i3 Verticals(IIIV) - 2024 Q4 - Annual Report

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 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]