black or African American, 4% Hispanic or Latino, and 4% Other[59] Regulatory Compliance - The company operates in a complex regulatory environment, including compliance with the Dodd-Frank Act and privacy laws such as the Gramm-Leach-Bliley Act[60][63] - All 50 states, Puerto Rico, and the U.S. Virgin Islands have enacted data breach notification laws requiring businesses to notify affected individuals, consumer reporting agencies, and governmental agencies in case of a security breach[66] - Many states have implemented comprehensive data privacy and security laws, including restrictions on collecting personal information like Social Security and driver's license numbers[66] - The California Consumer Privacy Act of 2018 (CCPA), amended by the California Privacy Rights Act of 2020 (CPRA), creates a private right of action for data breaches[66] - HIPAA regulations require covered entities and business associates to implement safeguards to protect protected health information (PHI), with a Notice of Proposed Rulemaking to strengthen HIPAA security rules expected by the end of 2024[73] - Business associates handling PHI on behalf of covered entities are subject to direct liability for HIPAA violations, with potential civil monetary penalties and criminal penalties[74] - The 21st Century Cures Act and Information Blocking Rule prohibit information blocking by healthcare providers, health information exchanges (HIEs), and developers of Certified Health Information Technology, with civil penalties up to $1 million per violation[79][80] - The Centers for Medicare & Medicaid Services (CMS) Interoperability and Patient Access Final Rule requires hospitals with certain EHR capabilities to send admission, discharge, and transfer notifications to other providers[82] - The Trusted Exchange Framework, Common Agreement - Version 1 (TEFCA) aims to establish a universal floor for interoperability across the country, with seven Qualified Health Information Networks (QHINs) currently live[83] - The Health Data, Technology, and Interoperability: Certification Program Updates, Algorithm Transparency, and Information Sharing (HTI-1) Final Rule became effective on February 8, 2024, advancing health IT interoperability and establishing transparency requirements for AI algorithms[86] - The federal Anti-Kickback Statute (AKS) prohibits offering, paying, soliciting, or receiving anything of value to generate referrals for Medicare, Medicaid, or other federal healthcare programs, with severe penalties including imprisonment and exclusion from federal healthcare programs[87] - The company may face significant consequences if it employs or contracts with an excluded individual or entity, including civil penalties, exclusion from federal healthcare programs, and treble damages[94] - The company is subject to U.S. federal anti-money laundering laws, including the Bank Secrecy Act, and must comply with risk-based anti-money laundering programs, suspicious activity reporting, and transaction record maintenance[95] - The company could be subject to enforcement actions, fines, and disgorgement of funds if deemed to have facilitated illegal or improper activities of customers through its services[96] - The company may need to register with FinCEN as a "money services business-provider of prepaid access" if it expands its prepaid card products and services[101] - The company is subject to payment network rules and standards, including PCI DSS, which govern transaction processing, data security, and liability allocation[103] - The company is subject to money transmitter licensing requirements in all U.S. states except Montana, which regulate funds transmission and payment instrument issuance[108] - The company is subject to U.S. federal and state unclaimed property laws, requiring remittance of unclaimed customer balances to government authorities[110] Intellectual Property - The company relies on intellectual property protections, including copyrights, trademarks, and trade secrets, to maintain its proprietary software and payment systems[112] Financial and Credit Facilities - The company entered into a $450 million senior secured revolving credit facility (Revolver) with JPMorgan Chase Bank, N.A., replacing the prior credit facility[286] - The Exchangeable Notes issued by the company have an outstanding principal amount of $26.2 million as of September 30, 2024, down from the original $138.0 million[287] - The company's ability to generate cash is dependent on successful execution of its business strategy, including acquisition activity, and external economic factors[289] - The 2023 Senior Secured Credit Facility contains restrictive covenants that limit the company's ability to engage in certain activities, such as incurring additional debt or making distributions[290] - The company must maintain specified financial ratios under the 2023 Senior Secured Credit Facility, and failure to comply could result in an event of default[291] - The company may face challenges in securing additional financing on favorable terms due to restrictive covenants in the 2023 Senior Secured Credit Facility[292] - The company's ability to repurchase Exchangeable Notes or pay cash upon exchanges is limited by existing indebtedness agreements, including the 2023 Senior Secured Credit Facility[296] - The company is a holding company with no operations of its own and relies on distributions from i3 Verticals, LLC to pay taxes and other expenses[298] - The Continuing Equity Owners hold approximately 31% of the combined voting power of the company's common stock as of November 22, 2024[303] - The company may not realize all expected tax benefits from future redemptions or exchanges of common units, which could negatively impact cash flows and stockholders' equity[305] - i3 Verticals, LLC is expected to make a substantial tax distribution in the first half of 2025 due to the taxable income from the sale of the Merchant Services Business in September 2024, with the company holding a 70.4% ownership interest as of September 30, 2024[311] - The company may receive distributions significantly in excess of its tax liabilities, with potential uses for excess cash including reinvestment in the business, recapitalization, or payment of a cash dividend on Class A common stock[312] - The company has 126,117,965 shares of Class A common stock authorized but unissued as of September 30, 2024, with 10,032,676 shares issuable upon redemption of common units held by Continuing Equity Owners[329] - Future issuances of Class A common stock or preferred stock could dilute existing stockholders and adversely affect the market price of Class A common stock[332][334] - Sales of Class A common stock under the Registration Rights Agreement could materially impact the market price and impair the company's ability to raise capital through future equity sales[337]

Financial Data and Key Metrics Changes - Revenues for Q4 2024 increased 4% to $60.9 million from $58.6 million for Q4 2023, reflecting organic growth of 2% and two months of revenue from a recent acquisition [13][12] - Annualized recurring revenues increased 7.5% to $188.2 million as of Q4 2024 compared to $175.1 million as of Q4 2023, with 77% of revenues coming from recurring sources [13] - Adjusted EBITDA increased 4% to $16.2 million for Q4 2024, with adjusted EBITDA as a percentage of revenues slightly declining to 26.7% from 26.8% in Q4 2023 [16][12] - Pro forma adjusted diluted earnings per share from continuing operations was $0.15 for Q4 2024 [17] Business Line Data and Key Metrics Changes - SaaS and payments revenue grew 8%, transaction-based revenues grew 11%, while maintenance and recurring software services grew 6% [13] - Non-recurring sales of software licenses declined 8%, and professional services revenue declined 7% due to implementation delays [14] - Revenues in the public sector vertical increased 6% to $49.6 million for Q4 2024, representing 81% of total revenues [18] - Revenue from the healthcare segment declined 3% to $11.4 million for Q4 2024, with expectations of low single-digit growth for fiscal 2025 [19] Market Data and Key Metrics Changes - The company anticipates high single-digit organic growth for fiscal 2025, with a guidance range for revenues set at $243 million to $263 million [21] - The company expects to resume acquisitions regularly, with a strong acquisition pipeline focused on public sector deals [29] Company Strategy and Development Direction - The company is transitioning to a pure-play vertical market software business, focusing on operational efficiency and technology transformation [8][25] - New product development is underway, including a rewrite of the CAMA platform and the JusticeTech 3.0 platform [28] - The company aims to enhance its cybersecurity measures and streamline back-office technologies to improve efficiency [26] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the long-term guidance of high single-digit organic growth, supported by a strong sales funnel and product pipeline [10][21] - The company noted that the healthcare segment faces challenges due to consolidation, impacting revenue growth expectations [19][70] - Management highlighted consistent demand in the public sector for configurable web-native applications, indicating a positive outlook for that market [49] Other Important Information - Following the sale of the Merchant Services business, the company has a strong balance sheet with $26.2 million in debt and $86.5 million in cash [20] - The company will incur approximately $65 million in tax-related payments due to the sale of the Merchant Services business [20] Q&A Session Summary Question: Was there any delayed implementation affecting Q4 revenue? - Management indicated no significant delays impacted Q4 revenue, noting a $2 million license fee received as expected [36][37] Question: How should growth be modeled for 2025? - Management expects a combination of new logo growth and improved net revenue retention to achieve high single-digit organic growth [38][39] Question: Update on the utility initiative and rollout timeline? - The company is currently rolling out the initial project and anticipates sales activities to begin in Q1 2025 [44][45] Question: Insights on the M&A environment? - Management noted a strong acquisition pipeline with more realistic valuations from sellers, expecting to complete 3 to 5 acquisitions in 2025 [46][47] Question: General health of customers and macro outlook? - Management reported consistent demand in the public sector and positive trends in sales activity across various verticals [49][50] Question: Clarification on margin expansion expectations? - Management confirmed expectations of 50 to 100 basis points margin expansion for 2025, driven by revenue growth outpacing corporate overhead [55][56] Question: Seasonality and timing of software payments? - Management indicated that software license sales are the most variable line item, with a disproportionate amount expected in Q2 [61] Question: Revenue expectations from the Tier 1 utility project? - The project will generate a mix of revenue types, including professional services and recurring payments, with significant revenue expected in 2025 [63]

Financial Data and Key Metrics Changes - Revenues for Q3 2024 declined 2% to $56 million from $57.3 million for Q3 2023, reflecting organic growth from recurring sources, offset by declines in non-recurring sources [7] - Adjusted EBITDA declined 11% to $12.9 million for Q3 2024 from $14.5 million for Q3 2023, with adjusted EBITDA as a percentage of revenues declining to 23% from 25.3% [9] - Annual Recurring Revenue (ARR) increased 4% to $181.3 million for Q3 2024 compared to $174.5 million for Q3 2023, with over 80% of revenues coming from recurring sources [8] Business Line Data and Key Metrics Changes - SaaS and transaction-based software revenues grew 8%, while payments revenues grew 9% [8] - Non-recurring sales of software licenses declined by approximately $2 million, reflecting the ongoing shift to SaaS [8] - Professional services revenues declined by $1.1 million, primarily due to delays in implementation caused by a public workers strike [8] Market Data and Key Metrics Changes - The company operates in the Public Sector and healthcare markets, with significant growth opportunities identified in these sectors [20] - The utility segment is experiencing broad adoption of the utility customer engagement software, with over 7 million utility customers under management [22] - The education business is expanding its client footprint in existing geographical markets, with new territories opened in North Carolina and Texas [21] Company Strategy and Development Direction - The company is focused on becoming a pure-play vertical software and services company following the anticipated sale of its Merchant Services business [11] - The recent acquisition of a permitting and licensing company is expected to enhance growth opportunities and cross-sell potential within the Public Sector [11][17] - The company aims for high-single-digit organic growth and annual EBITDA margin improvement of 50 to 100 basis points starting in fiscal year 2025 [13] Management's Comments on Operating Environment and Future Outlook - Management acknowledged that 2024 has been a challenging year due to realignment and divestiture, but expressed confidence in a stronger fiscal year 2025 [5][6] - The company anticipates tailwinds from the Manitoba project returning to normal cadence and continued momentum in the utilities market [13] - Management highlighted the importance of internal growth execution and the visibility of the sales funnel for future performance [6] Other Important Information - The company’s balance sheet remains strong, with borrowings under the revolver net of cash at $341.7 million and a consolidated leverage ratio of 3.6x [10] - The company plans to pay down all of its revolving credit facility following the anticipated sale of the Merchant Services business, leaving capacity for expansion [11] Q&A Session Summary Question: Can you elaborate on the EBITDA outlook for this year and next year? - Management identified $12 million in headwinds for 2024, including $3 million from Manitoba, $5 million from the SaaS transition, and $4 million from the education sector [27][28] Question: What is the growth profile of the recent acquisition? - The company expects double-digit growth from the recent acquisition in fiscal year 2025, with the potential for larger contracts to boost growth rates [30] Question: What are the underlying tailwinds driving demand? - Management noted that utility bills are stable, leading to consistent demand, and RFP activities are increasing, indicating a robust demand environment [40] Question: How does the competitive environment look now that the company is solely software-focused? - The competitive landscape remains consistent, with a focus on software and integrated payments, and the company emphasizes execution and delivery as key differentiators [42] Question: What are the cross-sell opportunities and their potential impact on growth? - Management indicated that cross-sell opportunities are significant, although specific annual growth contributions have yet to be quantified [44]

Core Viewpoint - I3 Verticals (IIIV) reported quarterly earnings of $0.07 per share, significantly missing the Zacks Consensus Estimate of $0.35 per share, representing an earnings surprise of -80% [1]. Financial Performance - The company posted revenues of $56.04 million for the quarter ended June 2024, missing the Zacks Consensus Estimate by 41.89%, compared to $93.93 million in the same quarter last year [2]. - Over the last four quarters, I3 Verticals has not surpassed consensus EPS or revenue estimates [2]. Stock Performance - I3 Verticals shares have increased approximately 11.7% since the beginning of the year, outperforming the S&P 500's gain of 9% [3]. - The current consensus EPS estimate for the upcoming quarter is $0.47 on revenues of $103.24 million, and for the current fiscal year, it is $1.51 on revenues of $386.19 million [7]. Industry Outlook - The Internet - Software industry, to which I3 Verticals belongs, is currently ranked in the top 38% of over 250 Zacks industries, indicating a favorable outlook compared to the bottom 50% [8].

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)