i3 Verticals(IIIV) - 2025 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION This section provides the unaudited condensed consolidated financial statements and management's discussion and analysis of i3 Verticals, Inc. for the periods ended June 30, 2025 and 2024 Item 1. Financial Statements This section presents i3 Verticals, Inc.'s unaudited condensed consolidated financial statements, including balance sheets, statements of operations, equity changes, and cash flows, with detailed notes for periods ended June 30, 2025 and 2024 Condensed Consolidated Balance Sheets The Condensed Consolidated Balance Sheets show a decrease in total assets and liabilities from September 30, 2024, to June 30, 2025, primarily driven by changes in current assets and liabilities, and the reclassification of assets and liabilities held for sale | Metric | June 30, 2025 (in thousands) | September 30, 2024 (in thousands) | | :-------------------------------- | :----------------------------- | :-------------------------------- | | Total Assets | $623,274 | $730,675 | | Total Liabilities | $112,153 | $215,316 | | Total Equity | $511,121 | $515,359 | | Cash and cash equivalents | $55,544 | $86,525 | | Current assets held for sale | $— | $5,484 | | Long-term assets held for sale | $— | $67,409 | | Current liabilities held for sale | $— | $4,072 | - Total assets decreased by $107.4 million, and total liabilities decreased by $103.2 million from September 30, 2024, to June 30, 2025[12] Condensed Consolidated Statements of Operations The Condensed Consolidated Statements of Operations show a significant improvement in net income for the three and nine months ended June 30, 2025, compared to the prior year, largely due to net income from discontinued operations and a substantial decrease in interest expense | Metric (in thousands) | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Nine months ended June 30, 2025 | Nine months ended June 30, 2024 | | :-------------------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Revenue | $51,901 | $46,183 | $158,257 | $139,909 | | Total operating expenses | $56,714 | $47,493 | $155,956 | $138,964 | | (Loss) income from operations | $(4,813) | $(1,310) | $2,301 | $945 | | Interest expense | $806 | $7,906 | $1,932 | $22,307 | | Net income from discontinued operations | $19,421 | $6,109 | $18,185 | $18,951 | | Net income (loss) | $18,425 | $(8,298) | $22,302 | $(3,414) | | Net (loss) income attributable to i3 Verticals, Inc. | $12,882 | $(7,545) | $14,784 | $(4,569) | | Basic EPS (continuing operations) | $(0.02) | $(0.50) | $0.10 | $(0.76) | | Diluted EPS (continuing operations) | $(0.03) | $(0.50) | $0.10 | $(0.76) | | Basic EPS (discontinued operations) | $0.55 | $0.18 | $0.52 | $0.56 | | Diluted EPS (discontinued operations) | $0.55 | $0.18 | $0.49 | $0.56 | - Revenue from continuing operations increased by 12.4% for the three months and 13.1% for the nine months ended June 30, 2025, compared to the same periods in 2024[15] - Interest expense significantly decreased by 89.8% for the three months and 91.3% for the nine months ended June 30, 2025, primarily due to a lower average outstanding debt balance[15] Condensed Consolidated Statement of Change in Equity The Condensed Consolidated Statement of Changes in Equity reflects various transactions impacting stockholders' equity and non-controlling interest, including equity-based compensation, net income/loss, redemptions of common units, and repurchases of Class A common stock | Metric (in thousands) | Balance at Sep 30, 2024 | Balance at Jun 30, 2025 | | :-------------------------------------- | :---------------------- | :---------------------- | | Total Equity | $515,359 | $511,121 | | Additional Paid-In Capital | $279,335 | $268,111 | | Accumulated Earnings | $100,397 | $115,181 | | Non-Controlling Interest | $135,624 | $127,826 | - Repurchases of Class A common stock amounted to $11,190 thousand by December 31, 2024, and an additional $26,366 thousand by June 30, 2025[19] - Equity-based compensation recognized was $3,814 thousand by December 31, 2024, and an additional $11,328 thousand by June 30, 2025[19] Condensed Consolidated Statements of Cash Flows The Condensed Consolidated Statements of Cash Flows show a shift from cash provided by operating activities in 2024 to cash used in 2025, primarily due to income tax payments related to the Merchant Services Business sale. Investing activities significantly increased cash due to the sale of the Healthcare RCM Business, while financing activities used more cash for debt repayment and share repurchases | Cash Flow Activity (in thousands) | Nine months ended June 30, 2025 | Nine months ended June 30, 2024 | | :-------------------------------- | :------------------------------ | :------------------------------ | | Net cash (used in) provided by operating activities | $(8,276) | $33,266 | | Net cash provided by (used in) investing activities | $78,774 | $(16,755) | | Net cash used in financing activities | $(104,283) | $(15,215) | | Net (decrease) increase in cash, cash equivalents and restricted cash | $(33,785) | $1,296 | | Cash, cash equivalents and restricted cash at end of period | $55,812 | $13,696 | - Cash paid for income taxes increased significantly to $35,112 thousand for the nine months ended June 30, 2025, from $6,984 thousand in the prior year[28] - Proceeds from the sale of the Healthcare RCM Business, net of cash sold, amounted to $96,102 thousand in 2025[25] Notes to the Unaudited Condensed Consolidated Financial Statements These notes provide detailed explanations and disclosures for the unaudited condensed consolidated financial statements, covering the Company's organization, significant accounting policies, discontinued operations, acquisitions, debt, equity, and other material financial information - The unaudited condensed consolidated financial statements are prepared in accordance with GAAP for interim financial information[59] - Following the disposal of the Merchant Services Business, the Company reclassified certain personnel and hosting costs from 'selling, general and administrative' to 'other costs of services' to reflect its core software solutions business model[67] - The Company operates as a single reportable segment as of June 30, 2025, after the disposition of the Healthcare RCM Business[109] 1. ORGANIZATION AND OPERATIONS i3 Verticals, Inc. was formed in 2018 as a Delaware corporation to conduct the business of i3 Verticals, LLC, which delivers software solutions integrated with a proprietary payment facilitator platform to strategic vertical markets. The Company operates as a holding company, consolidating i3 Verticals, LLC's financial results and reporting a non-controlling interest - i3 Verticals, Inc. was formed on January 17, 2018, for an IPO and to carry on the business of i3 Verticals, LLC[34] - i3 Verticals, LLC, founded in 2012, provides software solutions integrated with a proprietary payment facilitator platform[34] - The Company operates as a holding company, consolidating i3 Verticals, LLC's financial results and reporting a non-controlling interest for units held by other owners[35] 2. DISCONTINUED OPERATIONS This section details the divestitures of the Healthcare RCM Business and the Merchant Services Business, reclassifying their financial results as discontinued operations. The Healthcare RCM Business was sold for $96.4 million in cash, while the Merchant Services Business was sold for approximately $439.5 million in cash Healthcare RCM Business Divestiture The Company completed the sale of its Healthcare Revenue Cycle Management (RCM) Business to Infinx, Inc. for $96.4 million in cash. The financial results of this business are now reported as discontinued operations, with associated transition services agreements generating additional income - The Healthcare RCM Business was sold to Infinx, Inc. for $96,443 thousand in cash on May 5, 2025[36] - Financial results of the Healthcare RCM Business are included in income from discontinued operations, net of income taxes[42] | Metric (in thousands) | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Nine months ended June 30, 2025 | Nine months ended June 30, 2024 | | :-------------------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Revenue | $3,601 | $9,993 | $22,463 | $29,426 | | Net income from discontinued operations | $19,425 | $561 | $18,729 | $2,001 | Merchant Services Business Divestiture The Company completed the sale of its Merchant Services Business to Payroc Buyer, LLC for approximately $439.5 million in cash on September 20, 2024. This business's financial results are also reclassified as discontinued operations, with ongoing transition and processing services agreements - The Merchant Services Business was sold to Payroc Buyer, LLC for approximately $439,516 thousand in cash on September 20, 2024[48] - The Merchant Services Business comprised the Company's entire former Merchant Services segment and a small portion of the Software and Services segment[48] | Metric (in thousands) | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Nine months ended June 30, 2025 | Nine months ended June 30, 2024 | | :-------------------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Revenue | $— | $38,383 | $— | $111,893 | | Net (loss) income from discontinued operations | $(4) | $5,548 | $(544) | $16,950 | 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This section outlines the significant accounting policies applied in preparing the condensed consolidated financial statements, including basis of presentation, principles of consolidation, revenue recognition, and recent accounting pronouncements. Notably, the Company reclassified certain expenses to 'other costs of services' following the Merchant Services Business divestiture to better align with its software solutions business model Basis of Presentation The financial statements are unaudited and prepared in accordance with GAAP for interim financial information, including all necessary adjustments for fair presentation. They should be read in conjunction with the Company's Annual Report on Form 10-K - Statements are unaudited and prepared under GAAP for interim financial information, including normal recurring adjustments[59] - Recommended to be read with the Annual Report on Form 10-K for the year ended September 30, 2024[60] Principles of Consolidation The condensed consolidated financial statements include the accounts of the Company and its subsidiaries, with all intercompany accounts and transactions eliminated - Consolidated financial statements include the Company and its subsidiaries, with intercompany accounts and transactions eliminated[61] Restricted Cash Restricted cash, held in escrow or on deposit with processing banks, is presented as long-term assets and included with cash and cash equivalents in the consolidated statements of cash flows - Restricted cash represents funds held in escrow or on deposit with processing banks to cover potential merchant losses[63] - Presented as long-term assets and included with cash and cash equivalents in cash flow statements[63] Settlement Assets and Obligations Settlement assets and obligations arise from temporary holding or owing of funds on behalf of counterparties due to timing differences and other items in the settlement process, generally collected and paid within one to four days - Settlement assets and obligations arise from funds temporarily held or owed on behalf of merchants, consumers, schools, and other institutions[64] - Balances are generally collected and paid within one to four days[64] | Metric (in thousands) | June 30, 2025 | September 30, 2024 | | :-------------------- | :------------ | :----------------- | | Settlement assets | $18 | $632 | | Settlement obligations | $18 | $632 | Reclassifications Certain prior period amounts have been reclassified to conform with the current period presentation, with no impact on previously reported consolidated net income (loss) - Prior period amounts reclassified to conform with current period presentation, with no impact on consolidated net income (loss)[65] Discontinued operations The financial results of the Merchant Services Business and Healthcare RCM Business have been reclassified as discontinued operations for all periods presented in the condensed consolidated statements of operations - Results of Merchant Services Business and Healthcare RCM Business reclassified as discontinued operations for all periods presented[66] Change in presentation of certain costs to other costs of services Following the Merchant Services Business disposal, the Company reclassified personnel and hosting costs related to customer support and software services from 'selling, general and administrative' to 'other costs of services' to better reflect its software solutions business model. This change has no impact on total operating expenses or earnings per share - Reclassified personnel costs for software installation, data conversion, training, and customer support from SG&A to other costs of services[67] - Reclassified certain hosting and related software costs for customer support from SG&A to other costs of services[67] - This change has no impact on total operating expenses or earnings per share[70][71] Inventories Inventories, consisting of point-of-sale equipment, are valued at the lower of cost or net realizable value and included in prepaid expenses and other current assets - Inventories consist of point-of-sale equipment for sale to customers[72] - Valued at the lower of cost (weighted average or specific basis) or net realizable value[72] | Metric (in thousands) | June 30, 2025 | September 30, 2024 | | :-------------------- | :------------ | :----------------- | | Inventories | $2,380 | $2,423 | Acquisitions Business acquisitions are accounted for using the acquisition method, allocating purchase price to acquired assets and assumed liabilities at fair value, with goodwill recorded for any excess consideration. Acquisition costs are expensed as incurred - Business acquisitions are recorded using the acquisition method of accounting (ASC 805)[73] - Purchase price is allocated to assets acquired and liabilities assumed based on estimated fair value[73] - Goodwill is recorded when total consideration exceeds the fair values of separately identifiable assets and liabilities[73] Lease Expense Leases are recorded under ASC 842, recognizing right-of-use assets and obligations at the present value of fixed lease payments. The Company combines lease and non-lease components and excludes short-term leases from balance sheet recognition - Leases are recorded in accordance with ASC 842, Leases[77] - Company combines associated lease and non-lease components and excludes short-term leases from balance sheet recognition[77] - Leased assets and obligations are recognized at the lease commencement date based on the present value of fixed lease payments[78] Revenue Recognition and Deferred Revenue Revenue is recognized as performance obligations are satisfied, categorized into software and related services, proprietary payments, and other sources. The Company acts as an agent for payment authorization services, presenting revenue net of interchange and network fees. Deferred revenue represents amounts billed in advance and recognized over the contract term - Revenue is recognized as each performance obligation is satisfied, in accordance with ASC 606[80] - Revenue from continuing operations is derived from software and related services, proprietary payments, and other sources[85] | Revenue Source (in thousands) | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Nine months ended June 30, 2025 | Nine months ended June 30, 2024 | | :------------------------------ | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Software and related services | $36,245 | $31,963 | $110,528 | $95,428 | | Proprietary payments | $13,100 | $11,797 | $40,594 | $37,923 | | Other revenue | $2,556 | $2,423 | $7,135 | $6,558 | | Total revenue | $51,901 | $46,183 | $158,257 | $139,909 | Contract Assets Contract assets represent unbilled amounts for partially completed performance obligations, such as consulting services or software licenses sold under a non-cancellable subscription model where revenue is recognized upfront - Contract assets include unbilled amounts for partially completed performance obligations, like consulting services[96] - Also includes software licenses sold as a right-to-use license but paid for under a non-cancellable subscription model[96] | Metric (in thousands) | June 30, 2025 | September 30, 2024 | | :-------------------- | :------------ | :----------------- | | Contract assets | $9,417 | $8,680 | Contract Liabilities Deferred revenue, a contract liability, represents amounts billed to customers for services contracts where payment is collected upfront and recognized over the contract term, typically one year - Deferred revenue represents amounts billed to customers for services contracts, with payment typically collected at the start of the contract term[101] - The balance is recognized as services are provided over the contract term, with most deferred revenue recognized within the next year[101] | Metric (in thousands) | Balance at Sep 30, 2024 | Balance at Jun 30, 2025 | | :-------------------- | :---------------------- | :---------------------- | | Deferred revenue | $39,156 | $30,577 | Costs to Obtain and Fulfill a Contract Incremental costs to obtain new contracts and renewals, such as commissions and incentives, are capitalized and amortized over the expected customer life. Sales commissions for recurring revenues or existing customer portfolios are expensed as incurred - Incremental costs to obtain new contracts and renewals are capitalized and amortized over the expected customer life[103] - Capitalized contract costs were $1,140 thousand as of June 30, 2025, and $857 thousand as of September 30, 2024[103] - Sales commissions for recurring monthly revenues or existing customer portfolios are expensed as incurred[105] Other Cost of Services Other costs of services include direct costs related to software and payment processing, such as personnel, processing fees, bank sponsorship, chargeback losses, and equipment costs. Following the Merchant Services Business divestiture, certain expenses were reclassified to this category - Other costs of services include direct costs for software and related services, payment processing, chargebacks, and equipment sold[106] - Personnel costs for software installation, client data conversion, training, and customer support were reclassified to this category[106] - Certain hosting and related software costs for customer support were also reclassified[106] Use of Estimates The preparation of financial statements requires management to make estimates and assumptions, including those for acquisitions, goodwill, intangible assets, revenue recognition, loss reserves, equity-based compensation, and income taxes. Actual results may differ from these estimates - Management makes estimates and assumptions for financial statement preparation, affecting reported amounts of assets, liabilities, revenues, and expenses[108] - Estimates include acquisition valuations, goodwill impairment, revenue recognition, loss reserves, equity-based compensation, and income taxes[108] Segment Information As of June 30, 2025, the Company operates as a single reportable segment, with the Chief Executive Officer reviewing discrete financial information on a consolidated basis for resource allocation and performance evaluation - The Company has determined it operates as a single reportable segment as of June 30, 2025[109] - The Chief Executive Officer, as CODM, reviews discrete financial information on a consolidated basis[109] Recent Accounting Pronouncements The Company is evaluating the impact of recently issued accounting pronouncements, including ASU 2023-09 (Income Tax Disclosures), ASU 2023-07 (Segment Reporting), and ASU 2024-03 (Expense Disaggregation Disclosures), which will become effective in future fiscal years - ASU 2023-09 (Income Taxes) improves income tax disclosures, effective for annual periods beginning after December 15, 2024[110][112] - ASU 2023-07 (Segment Reporting) enhances interim disclosure requirements for segment reporting, effective for fiscal years beginning after December 15, 2023[113] - ASU 2024-03 (Expense Disaggregation Disclosures) requires disaggregation of certain expenses in financial statement notes, effective for fiscal years beginning after December 15, 2026[114] 4. ACQUISITIONS During the nine months ended June 30, 2025, the Company completed two business acquisitions, including a Utility Billing Software Company for $10.3 million, expanding its public sector offerings. In the prior year, it acquired Eduloka, Ltd. for $27.5 million and another business for $1.3 million, all aimed at expanding software offerings and customer footprint Business Combinations during nine months ended June 30, 2025 On April 1, 2025, the Company acquired a Utility Billing Software Company for $10.26 million, comprising $9.0 million in cash and $1.26 million in contingent consideration, to expand its public sector utility billing software offerings - Acquired Utility Billing Software Company on April 1, 2025, for $10,260 thousand[115] - Purchase consideration included $9,000 thousand in cash and $1,260 thousand in estimated fair value of contingent cash consideration[115] - The acquisition expands the Company's public sector utility billing software offerings[115] Other Business Combinations nine months ended June 30, 2025 During the nine months ended June 30, 2025, the Company purchased assets of another business for $2.0 million in cash to expand its customer footprint, allocating the purchase price to property, customer relationships, non-compete agreements, and goodwill - Purchased certain assets of a business for $2,000 thousand in cash to expand customer footprint[121] - Allocated $1,700 thousand to customer relationships and $211 thousand to goodwill[121] Pro Forma Results of Operations for 2025 Business Combinations Unaudited pro forma results for 2025 acquisitions, assuming they occurred on October 1, 2023, show pro forma revenue of $1,437 thousand and net income of $131 thousand for the nine months ended June 30, 2025 | Metric (in thousands) | Nine Months Ended June 30, 2025 | | :-------------------- | :------------------------------ | | Revenue | $1,437 | | Net income (loss) | $131 | - Pro forma results assume acquisitions occurred on October 1, 2023, and include adjustments for depreciation, amortization, executive compensation, and debt[123] Business Combinations during the year ended September 30, 2024 On August 1, 2024, the Company acquired Eduloka Ltd. ('inLumon') for $27.477 million, including cash, Class A common stock, and contingent consideration, to expand its permitting and licensing software offerings - Acquired Eduloka Ltd. ('inLumon') on August 1, 2024, for $27,477 thousand[125] - Consideration included $18,000 thousand in cash, 311,634 shares of Class A common stock ($7,517 thousand), and $1,960 thousand in contingent cash consideration[125] - The acquisition expands the Company's permitting and licensing software offerings[125] Other Business Combinations during the year ended September 30, 2024 During the three months ended December 31, 2023, the Company acquired assets of another business for $1.27 million, including cash and contingent consideration, to expand its software offerings - Acquired assets of a business for $1,270 thousand during the three months ended December 31, 2023[133] - Consideration included $1,100 thousand in cash and $170 thousand in estimated fair value of contingent cash consideration[133] - Allocated $1,005 thousand to goodwill, which is deductible for tax purposes[135] 5. PREPAID EXPENSES AND OTHER CURRENT ASSETS Prepaid expenses and other current assets increased to $12.77 million as of June 30, 2025, from $9.973 million as of September 30, 2024, primarily due to increases in prepaid licenses and other current assets | Metric (in thousands) | June 30, 2025 | September 30, 2024 | | :-------------------- | :------------ | :----------------- | | Inventory | $2,380 | $2,423 | | Prepaid licenses | $6,714 | $5,013 | | Prepaid insurance | $517 | $129 | | Other current assets | $2,964 | $2,213 | | Total | $12,770 | $9,973 | - Prepaid licenses increased by $1,701 thousand from September 30, 2024, to June 30, 2025[137] 6. GOODWILL AND INTANGIBLE ASSETS Goodwill increased to $248.195 million as of June 30, 2025, due to preliminary purchase price adjustments from acquisitions. Finite-lived intangible assets, primarily customer relationships, totaled $138.692 million, with an estimated future amortization expense of $138.692 million | Metric (in thousands) | June 30, 2025 | | :-------------------- | :------------ | | Goodwill | $248,195 | | Customer relationships | $137,746 | | Trade names | $831 | | Non-compete agreements and other intangible assets | $115 | | Trademarks | $16 | | Total identifiable intangible assets | $138,708 | - Goodwill increased by $5,207 thousand due to preliminary purchase price adjustments during the nine months ended June 30, 2025[138] - Amortization expense for intangible assets from continuing operations was $2,882 thousand for the three months and $8,467 thousand for the nine months ended June 30, 2025[141] 7. ACCRUED EXPENSES AND OTHER LIABILITIES Accrued expenses and other current liabilities significantly decreased to $21.915 million as of June 30, 2025, from $88.252 million as of September 30, 2024, primarily due to reductions in accrued tax distributions, income tax expense, and tax receivable agreement liabilities. Long-term liabilities saw an increase in accrued contingent consideration | Metric (in thousands) | June 30, 2025 | September 30, 2024 | | :-------------------------------------- | :------------ | :----------------- | | Accrued wages, bonuses, commissions and vacation | $9,380 | $4,673 | | Accrued tax distributions | $— | $24,276 | | Accrued income tax expense | $2,004 | $30,528 | | Tax receivable agreement liability – current portion | $— | $9,850 | | Other accrued liabilities related to the Sale of the Merchant Services Business | $— | $7,887 | | Accrued expenses and other current liabilities | $21,915 | $88,252 | | Metric (in thousands) | June 30, 2025 | September 30, 2024 | | :-------------------------------------- | :------------ | :----------------- | | Accrued contingent consideration – long-term portion | $3,778 | $1,636 | | Deferred tax liability – long-term | $9,380 | $11,402 | | Other long-term liabilities | $2,300 | $1,883 | | Total other long-term liabilities | $15,458 | $14,921 | - Accrued tax distributions and accrued income tax expense significantly decreased to zero or minimal amounts by June 30, 2025[144] 8. LONG-TERM DEBT, NET The Company's long-term debt decreased to zero as of June 30, 2025, primarily due to the full repayment of the 1% Exchangeable Senior Notes due 2025. The 2023 Senior Secured Credit Facility, with a $400 million revolving credit facility, had no outstanding borrowings as of June 30, 2025 2020 Exchangeable Notes Offering i3 Verticals, LLC issued $138 million of 1.0% Exchangeable Senior Notes due 2025 in February 2020. The remaining principal balance of $26.223 million was fully repaid upon maturity on February 15, 2025 - Issued $138,000 thousand aggregate principal amount of 1.0% Exchangeable Senior Notes due 2025 on February 18, 2020[149] - Repurchased $90,777 thousand in aggregate principal amount of Exchangeable Notes in January 2024[152] - The remaining principal balance of $26,223 thousand was repaid in full on February 15, 2025[151][154] Exchangeable Note Hedge Transactions The Company entered into Note Hedge Transactions concurrently with the Exchangeable Notes offering to reduce potential dilution. These transactions expired in February 2025 upon the maturity of the Exchangeable Notes - Note Hedge Transactions were entered into to reduce potential dilution to Class A common stock upon exchange of Exchangeable Notes[155] - The Note Hedge Transactions expired in February 2025 upon the maturity and payment in full of the Exchangeable Notes[158] Warrant Transactions The Company sold Warrants to acquire Class A common stock, which expire over a ninety-trading-day period starting May 15, 2025. These warrants do not require separate derivative accounting - Sold Warrants to acquire up to 3,376,391 shares of Class A common stock at an initial exercise price of $62.88 per share[159] - The Warrants expire over a ninety trading day period that began on May 15, 2025[159] - The Warrants do not require separate accounting as a derivative[160] 2023 Senior Secured Credit Facility The 2023 Senior Secured Credit Facility provides a $400 million senior secured revolving credit facility, amended in May 2025 to permit the Healthcare RCM Transactions and reduce commitments. As of June 30, 2025, there were no outstanding borrowings, and the Company was in compliance with all financial covenants - The 2023 Senior Secured Credit Facility provides for aggregate commitments of $400,000 thousand in a senior secured revolving credit facility[163][177] - The facility was amended on May 5, 2025, to permit Healthcare RCM Transactions and reduce commitments from $450,000 thousand to $400,000 thousand[177] - As of June 30, 2025, the Borrower's consolidated interest coverage ratio was 87.1x and total leverage ratio was 0.0x, indicating compliance with covenants[164] Debt issuance costs Debt issuance costs of $249 thousand were incurred during the three and nine months ended June 30, 2025, and are amortized over the debt term. An additional $295 thousand was recorded for the write-off of debt issuance costs in connection with the Second Amendment to the Credit Agreement - Incurred $249 thousand in debt issuance costs during the three and nine months ended June 30, 2025[179] - Amortization of deferred debt issuance costs amounted to $216 thousand for three months and $746 thousand for nine months ended June 30, 2025[179] - Recorded $295 thousand for the write-off of debt issuance costs due to the Second Amendment to the Credit Agreement[179] 9. STOCKHOLDERS' EQUITY This section details changes in stockholders' equity, primarily focusing on the Company's share repurchase program. The Company repurchased 1,573,881 shares of Class A Common Stock for $37.979 million under the Prior Share Repurchase Program, which terminated on August 8, 2025 Share Repurchase Program The Company repurchased 1,573,881 shares of Class A Common Stock for $37.979 million under the Prior Share Repurchase Program during the nine months ended June 30, 2025. This program, which authorized up to $50 million in repurchases, terminated on August 8, 2025, and was replaced by a new program - Repurchased 1,573,881 shares of Class A Common Stock for $37,979 thousand under the Prior Share Repurchase Program during the nine months ended June 30, 2025[181] - The Prior Share Repurchase Program, authorizing up to $50,000 thousand, terminated on August 8, 2025[180] - As of June 30, 2025, $12,445 thousand remained available under the Prior Share Repurchase Program[183] 10. INCOME TAXES The Company's income tax provision for continuing operations was a benefit of $22 thousand for the three months and a provision of $3,272 thousand for the nine months ended June 30, 2025. The effective tax rate differs from the federal statutory rate due to the Company's Up-C tax structure, where i3 Verticals, LLC is a pass-through entity - The Company's tax provision for interim periods is determined using an estimate of its annual effective tax rate, adjusted for discrete items[188] | Metric (in thousands) | Three months ended June 30, 2025 | Nine months ended June 30, 2025 | Three months ended June 30, 2024 | Nine months ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------ | :------------------------------- | :------------------------------ | | Income tax (benefit) provision | $(22) | $3,272 | $5,191 | $3,153 | - The effective tax rate differs from the federal statutory rate of 21% primarily due to the Company's Up-C tax structure, where i3 Verticals, LLC is not taxed at the entity-level[188] Tax Receivable Agreement The Tax Receivable Agreement (TRA) obligates the Company to pay Continuing Equity Owners 85% of certain tax benefits realized from future redemptions or exchanges of Common Units. During the nine months ended June 30, 2025, the Company recognized an increase of $6,907 thousand in net deferred tax assets and a corresponding $5,871 thousand in TRA liabilities - The TRA provides for payments to Continuing Equity Owners of 85% of certain tax benefits realized from future redemptions or exchanges of Common Units[189] - During the nine months ended June 30, 2025, the Company recognized a $6,907 thousand increase in net deferred tax assets and $5,871 thousand in TRA liabilities[190] - The total amount due under the TRA was $35,117 thousand as of June 30, 2025, with payments expected over the next 26 years[191][192] 11. LEASES The Company's leases, primarily for real estate, are classified as operating leases under ASC 842. The weighted-average remaining lease term was 2 years, and the weighted-average discount rate was 7.4% as of June 30, 2025. Operating lease costs from continuing operations were $640 thousand for the three months and $1,447 thousand for the nine months ended June 30, 2025 - The Company's leases consist primarily of real estate leases and are classified as operating leases[194] - Weighted-average remaining lease term was 2 years, and the weighted-average discount rate was 7.4% as of June 30, 2025[194][195] | Metric (in thousands) | Three months ended June 30, 2025 | Nine months ended June 30, 2025 | | :-------------------- | :------------------------------- | :------------------------------ | | Operating lease costs | $640 | $1,447 | 12. FAIR VALUE MEASUREMENTS The Company applies ASC 820 for fair value measurements, primarily for Level 3 financial instruments like accrued contingent consideration. The fair value of contingent consideration obligations, which includes unobservable inputs, is calculated using Monte Carlo simulations and discounted cash flow analyses, and is revalued each period - The Company applies ASC 820, Fair Value Measurement, using a three-tier hierarchy[201] - The Company has no Level 1 or Level 2 financial instruments measured at fair value on a recurring basis[204] - Fair value of contingent consideration obligations, a Level 3 measurement, is calculated using Monte Carlo simulations and discounted cash flow analyses[209] 13. EQUITY-BASED COMPENSATION Equity-based compensation expense for continuing operations was $4,879 thousand for the three months and $12,030 thousand for the nine months ended June 30, 2025. The Company grants stock options under the 2018 Equity Incentive Plan and the 2020 Acquisition Equity Incentive Plan, and Restricted Stock Units (RSUs) under the 2018 Plan | Metric (in thousands) | Three Months Ended June 30, 2025 | Nine Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Nine Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------ | :------------------------------- | :------------------------------ | | Stock options | $1,610 | $5,435 | $2,819 | $9,953 | | Restricted stock units | $3,269 | $6,595 | $951 | $2,724 | | Total | $4,879 | $12,030 | $3,770 | $12,677 | - The 2018 Equity Incentive Plan allows for grants of up to 3,500,000 stock options and other equity-based awards[213] - The 2020 Acquisition Equity Incentive Plan allows for grants of up to 3,000,000 stock options and other equity-based awards for new employees from acquisitions[215] Stock Options As of June 30, 2025, 8,512,121 stock options were outstanding with a weighted-average exercise price of $24.55. Total unrecognized compensation expense for unvested options was $11,154 thousand, expected to be recognized over 2.4 years | Metric | Stock Options | Weighted Average Exercise Price | | :-------------------------- | :------------ | :------------------------------ | | Outstanding at Sep 30, 2024 | 9,120,944 | $24.48 | | Granted | 120,000 | $24.54 | | Exercised | (556,458) | $22.22 | | Forfeited | (172,365) | $28.06 | | Outstanding at Jun 30, 2025 | 8,512,121 | $24.55 | - Total unrecognized compensation expense for unvested stock options was $11,154 thousand, expected to be recognized over a weighted-average period of 2.4 years[218] - The Company fully accelerated vesting for 40,853 options held by Healthcare RCM Business employees prior to divestiture[219] Restricted Stock Units As of June 30, 2025, 1,163,209 Restricted Stock Units (RSUs) were outstanding with a weighted-average grant date fair value of $24.61. Total unrecognized compensation expense for unvested RSUs was $18,812 thousand, expected to be recognized over 2.9 years | Metric | Restricted Stock Units | Weighted Average Grant Date Fair Value | | :-------------------------- | :--------------------- | :------------------------------------- | | Outstanding at Sep 30, 2024 | 771,214 | $22.71 | | Granted | 722,649 | $26.33 | | Vested | (284,257) | $23.65 | | Forfeited | (46,397) | $23.08 | | Outstanding at Jun 30, 2025 | 1,163,209 | $24.61 | - Total unrecognized compensation expense for unvested RSUs was $18,812 thousand, expected to be recognized over a weighted average period of 2.9 years[222] - The Company fully accelerated vesting for 96,613 RSUs held by Healthcare RCM Business employees prior to divestiture[223] 14. COMMITMENTS AND CONTINGENCIES This section details the Company's commitments, primarily operating leases, and ongoing litigation, including the PaySchools Litigation regarding alleged unlawful fees and the S&S Litigation concerning alleged cybersecurity inadequacies. The Company believes these matters will not have a material adverse effect on its financial condition Leases Rent expense from continuing operations under operating leases for office space and equipment amounted to $700 thousand for the three months and $1,557 thousand for the nine months ended June 30, 2025 - Rent expense from continuing operations was $700 thousand for the three months and $1,557 thousand for the nine months ended June 30, 2025[224] Litigation The Company is involved in ordinary course legal proceedings, including the PaySchools and S&S litigations. While outcomes are unpredictable, management believes these matters will not have a material adverse effect on the Company's consolidated financial statements - The Company is involved in ordinary course legal proceedings, including claims, lawsuits, investigations, and unasserted claims[226] - Management believes these matters will not have a material impact on the Company's consolidated balance sheet, results of operations, or cash flows[226] PaySchools Litigation A class action complaint was filed against PaySchools, a subsidiary, alleging unlawful fees for school lunch services in New York. The plaintiff seeks unspecified monetary damages and injunctive relief. The case is pending in federal court - Class action complaint filed against PaySchools on May 16, 2025, alleging unlawful fees for school lunch services[228] - Plaintiff seeks unspecified monetary damages, restitution, disgorgement, attorneys' fees, and injunctive relief[228] - The matter was removed to the United States District Court for the Eastern District of New York and remains pending[229] S&S Litigation A petition was filed against S&S, a subsidiary, and others, seeking monetary damages for network remediation and other expenses related to alleged cybersecurity inadequacies. The case was remanded to state court and is in the discovery phase - Petition filed on June 2, 2021, against S&S and others, seeking monetary damages for network remediation ($15,000 thousand for the State, $7,000 thousand for Sheriffs/Districts)[230] - Claims relate to a third-party remote access software product and alleged inadequacies in cybersecurity practices[230] - The case was remanded to the 19th Judicial District Court for the Parish of East Baton Rouge and is in the discovery phase[230][231] 15. RELATED PARTY TRANSACTIONS Related party transactions primarily involve the Tax Receivable Agreement (TRA) with Continuing Equity Owners, totaling $35.117 million as of June 30, 2025. Additionally, recapitalization actions were effected in January 2025 to reduce excess cash held by the Company, resulting in an increase in the Company's ownership interest in i3 Verticals, LLC to 70.83% - The Tax Receivable Agreement (TRA) with Continuing Equity Owners requires payments of 85% of certain tax benefits[235] - Total amount due under the TRA was $35,117 thousand as of June 30, 2025[235] - Recapitalization actions in January 2025, including a $21,396 thousand cash contribution, increased the Company's ownership in i3 Verticals, LLC to 70.83%[235][236] 16. SEGMENTS Following the divestitures of the Merchant Services Business and the Healthcare RCM Business, the Company now operates as a single operating and reportable segment as of June 30, 2025, focusing on mission-critical enterprise software solutions for public sector customers - After the sale of the Merchant Services Business and Healthcare RCM Business, the Company has one operating and reportable segment as of June 30, 2025[241] - The core business for continuing operations is providing mission-critical enterprise software solutions to public sector customers[241] - Consolidated net income is the measure of segment profit or loss used by the CODM to allocate resources and assess performance[243] 17. NON-CONTROLLING INTEREST i3 Verticals, Inc. consolidates i3 Verticals, LLC's financial results and reports a non-controlling interest for Common Units held by Continuing Equity Owners. As of June 30, 2025, i3 Verticals, Inc. owned a 73.8% economic interest in i3 Verticals, LLC, an increase from 70.0% in the prior year - i3 Verticals, Inc. consolidates i3 Verticals, LLC's financial results and reports a non-controlling interest[245] - As of June 30, 2025, i3 Verticals, Inc. owned a 73.8% economic ownership interest in i3 Verticals, LLC, up from 70.0% in 2024[246] | Metric (in thousands) | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | :-------------------------------------- | :------------------------------ | :------------------------------ | | Net income attributable to non-controlling interest | $7,518 | $1,155 | | Net transfers (from) to non-controlling interests | $(15,316) | $3,545 | 18. EARNINGS PER SHARE This section provides reconciliations for basic and diluted earnings per share (EPS) for both continuing and discontinued operations. For continuing operations, basic EPS was $(0.02) for the three months and $0.10 for the nine months ended June 30, 2025. For discontinued operations, basic EPS was $0.55 for the three months and $0.52 for the nine months ended June 30, 2025 - Basic EPS for continuing operations was $(0.02) for the three months and $0.10 for the nine months ended June 30, 2025[249] - Basic EPS for discontinued operations was $0.55 for the three months and $0.52 for the nine months ended June 30, 2025[254] - Diluted EPS for consolidated operations was $0.50 for the three months and $0.60 for the nine months ended June 30, 2025[261] 19. SIGNIFICANT NON-CASH TRANSACTIONS Significant non-cash investing activities for continuing operations during the nine months ended June 30, 2025, included $1,260 thousand in acquisition date fair value of contingent consideration and $22 thousand in right-of-use assets obtained for operating lease obligations | Non-Cash Transaction (in thousands) | Nine months ended June 30, 2025 | Nine months ended June 30, 2024 | | :---------------------------------- | :------------------------------ | :------------------------------ | | Acquisition date fair value of contingent consideration | $1,260 | $170 | | Right-of-use assets obtained in exchange for operating lease obligations | $22 | $538 | 20. SUBSEQUENT EVENTS On August 7, 2025, the Company's Board of Directors approved a new share repurchase program for up to $50 million of Class A common stock, replacing the prior program that terminated on August 8, 2025. The new program will terminate on September 30, 2026, or when the maximum amount is expended New Share Repurchase Program A new share repurchase program for up to $50 million of Class A common stock was approved on August 7, 2025, replacing the prior program. It will terminate on September 30, 2026, or upon full expenditure, and allows repurchases in the open market or privately - New share repurchase program approved on August 7, 2025, for up to $50,000 thousand of Class A common stock[269] - Replaced the Prior Share Repurchase Program, which terminated on August 8, 2025[271] - The new program terminates on the earlier of September 30, 2026, or when the maximum dollar amount is expended[272] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial condition and results of operations, highlighting the strategic shift to a public sector software solutions focus following divestitures, recent acquisitions, and key financial performance indicators. It also discusses liquidity, cash flows, debt, and critical accounting estimates Note Regarding Forward-looking Statements This section contains forward-looking statements about future events and results, which involve risks and uncertainties. Readers are cautioned not to place undue reliance on these statements, as actual results may differ materially due to various factors, including cybersecurity risks, economic conditions, and the ability to execute growth strategies - The report includes forward-looking statements about future events or results, identifiable by terms like 'believes,' 'estimates,' 'anticipates,' 'expects,' etc[275] - Forward-looking statements involve risks and uncertainties, including cybersecurity, economic conditions, and the ability to execute strategy post-divestitures[276] - Readers are cautioned not to place undue reliance on these statements, as actual results may differ materially[277][278] Executive Overview Following the sale of its Healthcare RCM Business, i3 Verticals now focuses on providing mission-critical enterprise software solutions to public sector customers across all 50 states and Canada. The Company has transitioned to a single operating segment - After the sale of the Healthcare RCM Business, i3 Verticals provides mission-critical enterprise software solutions to public sector customers[279] - The Company's solutions address government functions including courts, transportation, utilities, revenue, and schools[279] - The Company has updated its segment presentation and now operates as a single operating and reportable segment as of June 30, 2025[281] Recent Developments Recent developments include ongoing economic uncertainty due to inflationary pressures, elevated interest rates, and geopolitical situations. These conditions could impact the Company's financial results, particularly given its operations in Canada and reliance on government spending - Ongoing economic uncertainty from inflation, elevated interest rates, and geopolitical situations (Middle East, Ukraine, India-Pakistan tensions) could impact the Company[282] - Canadian governmental actions to reduce business with U.S. companies due to trade tensions could adversely affect financial results[282] Liquidity As of June 30, 2025, the Company had $55.5 million in cash and cash equivalents and $400.0 million in available capacity under its 2023 Senior Secured Credit Facility, with compliance in financial covenants (interest coverage ratio of 87.1x and total leverage ratio of 0.0x) - As of June 30, 2025, cash and cash equivalents were $55.5 million[283] - Available capacity under the 2023 Senior Secured Credit Facility was $400.0 million[283] - The Company was in compliance with financial covenants, with a consolidated interest coverage ratio of 87.1x and total leverage ratio of 0.0x[283] Sale of Healthcare RCM Business On May 5, 2025, the Company completed the sale of its Healthcare RCM Business to Infinx, Inc. for $96.4 million in cash. The financial results of this business have been reclassified as discontinued operations - Sale of Healthcare RCM Business completed on May 5, 2025, for $96.4 million in cash[284] - The Healthcare RCM Business contributed $3.6 million and $22.5 million of revenue for the three and nine months ended June 30, 2025, respectively[284] - Results of operations for the Healthcare RCM Business have been reclassified as discontinued operations[285] Sale of Merchant Services Business On September 20, 2024, the Company sold its Merchant Services Business to Payroc Buyer, LLC for approximately $439.5 million in cash. The financial results of this business have been reclassified as discontinued operations - Sale of Merchant Services Business completed on September 20, 2024, for approximately $439.5 million in cash[287] - The Merchant Services Business comprised the Company's entire former Merchant Services segment and a small portion of the Software and Services segment[287] - Results of operations for the Merchant Services Business have been reclassified as discontinued operations[288] Acquisitions Acquisitions are a core growth strategy, with the Company completing two acquisitions during the nine months ended June 30, 2025, totaling $12.3 million, and two acquisitions during the nine months ended June 30, 2024, totaling $28.77 million, to expand software offerings and customer footprint - Acquisitions are a core component of the Company's growth strategy[289] Acquisitions during the nine months ended June 30, 2025 The Company acquired a Utility Billing Software Company for $10.3 million (cash and contingent consideration) and assets of another business for $2.0 million in cash, both aimed at expanding public sector software offerings and customer footprint - Acquired a Utility Billing Software Company for $10.3 million (including $9.0 million cash and $1.3 million contingent consideration) on April 1, 2025[290] - Acquired certain assets of another business for $2.0 million in cash to expand customer footprint[291] Acquisitions during the nine months ended June 30, 2024 During the nine months ended June 30, 2024, the Company acquired one business for $1.3 million (cash and contingent consideration) to expand its software offerings - Acquired one business for $1.3 million (including $1.1 million cash and $0.2 million contingent consideration) during the nine months ended June 30, 2024[292] Our Revenue and Expenses The Company generates revenue from software and related services, proprietary payments (volume-based and fixed fees), and other sources. Expenses include other costs of services (reclassified to align with the software business model), selling, general and administrative, depreciation and amortization, and interest expense Revenues Revenue is generated from software and related services (subscriptions, support, licenses), volume-based payment processing fees (discount fees), and other fixed transaction or service fees. Interchange and network fees are presented net of revenue - Revenue sources include software and related services (subscriptions, recurring services, support, licenses, installation)[293] - Also generates revenue from volume-based payment processing fees ('discount fees') and fixed transaction/service fees[293] - Interchange and network fees are presented net of revenue[294] Expenses Expenses include other costs of services (direct software/payment processing costs, reclassified personnel/hosting costs), selling, general and administrative (salaries, professional services, internal technology), depreciation and amortization (property, equipment, software, intangibles), and interest expense (debt, amortization of issuance costs) - Other costs of services include direct software and payment processing costs, reclassified personnel costs for software services, and hosting costs[295] - Selling, general and administrative expenses include salaries, professional services, internal technology, rent, and utilities[296] - Depreciation and amortization cover property, equipment, computer hardware/software, acquired intangible assets, and internally developed software[297] How We Assess Our Business Following the divestitures of the Merchant Services and Healthcare RCM Businesses, the Company now operates as a single segment focused on public sector software and services. Key performance indicators include Annualized Recurring Revenue (ARR) and Adjusted EBITDA margin - After divestitures, the Company has one operating and reportable segment focused on public sector software and services[301][302] - Key performance indicators are Annualized Recurring Revenue (ARR) and Adjusted EBITDA margin[303][307] - ARR from continuing operations for the three months ended June 30, 2025, was $160.8 million, representing a 12% growth rate year-over-year[305] Key Performance Indicators The Company uses Annualized Recurring Revenue (ARR) to measure ongoing revenue potential and Adjusted EBITDA margin to assess operating performance. ARR for continuing operations grew 12% to $160.8 million for the three months ended June 30, 2025 - Annualized Recurring Revenue (ARR) is annualized revenue from recurring sources with ongoing contracts, including SaaS, transaction-based software, maintenance, and payments[303] - ARR from continuing operations for the three months ended June 30, 2025, was $160.8 million, a 12% growth rate from $143.6 million in 2024[305] - Adjusted EBITDA margin is a non-GAAP measure used to assess operating performance, excluding interest, tax, depreciation, amortization, stock-compensation, and M&A-related expenses[306] Results of Operations The Company's results of operations for continuing operations show increased revenue and improved net income for the three and nine months ended June 30, 2025, compared to the prior year, driven by organic growth, acquisitions, and significantly lower interest expense. Discontinued operations also contributed positively to net income - Revenue increased by