i3 Verticals, Inc. [IIIV] Filings

10-Q 1 iiiv-20240630.htm 10-Q iiiv-20240630

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 June 30, 2024


☐			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 incorporation or organization)			(I.R.S. Employer Identification No.)
40 Burton Hills Blvd., Suite 415
Nashville, TN			37215
(Address of principal executive offices)			(Zip Code)
(615) 465-4487
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A Common Stock, $0.0001 Par Value	IIIV	Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x

As of August 8, 2024, there were 23,756,157 outstanding shares of Class A common stock, $0.0001 par value per share, and 10,032,676 outstanding shares of Class B common stock, $0.0001 par value per share.

TABLE OF CONTENTS


			Page
PART I. FINANCIAL INFORMATION			3
Item 1. Financial Statements (Unaudited)			3
Condensed Consolidated Balance Sheets			4
Condensed Consolidated Statements of Operations			5
Condensed Consolidated Statement of Change in Equity			6
Condensed Consolidated Statements of Cash Flows			8
Notes to the Unaudited Condensed Consolidated Financial Statements			10
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations			44
Item 3. Quantitative and Qualitative Disclosures About Market Risk			61
Item 4. Controls and Procedures			62

PART II. OTHER INFORMATION			62
Item 1. Legal Proceedings			62
Item 1A. Risk Factors			63
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			64
Item 3. Defaults Upon Senior Securities			64
Item 4. Mine Safety Disclosures			64
Item 5. Other Information			64
Item 6. Exhibits			64

SIGNATURES			65

PART I. - FINANCIAL INFORMATION

Item 1. Financial Statements

i3 Verticals, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(In thousands, except share amounts)


	June 30,		September 30,
	2024		2023
Assets
Current assets
Cash and cash equivalents	$	9,745	$	3,105
Accounts receivable, net	48,655		50,785
Settlement assets	1,355		4,873
Prepaid expenses and other current assets	11,279		9,512
Current assets held for sale	237,002		17,269
Total current assets	308,036		85,544
Property and equipment, net	8,928		10,059
Restricted cash	2,396		4,215
Capitalized software, net	56,634		58,057
Goodwill	269,192		267,983
Intangible assets, net	154,039		163,149
Deferred tax asset	50,307		52,514
Operating lease right-of-use assets	9,564		11,815
Other assets	2,626		8,803
Long-term assets held for sale	—		219,354
Total assets	$	861,722	$	881,493

Liabilities and equity
Liabilities
Current liabilities
Accounts payable	$	5,955	$	6,369
Current portion of long-term debt	26,223		—
Accrued expenses and other current liabilities	22,827		33,580
Settlement obligations	1,355		4,873
Deferred revenue	29,497		32,785
Current portion of operating lease liabilities	3,477		3,657
Current liabilities held for sale	13,953		12,197
Total current liabilities	103,287		93,461
Long-term debt, less current portion and debt issuance costs, net	347,892		385,081
Long-term tax receivable agreement obligations	40,441		40,079
Operating lease liabilities, less current portion	6,949		8,968
Other long-term liabilities	17,238		23,078
Long-term liabilities held for sale	—		2,530
Total liabilities	515,807		553,197
Commitments and contingencies (see Note 13)
Stockholders' equity
Preferred stock, par value $0.0001 per share, 10,000,000 shares authorized; 0 shares issued and outstanding as of June 30, 2024 and September 30, 2023	—		—
Class A common stock, par value $0.0001 per share, 150,000,000 shares authorized; 23,442,698 and 23,253,272 shares issued and outstanding as of June 30, 2024 and September 30, 2023, respectively	2		2
Class B common stock, par value $0.0001 per share, 40,000,000 shares authorized; 10,032,676 and 10,093,394 shares issued and outstanding as of June 30, 2024 and September 30, 2023, respectively	1		1
Additional paid-in capital	267,176		249,688
Accumulated deficit	(17,513)		(12,944)
Total stockholders' equity	249,666		236,747
Non-controlling interest	96,249		91,549
Total equity	345,915		328,296
Total liabilities and equity	$	861,722	$	881,493

See Notes to the Interim Condensed Consolidated Financial Statements

i3 Verticals, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(In thousands, except share and per share amounts)


	Three months ended June 30,				Nine months ended June 30, 2024
	2024		2023		2024		2023

Revenue	$	56,037	$	57,260	$	169,059	$	168,138

Operating expenses
Other costs of services	4,722		3,944		13,540		11,272
Selling, general and administrative	45,033		45,045		131,548		132,510
Depreciation and amortization	6,969		6,665		21,216		19,289
Change in fair value of contingent consideration	(18)		6,183		(545)		9,891
Total operating expenses	56,706		61,837		165,759		172,962

(Loss) income from operations	(669)		(4,577)		3,300		(4,824)

Other expenses (income)
Interest expense, net	7,906		6,725		22,307		18,414
Other income	—		(92)		(2,150)		(295)
Total other expenses	7,906		6,633		20,157		18,119

Loss before income taxes	(8,575)		(11,210)		(16,857)		(22,943)

Provision for (benefit from) income taxes	5,271		(292)		3,507		(500)

Net loss from continuing operations	(13,846)		(10,918)		(20,364)		(22,443)
Net income from discontinued operations, net of income taxes	5,548		4,840		16,950		16,342
Net loss	(8,298)		(6,078)		(3,414)		(6,101)

Net loss from continuing operations attributable to non-controlling interest	(2,416)		(2,392)		(3,944)		(5,702)
Net income from discontinued operations attributable to non-controlling interest	1,663		1,469		5,099		4,960
Net (loss) income attributable to non-controlling interest	(753)		(923)		1,155		(742)

Net loss from continuing operations attributable to i3 Verticals, Inc.	(11,430)		(8,526)		(16,420)		(16,741)
Net income from discontinued operations attributable to i3 Verticals, Inc.	3,885		3,371		11,851		11,382
Net loss attributable to i3 Verticals, Inc.	$	(7,545)	$	(5,155)	$	(4,569)	$	(5,359)

Net loss per share attributable to Class A common stockholders from continuing operations:
Basic	$	(0.49)	$	(0.37)	$	(0.70)	$	(0.72)
Diluted	$	(0.49)	$	(0.37)	$	(0.70)	$	(0.72)
Net income per share attributable to Class A common stockholders from discontinued operations:
Basic	$	0.17	$	0.15	$	0.51	$	0.49
Diluted	$	0.15	$	0.13	$	0.46	$	0.44
Net loss per share attributable to Class A common stockholders:
Basic and diluted	$	(0.32)	$	(0.22)	$	(0.20)	$	(0.23)
Weighted average shares of Class A common stock outstanding:
Basic	23,420,811		23,179,638		23,339,598		23,104,212
Diluted, for continuing operations	23,420,811		23,179,638		23,339,598		23,104,212
Diluted, for discontinued operations	33,707,331		33,845,584		33,781,826		33,956,879

See Notes to the Interim Condensed Consolidated Financial Statements

i3 Verticals, Inc.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)

(In thousands, except share amounts)


	Class A Common Stock			Class B Common Stock			Additional Paid-In Capital		Retained Earnings (Deficit)		Non-Controlling Interest		Total Equity
	Shares	Amount		Shares	Amount
Balance at September 30, 2023	23,253,272	$	2	10,093,394	$	1	$	249,688	$	(12,944)	$	91,549	$	328,296
Equity-based compensation	—	—		—	—		6,508		—		—		6,508
Net income	—	—		—	—		—		1,098		438		1,536
Exercise of equity-based awards	25,898	—		—	—		(10)		—		—		(10)
Sale of exchangeable note hedges	—	—		—	—		1,483		—		—		1,483
Repurchases of warrants	—	—		—	—		(657)		—		—		(657)
Allocation of equity to non-controlling interests	—	—		—	—		(2,450)		—		2,450		—
Balance at December 31, 2023	23,279,170	2		10,093,394	1		254,562		(11,846)		94,437		337,156
Equity-based compensation	—	—		—	—		5,777		—		—		5,777
Net income	—	—		—	—		—		1,878		1,470		3,348
Redemption of common units in i3 Verticals, LLC	40,718	—		(40,718)	—		384		—		(384)		—
Establishment of liabilities under a tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis	—	—		—	—		42		—		—		42
Exercise or release of equity-based awards	96,630	—		—	—		(223)		—		—		(223)
Allocation of equity to non-controlling interests	—	—		—	—		(1,300)		—		1,300		—
Balance at March 31, 2024	23,416,518	2		10,052,676	1		259,242		(9,968)		96,823		346,100
Equity-based compensation	—	—		—	—		5,102		—		—		5,102
Net loss	—	—		—	—		—		(7,545)		(753)		(8,298)
Distributions to non-controlling interest holders	—	—		—	—		—		—		(839)		(839)
Redemption of common units in i3 Verticals, LLC	20,000	—		(20,000)	—		192		—		(192)		—
Establishment of liabilities under a tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis	—	—		—	—		4,300		—		—		4,300
Exercise of equity-based awards	6,180	—		—	—		(450)		—		—		(450)
Allocation of equity to non-controlling interests	—	—		—	—		(1,210)		—		1,210		—
Balance at June 30, 2024	23,442,698	$	2	10,032,676	$	1	$	267,176	$	(17,513)	$	96,249	$	345,915

See Notes to the Interim Condensed Consolidated Financial Statements

i3 Verticals, Inc.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED) (CONTINUED)

(In thousands, except share amounts)


	Class A Common Stock			Class B Common Stock			Additional Paid-In Capital		Retained Earnings (Deficit)		Non-Controlling Interest		Total Equity
	Shares	Amount		Shares	Amount
Balance at September 30, 2022	22,986,448	$	2	10,118,142	$	1	$	241,958	$	(23,582)	$	89,309	$	307,688
Adoption of ASU 2020-06	—	—		—	—		(23,382)		11,449		—		(11,933)
Equity-based compensation	—	—		—	—		6,846		—		—		6,846
Net (loss) income	—	—		—	—		—		(240)		409		169
Establishment of liabilities under a tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis	—	—		—	—		685		—		—		685
Exercise of equity-based awards	24,745	—		—	—		3		—		—		3
Allocation of equity to non-controlling interests	—	—		—	—		1,906		—		(1,906)		—
Balance at December 31, 2022	23,011,193	2		10,118,142	1		228,016		(12,373)		87,812		303,458
Equity-based compensation	—	—		—	—		6,802		—		—		6,802
Net loss	—	—		—	—		—		36		(228)		(192)
Redemption of common units in i3 Verticals, LLC	9,924	—		(9,924)	—		86		—		(86)		—
Establishment of liabilities under a tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis	—	—		—	—		349		—		—		349
Exercise of equity-based awards	64,443	—		—	—		(606)		—		—		(606)
Allocation of equity to non-controlling interests	—	—		—	—		(2,205)		—		2,205		—
Issuance of Class A common stock under the 2020 Inducement Plan	82,170	—		—	—		2,000		—		—		2,000
Balance at March 31, 2023	23,167,730	2		10,108,218	1		234,442		(12,337)		89,703		311,811
Equity-based compensation	—	—		—	—		7,198		—		—		7,198
Net loss	—	—		—	—		—		(5,155)		(923)		(6,078)
Exercise of equity-based awards	25,717	—		—	—		11		—		—		11
Allocation of equity to non-controlling interests	—	—		—	—		(1,734)		—		1,734		—
Balance at June 30, 2023	23,193,447	$	2	10,108,218	$	1	$	239,917	$	(17,492)	$	90,514	$	312,942

See Notes to the Interim Condensed Consolidated Financial Statements

i3 Verticals, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In thousands)


	Nine months ended June 30,
	2024		2023
Cash flows from operating activities:
Net loss	$	(3,414)	$	(6,101)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	29,865		26,849
Equity-based compensation	17,387		20,846
Amortization of debt issuance costs	897		1,312
Gain on repurchase of exchangeable notes	(2,397)		—
Loss on sale of exchangeable senior note hedges	245		—
Gain on repurchases of warrants	(105)		—
Provision for deferred income taxes	4,078		1,860
Non-cash lease expense	3,534		3,464
Changes in non-cash contingent consideration expense from original estimate	(545)		9,905
Other non-cash adjustments to net income	793		946
Changes in operating assets:
Accounts receivable	7,574		2,961
Prepaid expenses and other current assets	(1,398)		(200)
Other assets	(1,076)		(980)
Changes in operating liabilities:
Accounts payable	(415)		(1,111)
Accrued expenses and other current liabilities	(6,718)		(1,548)
Acquisition escrow obligations	(1,820)		(8,370)
Deferred revenue	(3,141)		(9,319)
Operating lease liabilities	(3,510)		(3,339)
Other long-term liabilities	(2)		2
Contingent consideration paid in excess of original estimates	(6,566)		(10,807)
Net cash provided by operating activities	33,266		26,370

Cash flows from investing activities:
Expenditures for property and equipment	(2,434)		(3,110)
Proceeds from sale of property and equipment	618		—
Expenditures for capitalized software	(9,223)		(8,914)
Purchases of merchant portfolios and residual buyouts	(4,585)		(462)
Acquisitions of businesses, net of cash and restricted cash acquired	(1,100)		(101,997)
Payments for other investing activities	(39)		(1,227)
Proceeds from other investing activities	8		295
Net cash used in investing activities	(16,755)		(115,415)

See Notes to the Interim Condensed Consolidated Financial Statements

i3 Verticals, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (CONTINUED)

(In thousands)


	Nine months ended June 30,
	2024		2023
Cash flows from financing activities:
Proceeds from revolving credit facility	296,043		310,436
Payments on revolving credit facility	(217,149)		(222,055)
Payments for repurchase of exchangeable notes	(87,840)		—
Proceeds from sale of exchangeable senior note hedges	1,238		—
Payments for repurchases of warrants	(552)		—
Payments of debt issuance costs	(906)		(694)
Net (payments for) proceeds from settlement obligations(1)	(3,518)		3,253
Cash paid for contingent consideration	(760)		(4,835)
Payments for required distributions to members for tax obligations	(1,117)		—
Proceeds from stock option exercises	25		154
Payments for employee's tax withholdings from net settled stock option exercises and RSU releases	(679)		(777)
Net cash (used in) provided by financing activities	(15,215)		85,482

Net increase (decrease) in cash, cash equivalents and restricted cash	1,296		(3,563)
Cash, cash equivalents and restricted cash at beginning of period	12,400		23,765
Cash, cash equivalents and restricted cash at end of period	$	13,696	$	20,202

Supplemental disclosure of cash flow information:
Cash paid for interest	$	21,773	$	14,488
Cash paid for income taxes	$	6,984	$	1,931

_________________________________________

1.Refer to Note 3 for discussion of the change in the current period presentation.

The following tables provide reconciliations of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets to that shown in the condensed consolidated statements of cash flows:


	September 30,
	2023		2022
Beginning balance
Cash and cash equivalents	$	3,112	$	3,490
Settlement assets	4,873		7,540
Restricted cash	4,415		12,735
Total cash, cash equivalents, and restricted cash	$	12,400	$	23,765

	June 30,
	2024		2023
Ending balance
Cash and cash equivalents	$	9,745	$	5,043
Settlement assets	1,355		10,793
Restricted cash	2,596		4,366
Total cash, cash equivalents, and restricted cash	$	13,696	$	20,202

See Notes to the Interim Condensed Consolidated Financial Statements

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except unit, share and per share amounts)

1. ORGANIZATION AND OPERATIONS

i3 Verticals, Inc. (the “Company”) was formed as a Delaware corporation on January 17, 2018. The Company was formed for the purpose of completing an initial public offering (“IPO”) of its Class A common stock and other related transactions in order to carry on the business of i3 Verticals, LLC and its subsidiaries. i3 Verticals, LLC was founded in 2012 and delivers seamlessly integrated software and payment solutions to customers in strategic vertical markets. The Company’s headquarters are located in Nashville, Tennessee, with operations throughout the United States. Unless the context otherwise requires, references to “we,” “us,” “our,” “i3 Verticals” and the “Company” refer to i3 Verticals, Inc. and its subsidiaries, including i3 Verticals, LLC.

In connection with the IPO, the Company completed certain reorganization transactions, which, among other things, resulted in i3 Verticals, Inc. being the sole managing member of i3 Verticals, LLC (the “Reorganization Transactions”). Following the completion of the IPO and Reorganization Transactions, the Company is a holding company and the principal asset that it owns are the common units of i3 Verticals, LLC. i3 Verticals, Inc. operates and controls all of i3 Verticals, LLC's operations and, through i3 Verticals, LLC and its subsidiaries, conducts i3 Verticals, LLC's business. i3 Verticals, Inc. has a majority economic interest in i3 Verticals, LLC. As the sole managing member of i3 Verticals, LLC, i3 Verticals, Inc. consolidates the financial results of i3 Verticals, LLC and reports a non-controlling interest representing the Common Units of i3 Verticals, LLC held by owners other than i3 Verticals, Inc. (the “Continuing Equity Owners”).

2. DISCONTINUED OPERATIONS

During the three months ended June 30, 2024, the Company made the strategic decision to discontinue a significant segment of its operations constituting its Merchant Services Business (as defined below). In this regard, on June 26, 2024, i3 Verticals, Inc., i3 Verticals, LLC and i3 Holdings Sub, Inc., a wholly-owned subsidiary of i3 Verticals, LLC, entered into a Securities Purchase Agreement (the “Purchase Agreement”) with Payroc Buyer, LLC ("Payroc") and Payroc WorldAccess LLC. Pursuant to the terms of the Purchase Agreement, Payroc would purchase the equity interests of certain direct and indirect wholly-owned subsidiaries of i3 Verticals, LLC and i3 Holdings Sub, Inc. (such wholly-owned subsidiaries, the "Acquired Entities") comprising the Merchant Services segment as well as certain non-core assets within the Company's Software and Services segment related to the Non-profit and Property Management vertical markets, including its associated proprietary technology (collectively, the "Merchant Services Business"), after giving effect to the contribution of certain assets (the "Contribution") and the assignment of certain liabilities associated with the Merchant Services Business from i3 Verticals, LLC and certain affiliates thereof to the Acquired Entities pursuant to a contribution agreement to be entered into immediately prior to the closing of the transactions pursuant to the Purchase Agreement (such transactions, collectively, the "Transactions"). The purchase price payable by Payroc to the Company for the equity interests of the Merchant Services Business would be $440,000 (the “Purchase Price”), payable in cash upon the closing of the Transactions, subject to adjustments for closing net working capital and other purchase price adjustments provided in the Purchase Agreement.

The closing of the Transactions is subject to certain closing conditions set forth in the Purchase Agreement, including the expiration or termination of the waiting period applicable to the Transactions under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Waiting Period"), the absence of certain legal impediments, the accuracy of the representations of the other party (subject to certain materiality qualifiers specified in the Purchase Agreement), the compliance by the other party of its covenants under the Purchase Agreement in all material respects, and, in the case of Payroc's closing obligations, the delivery by the Company of certain consents associated with the Merchant Services Business and the absence of any material adverse effect with respect to the Merchant Services Business. The HSR Waiting Period expired on August 5, 2024. The consummation of the sale is expected to occur during the three months ending September 30, 2024.

As a result of the anticipated sale of the Merchant Services Business pursuant to the terms of the Purchase Agreement, certain assets and liabilities of the Merchant Services Business met the held for sale criteria and the

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except unit, share and per share amounts)

disposal group also met the criteria for discontinued operations reporting as of June 30, 2024. As such, the financial results and related assets and liabilities of this discontinued segment have been presented separately from continuing operations in the accompanying unaudited condensed consolidated financial statements. The Company evaluated the disposal group for possible impairment and determined that it was more likely than not that the fair value of the reporting unit exceeded carrying value based on the purchase price of the Transactions less estimated incremental costs to sell. As such, the Company expects to record a gain on the sale upon closing of the Transactions.

In connection with the closing of the Transactions, the Company will enter into a Transition Services Agreement, pursuant to which, among other things, the Company or affiliates thereof will provide certain information technology and operational transition services to Payroc for a period of time after the closing, and a Processing Services Agreement with Payroc, pursuant to which the parties will provide certain payment processing services to customers of each party following the closing in accordance with the terms thereof.

Aggregate costs incurred related to the Transactions during the nine months ended June 30, 2024 were approximately $2,626 and were expensed as incurred. These costs include fees for third-party advisory, consulting, legal and professional services, as well as other items associated with the Transactions that are incremental in nature. The expenses are reflected within selling, general and administrative expenses within the Company's condensed consolidated statements of operations.

The following table presents the aggregate carrying amounts of the classes of assets and liabilities of discontinued operations of the Merchant Services Business:


	June 30,		September 30,
	2024		2023

Assets
Current assets
Cash and cash equivalents	$	—	$	7
Accounts receivable, net	16,158		14,325
Prepaid expenses and other current assets	2,510		2,937
Total current assets	18,668		17,269
Property and equipment, net	1,942		2,249
Restricted cash	200		200
Capitalized software, net	4,026		4,520
Goodwill	141,580		141,580
Intangible assets, net	62,276		63,803
Operating lease right-of-use assets	3,047		2,107
Other assets	5,263		4,895
Total assets	$	237,002	$	236,623

Liabilities and equity
Liabilities
Current liabilities
Accounts payable	$	4,712	$	4,695
Accrued expenses and other current liabilities	2,959		4,160
Deferred revenue	1,934		2,490
Current portion of operating lease liabilities	1,162		852
Total current liabilities	10,767		12,197
Operating lease liabilities, less current portion	2,017		1,465
Other long-term liabilities	1,169		1,065
Total liabilities	$	13,953	$	14,727

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except unit, share and per share amounts)

The financial results of the Merchant Services Business are presented as income from discontinued operations, net of income taxes on the Company’s consolidated statements of operations. The following table presents financial results of Merchant Services Business for the three and nine months ended June 30, 2024 and 2023:


	Three months ended June 30,				Nine months ended June 30,
	2024		2023		2024		2023

Revenue	$	38,383	$	36,671	$	111,893	$	105,694

Operating expenses
Other costs of services	18,116		16,588		50,902		48,259
Selling, general and administrative	10,305		10,381		31,484		31,123
Depreciation and amortization	3,088		2,493		8,649		7,560
Change in fair value of contingent consideration	—		—		—		14
Total operating expenses	31,509		29,462		91,035		86,956

Income from operations	6,874		7,209		20,858		18,738

Interest expense, net	—		—		56		—

Pretax income from discontinued operations	6,874		7,209		20,802		18,738
Provision for income taxes	1,326		2,369		3,852		2,396
Net income from discontinued operations	5,548		4,840		16,950		16,342

Net income from discontinued operations attributed to non-controlling interest	1,663		1,469		5,099		4,960
Net income from discontinued operations attributable to i3 Verticals, Inc.	3,885		3,371		11,851		11,382

The Company has elected to not separately disclose discontinued operations on its condensed consolidated statement of cash flows. The following table presents cash flows from discontinued operations for major captions on the condensed consolidated financial statements:


	Nine months ended June 30,
	2024		2023
Depreciation and amortization	$	8,649	$	7,560
Equity-based compensation	$	2,576	$	3,062
Non-cash lease expense	$	803	$	774
Contingent consideration paid in excess of original estimates	$	—	$	(3,211)
Expenditures for property and equipment	$	(626)	$	(1,136)
Expenditures for capitalized software	$	(817)	$	(1,101)
Purchases of merchant portfolios and residual buyouts	$	(4,585)	$	(462)
Acquisitions of businesses, net of cash and restricted cash acquired	$	—	$	(4,497)
Right-of-use assets obtained in exchange for operating lease obligations	$	1,739	$	785

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except unit, share and per share amounts)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and pursuant to the reporting and disclosure rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, such statements include all adjustments (consisting only of normal recurring items) which are considered necessary for fair presentation of the unaudited condensed consolidated financial statements of the Company and its subsidiaries as of June 30, 2024 and for the three and nine months ended June 30, 2024 and 2023. The results of operations for the three and nine months ended June 30, 2024 and 2023 are not necessarily indicative of the operating results for the full year.

As permitted by the rules and regulations of the SEC, certain information and disclosures otherwise included in the notes to the consolidated financial statements have been condensed or omitted from the summary of significant accounting policies. The Company believes the disclosures are adequate to make the information presented not misleading. It is recommended that these interim condensed consolidated financial statements be read in conjunction with the Company's consolidated financial statements and related footnotes for the years ended September 30, 2023 and 2022, included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2023 filed with the SEC on November 22, 2023.

Principles of Consolidation

These interim condensed consolidated financial statements include the accounts of the Company and its subsidiary companies. All intercompany accounts and transactions have been eliminated in consolidation.

Restricted Cash

Restricted cash represents funds held in escrow related to acquisitions or held-on-deposit with processing banks pursuant to agreements to cover potential merchant losses. It is presented as long-term assets on the accompanying condensed consolidated balance sheets since the related agreements extend beyond the next twelve months. Following the adoption of Accounting Standards Update (“ASU”) 2016-18, Statement of Cash Flows: Restricted Cash (Topic 230), the Company includes restricted cash along with the cash and cash equivalents balance for presentation in the consolidated statements of cash flows.

Settlement Assets and Obligations

Settlement assets and obligations result when funds are temporarily held or owed by the Company on behalf of merchants, consumers, schools, and other institutions. Timing differences, interchange expenses, merchant reserves and exceptional items cause differences between the amount received from the card networks and the amount funded to counterparties. These balances arising in the settlement process are reflected as settlement assets and obligations on the accompanying consolidated balance sheets. With the exception of merchant reserves, settlement assets or settlement obligations are generally collected and paid within one to four days. Settlement assets and settlement obligations were both $1,355 as of June 30, 2024 and $4,873 as of September 30, 2023, respectively.

Reclassifications

Certain prior period amounts have been reclassified in order to conform with the current period presentation. These reclassifications have no impact on the Company’s previously reported consolidated net income (loss).

Discontinued operations

The results of operations for the Company's Merchant Services Business have been reclassified as discontinued operations for all periods presented in the condensed consolidated statements of operations. Assets

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except unit, share and per share amounts)

and liabilities subject to the sale of the Merchant Services Business have been reclassified as held for sale for all periods presented in the condensed consolidated balance sheets. Refer to Note 2 for additional information.

Change in presentation

During the second quarter of 2024, the Company elected to change its presentation of cash flows associated with "Settlement obligations" from operating activities to financing actives within the Condensed Consolidated Statements of Cash Flows. Comparative amounts have been reclassified to conform to the current period presentation. This change has no impact on the Condensed Consolidated Balance Sheet, Condensed Consolidated Statements of Operations or Condensed Consolidated Statement of Changes in Equity.

The following tables present the effects of the change in presentation within the Condensed Consolidated Statements of Cash Flows:


	For the Nine Months Ended June 30, 2024
	As Previously Reported	Adjustment	As Adjusted
Cash flows from operating activities:
Settlement obligations	(3,518)	3,518	—
Net cash provided by operating activities	29,748	3,518	33,266

Cash flows from financing activities:
Net payments for settlement obligations	—	(3,518)	(3,518)
Net cash used in financing activities	(11,697)	(3,518)	(15,215)


	For the Nine Months Ended June 30, 2023
	As Previously Reported	Adjustment	As Adjusted
Cash flows from operating activities:
Settlement obligations	3,253	(3,253)	—
Net cash provided by operating activities	29,623	(3,253)	26,370

Cash flows from financing activities:
Net proceeds from settlement obligations	—	3,253	3,253
Net cash provided by financing activities	82,229	3,253	85,482

Inventories

Inventories consist of point-of-sale equipment to be sold to customers and are stated at the lower of cost, determined on a weighted average or specific basis, or net realizable value. Inventories were $2,254 and $2,038 at June 30, 2024 and September 30, 2023, respectively, and are included within prepaid expenses and other current assets on the accompanying condensed consolidated balance sheets. In connection with the anticipated sale of the Merchant Services Business pursuant to the terms of the Purchase Agreement, $1,886 and $2,100 at June 30, 2024 and September 30, 2023, respectively, of the Company's inventories were classified as "Assets held for sale" in the accompanying condensed consolidated balance sheets and were not included in these amounts.

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except unit, share and per share amounts)

Acquisitions

Business acquisitions have been recorded using the acquisition method of accounting in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 805, Business Combinations (“ASC 805”), and, accordingly, the purchase price has been allocated to the assets acquired and liabilities assumed based on their estimated fair value as of the date of acquisition. Where relevant, the fair value of contingent consideration included in an acquisition is calculated using a Monte Carlo simulation. The fair value of merchant relationships and non-compete assets acquired is identified using the Income Approach. The fair values of trade names and internally-developed software acquired are identified using the Relief from Royalty Method. After the purchase price has been allocated, goodwill is recorded to the extent the total consideration paid for the acquisition, including the acquisition date fair value of contingent consideration, if any, exceeds the sum of the fair values of the separately identifiable acquired assets and assumed liabilities. Acquisition costs for business combinations are expensed when incurred and recorded in selling, general and administrative expenses in the accompanying condensed consolidated statements of operations.

Acquisitions not meeting the accounting criteria to be accounted for as a business combination are accounted for as an asset acquisition. An asset acquisition is recorded at its purchase price, inclusive of acquisition costs, which is allocated among the acquired assets and assumed liabilities based upon their relative fair values at the date of acquisition.

Leases

The Company adopted ASU 2016-02, Leases, on October 1, 2020, using the optional modified retrospective method under which the prior period financial statements were not restated for the new guidance. The Company elected the accounting policy practical expedients for all classes of underlying assets to (i) combine associated lease and non-lease components in a lease arrangement as a combined lease component and (ii) exclude recording short-term leases as right-of-use assets on the condensed consolidated balance sheets.

At contract inception the Company determines whether an arrangement is, or contains a lease, and for each identified lease, evaluates the classification as operating or financing. Leased assets and obligations are recognized at the lease commencement date based on the present value of fixed lease payments to be made over the term of the lease. Renewal and termination options are factored into determination of the lease term only if the option is reasonably certain to be exercised. The Company’s leases do not provide a readily determinable implicit interest rate and the Company uses its incremental borrowing rate to measure the lease liability and corresponding right-of-use asset. The incremental borrowing rate is a fully collateralized rate that considers the Company’s credit rating, market conditions and the term of the lease. The Company accounts for all components in a lease arrangement as a single combined lease component.

Operating lease cost is recognized on a straight-line basis over the lease term. Total lease costs include variable lease costs, which are primarily comprised of the consumer price index adjustments and other changes based on rates, such as costs of insurance and property taxes. Variable payments are expensed in the period incurred and not included in the measurement of lease assets and obligations.

Revenue Recognition and Deferred Revenue

Revenue is recognized as each performance obligation is satisfied, in accordance with ASC 606, Revenue from Contracts with Customers (“ASC 606”). The Company accrues for rights of refund, processing errors or penalties, or other related allowances based on historical experience. The Company utilized the portfolio approach practical expedient within ASC 606-10-10-4 Revenue from Contracts with Customers—Objectives and the significant financing component practical expedient within ASC 606-10-32-18 Revenue from Contracts with Customers—The Existence of a Significant Financing Component in the Contract in performing the analysis.

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except unit, share and per share amounts)

The Company's revenue from continuing operations for the nine months ended June 30, 2024 and 2023 is derived from the following sources:

•Software and related services — Includes sales of software as a service, transaction-based fees, ongoing software maintenance and support, software licenses and other professional services related to our software offerings

•Payments — Includes volume-based payment processing fees (“discount fees”), gateway fees and other related fixed transaction or service fees

•Other — Includes sales of equipment, non-software related professional services and other revenues

Revenues from sales of the Company’s software are recognized when the related performance obligations are satisfied. Sales of software licenses are categorized into one of two categories of intellectual property in accordance with ASC 606, functional or symbolic. The key distinction is whether the license represents a right to use (functional) or a right to access (symbolic) intellectual property. The Company generates sales of one-time software licenses, which is functional intellectual property. Revenue from functional intellectual property is recognized at a point in time, when delivered to the customer. The Company also offers access to its software under software-as-a-service (“SaaS”) arrangements, which represent services arrangements. Revenue from SaaS arrangements is recognized over time, over the term of the agreement.

Discount fees represent a percentage of the dollar amount of each credit or debit transaction processed or a specified per transaction amount. The Company frequently enters into agreements with customers under which the customer engages the Company to provide both payment authorization services and transaction settlement services for all of the cardholder transactions of the customer, regardless of which issuing bank and card network to which the transaction relates. The Company’s core performance obligations are to stand ready to provide continuous access to the Company’s payment authorization services and transaction settlement services in order to be able to process as many transactions as its customers require on a daily basis over the contract term. These services are stand ready obligations, as the timing and quantity of transactions to be processed is not determinable. Under a stand-ready obligation, the Company’s performance obligation is defined by each time increment rather than by the underlying activities satisfied over time based on days elapsed. Because the service of standing ready is substantially the same each day and has the same pattern of transfer to the customer, the Company has determined that its stand-ready performance obligation comprises a series of distinct days of service. Discount fees are recognized each day based on the volume or transaction count at the time the merchants’ transactions are processed.

The Company follows the requirements of ASC 606-10-55 Revenue from Contracts with Customers—Principal versus Agent Considerations, which states that the determination of whether a company should recognize revenue based on the gross amount billed to a customer or the net amount retained is a matter of judgment that depends on the facts and circumstances of the arrangement. The determination of gross versus net recognition of revenue requires judgment that depends on whether the Company controls the good or service before it is transferred to the merchant or whether the Company is acting as an agent of a third party. The assessment is provided separately for each performance obligation identified. Under its agreements, the Company incurs interchange and network pass-through charges from the third-party card issuers and card networks, respectively, related to the provision of payment authorization services. The Company has determined that it is acting as an agent with respect to these payment authorization services, based on the following factors: (1) the Company has no discretion over which card issuing bank will be used to process a transaction and is unable to direct the activity of the merchant to another card issuing bank, and (2) interchange and card network rates are pre-established by the card issuers or card networks, and the Company has no latitude in determining these fees. Therefore, revenue allocated to the payment authorization performance obligation is presented net of interchange and card network fees paid to the card issuing banks and card networks, respectively, for the nine months ended June 30, 2024 and 2023.

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except unit, share and per share amounts)

With regards to the Company's discount fees, generally, where the Company has control over merchant pricing, merchant portability, credit risk and ultimate responsibility for the merchant relationship, revenues are reported at the time of sale equal to the full amount of the discount charged to the merchant, less interchange and network fees. Revenues generated from merchant portfolios where the Company does not have control over merchant pricing, liability for merchant losses or credit risk or rights of portability are reported net of interchange and network fees as well as third-party processing costs directly attributable to processing and bank sponsorship costs.

Revenues are also derived from a variety of transaction fees, which are charged for accessing our payment and software solutions, and fees for other miscellaneous services. Revenues derived from such fees are recognized at the time the transactions occur and when there are no further performance obligations. Revenue from the sale of equipment, is recognized upon transfer of ownership to the customer, after which there are no further performance obligations.

Arrangements may contain multiple performance obligations, such as payment authorization services, transaction settlement services, hardware, software products, maintenance, and professional installation and training services. Revenues are allocated to each performance obligation based on the standalone selling price of each good or service. The selling price for a deliverable is based on standalone selling price, if available, the adjusted market assessment approach, estimated cost plus margin approach, or residual approach. The Company establishes estimated selling price, based on the judgment of the Company's management, considering internal factors such as margin objectives, pricing practices and controls, customer segment pricing strategies and the product life cycle. In arrangements with multiple performance obligations, the Company determines allocation of the transaction price at inception of the arrangement and uses the standalone selling prices for the majority of the Company's revenue recognition.

Revenues from sales of the Company’s combined hardware and software element are recognized when each performance obligation has been satisfied which has been determined to be upon the delivery of the product. Revenues derived from service fees are recognized at the time the services are performed and there are no further performance obligations. The Company’s professional services, including training, installation, and repair services are recognized as revenue as these services are performed.

The tables below present a disaggregation of the Company's revenue from contracts with customers by product for continuing operations. In connection with the anticipated sale of the Merchant Services Business pursuant to the terms of the Purchase Agreement, the revenues relates to the Acquired Entities were classified as "discontinued operations" in the accompanying condensed consolidated statement of operations and were not included in these amounts. The Company's products are defined as follows:

•Software and related services — Includes SaaS, transaction-based fees, ongoing software maintenance and support, software licenses and other professional services related to our software offerings

•Payments — Includes discount fees and other related fixed transaction or service fees

•Other — Includes sales of equipment, non-software related professional services and other revenues


	For the Three Months Ended June 30, 2024		For the Three Months Ended June 30, 2023
Software and related services revenue	$	41,419	$	43,696
Payments revenue	11,867		10,895
Other revenue	2,751		2,669
Total revenue	$	56,037	$	57,260

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except unit, share and per share amounts)


	For the Nine Months Ended June 30, 2024		For the Nine Months Ended June 30, 2023
Software and related services revenue	$	123,419	$	125,421
Payments revenue	38,116		35,320
Other revenue	7,524		7,397
Total revenue	$	169,059	$	168,138

The tables below present a disaggregation of the Company's revenue from contracts with customers from continuing operations by timing of transfer of goods or services. The Company's revenue included in each category are defined as follows:

•Revenue earned over time — Includes discount fees, sales of SaaS, ongoing support or other stand-ready obligations and professional services

•Revenue earned at a point in time — Includes point in time service fees that are not stand-ready obligations, software licenses sold as functional intellectual property and other equipment


	For the Three Months Ended June 30, 2024		For the Three Months Ended June 30, 2023
Revenue earned over time	$	52,809	$	52,919
Revenue earned at a point in time	3,228		4,341
Total revenue	$	56,037	$	57,260


	For the Nine Months Ended June 30, 2024		For the Nine Months Ended June 30, 2023
Revenue earned over time	$	159,490	$	154,816
Revenue earned at a point in time	9,569		13,322
Total revenue	$	169,059	$	168,138

Contract Assets

The Company bills for certain software and related services sales and fixed fee professional services upon pre-determined milestones in the contracts. Therefore, the Company may have contract assets other than trade accounts receivable for performance obligations that are partially completed, which would typically represent consulting services provided before a milestone is completed in a contract. Additionally, contract assets also include software licenses sold as a right to use license but paid for under a subscription model. Under this structure, the license revenue is recognized upfront while a portion of the revenue is unbilled. Unbilled amounts associated with these services are presented as accounts receivable as the Company has an unconditional right to payment for services performed.

As of June 30, 2024 and September 30, 2023, the Company’s contract assets from contracts with customers was $8,558 and $15,131, respectively.

Contract Liabilities

Deferred revenue represents amounts billed to customers by the Company for services contracts. Payment is typically collected at the start of the contract term. The initial prepaid contract agreement balance is deferred. The balance is then recognized as the services are provided over the contract term. Deferred revenue that is expected to be recognized as revenue within one year is recorded as short-term deferred revenue and the remaining portion is recorded as other long-term liabilities in the condensed consolidated balance sheets. The terms for

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except unit, share and per share amounts)

most of the Company's contracts with a deferred revenue component are one year. Substantially all of the Company's deferred revenue is anticipated to be recognized within the next year.

The following tables present the changes in deferred revenue as of and for the nine months ended June 30, 2024 and 2023, respectively:


Balance at September 30, 2023	$	32,985
Deferral of revenue	19,156
Recognition of unearned revenue	(14,681)
Balance at December 31, 2023	37,460
Deferral of revenue	11,005
Recognition of unearned revenue	(12,820)
Balance at March 31, 2024	$	35,645
Deferral of revenue	9,587
Recognition of unearned revenue	(14,850)
Balance at June 30, 2024	$	30,382


Balance at September 30, 2022	$	29,228
Deferral of revenue	18,649
Recognition of unearned revenue	(12,954)
Balance at December 31, 2022	34,923
Deferral of revenue	9,418
Recognition of unearned revenue	(13,206)
Balance at March 31, 2023	$	31,135
Deferral of revenue	7,622
Recognition of unearned revenue	(14,283)
Balance at June 30, 2023	$	24,474

Costs to Obtain and Fulfill a Contract

The Company capitalizes incremental costs to obtain new contracts and contract renewals and amortizes these costs on a straight-line basis as an expense over the benefit period, which is generally the contract term, unless a commensurate payment is not expected at renewal. As of June 30, 2024 and September 30, 2023, the Company had $869 and $632, respectively, of capitalized contract costs, which relates to commissions paid to employees and agents as well as other incentives given to customers to obtain new sales, included within “Other assets" on the condensed consolidated balance sheets. The Company recorded expense from continuing operations related to these costs of $24 and $64 for the three and nine months ended June 30, 2024, respectively and $13 and $33 for the three and nine months ended June 30, 2023. In connection with the anticipated sale of the Merchant Services Business pursuant to the terms of the Purchase Agreement, $4,729 and $4,334 at June 30, 2024 and September 30, 2023, respectively, of the Company's capitalized contract costs were classified as "Assets held for sale" in the accompanying condensed consolidated balance sheets and were not included in these amounts.

The Company expenses sales commissions as incurred for the Company's sales commission plans that are paid on recurring monthly revenues, portfolios of existing customers, or have a substantive stay requirement prior to payment.

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except unit, share and per share amounts)

Other Cost of Services

Other costs of services include costs directly related to the Company's software and related services, such as hosting expenses. Additionally, other costs of services include costs directly attributable related to payment processing services such as processing and bank sponsorships. Losses resulting from chargebacks against a customer are included in other cost of services. Residual payments to our distribution partners and the cost of equipment sold is also included in cost of services. Other costs of services are recognized at the time the related revenue is recognized.

The Company accounts for all governmental taxes associated with revenue transactions on a net basis.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Such estimates include, but are not limited to, the value of purchase consideration paid and identifiable assets acquired and assumed in acquisitions, goodwill and intangible asset impairment review, determination of performance obligations for revenue recognition, loss reserves, assumptions used in the calculation of equity-based compensation and in the calculation of income taxes, and certain tax assets and liabilities as well as the related valuation allowances. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from those estimates.

Recent Accounting Pronouncements

Recently Issued Accounting Pronouncements Not Yet Adopted

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740)—Improvements to Income Tax Disclosures (“ASU 2023-09”). ASU 2023-09 will provide improvements to the income tax disclosures primarily related to the income taxes paid and rate reconciliation, and how legislation changes may affect future capital allocation and cash flow forecasts. The amendment will improve the consistency in which companies provide tax information, and will further increase the transparency of related tax risks and operational opportunities. The amendments in ASU 2023-09 are effective for annual periods beginning after December 15, 2024, with early adoption permitted. The Company will not be required to adopt ASU 2023-09 until October 1, 2025. The Company is currently evaluating the impact of the adoption of ASU 2023-09 on the Company’s financial statement disclosures.

In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280)—Improvements to Reportable Segment Disclosures (“ASU 2023-07”). ASU 2023-07 improves interim disclosure requirements for segment reporting, including clarifications regarding the measure of profit and loss used to assess segment performance and the allocation of resources. Further, it enhances the disclosures for reporting segment expenses and will require the Company to report significant expenses regularly provided by the chief operating decision maker. The amendment will require companies to disclose a more granular level of information with regards to segment reporting to further enhance the transparency of what specified amounts are included within each segment. The amendments in ASU 2023-07 are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The Company will not be required to adopt ASU 2023-07 until October 1, 2024. The Company is currently evaluating the impact of the adoption of ASU 2023-07 on the Company’s financial statement disclosures.

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except unit, share and per share amounts)

4. ACQUISITIONS

During the nine months ended June 30, 2024 and 2023, the Company acquired the following intangible assets and businesses:

Business Combinations during the nine months ended June 30, 2024

During the nine months ended June 30, 2024 the Company completed the acquisition of a business to expand the Company’s software offerings. Total purchase consideration was $1,270, including $1,100 in cash consideration, funded by proceeds from the Company's revolving credit facility, and $170 of contingent consideration.

In connection with this acquisition, the Company allocated approximately $5 to property and equipment, approximately $40 to capitalized software, approximately $220 to customer relationships and the remainder, approximately $1,005, to goodwill, all of which is deductible for tax purposes. Certain of the purchase price allocations assigned for this acquisition is considered preliminary as of June 30, 2024. The acquired customer relationships intangible assets have an estimated amortization periods of ten years. The acquired capitalized software have amortization periods of seven years.

Acquisition-related costs for this acquisition amounted to approximately $8 and were expensed as incurred.

Business Combinations during the year ended September 30, 2023

Purchase of Celtic Cross Holdings, Inc. and Celtic Systems Pvt. Ltd.

During the nine months ended June 30, 2023, the Company completed the acquisition of Celtic Cross Holdings, Inc., in Scottsdale, Arizona and Celtic Systems Pvt. Ltd. in Vadodara, India (collectively "Celtic") to expand the Company’s software offerings in the Public Sector vertical. Celtic is within the Software and Services segment. Total purchase consideration consisted of $85,000 in cash consideration, funded by proceeds from the Company's revolving credit facility.

The goodwill associated with the Celtic acquisition is deductible for tax purposes. The acquired customer relationships intangible assets has an estimated amortization period of eighteen years. The trade name and non-compete agreements associated with the acquisition have amortization periods of five years and three years, respectively. The weighted-average amortization period for all intangibles acquired is eighteen years. The acquired capitalized software has a weighted-average amortization period of ten years.

Acquisition-related costs for this acquisition amounted to approximately $1,782 and were expensed as incurred.

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except unit, share and per share amounts)

Summary of Celtic Cross Holdings, Inc. and Celtic Systems Pvt. Ltd.

The fair values assigned to certain assets and liabilities assumed, as of the acquisition date, were as follows:


Accounts receivable	$	7,660
Prepaid expenses and other current assets	103
Property and equipment	5,233
Capitalized software	12,600
Customer relationships	33,800
Non-compete agreements	200
Trade name	600
Goodwill	43,899
Total assets acquired	104,095

Accounts payable	9
Accrued expenses and other current liabilities	3,182
Deferred revenue, current	2,741
Other long-term liabilities	13,162
Net assets acquired	$	85,001

Other Business Combinations during the year ended September 30, 2023

The Company completed the acquisition of two other businesses to expand the Company's software offerings. The total purchase consideration was $19,757, including $16,997 in cash consideration, funded by proceeds from the Company's revolving credit facility, $2,000 of the Company's Class A Common Stock, and $760 contingent consideration.

In connection with this acquisition, the Company allocated approximately $159 of the consideration to net working capital, approximately $374 to property and equipment, approximately $670 to capitalized software, approximately $8,400 to customer relationships, approximately $100 to trade names, and the remainder, approximately $12,229, to goodwill, of which $2,864 is deductible for tax purposes, and approximately $2,178 to other long-term liabilities. Certain of the purchase price allocations assigned for one of these acquisitions is considered preliminary as of June 30, 2024. The acquired capital software and customer relationships intangible asset have estimated amortization periods of seven to eight years and ten to fifteen years, respectively.

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except unit, share and per share amounts)

5. PREPAID EXPENSES AND OTHER CURRENT ASSETS

A summary of the Company's prepaid expenses and other current assets as of June 30, 2024 and September 30, 2023 is as follows:


	June 30,		September 30,
	2024		2023
Inventory	$	2,254	$	2,038
Prepaid licenses	2,897		3,107
Prepaid insurance	469		682
Notes receivable — current portion	195		4
Other current assets	5,464		3,681
Prepaid expenses and other current assets(1)	$	11,279	$	9,512

__________________________

1.In connection with the anticipated sale of the Merchant Services Business pursuant to the terms of the Purchase Agreement, $2,510 and $2,937 at June 30, 2024 and September 30, 2023, respectively, of the Company's prepaid expenses and other current assets were classified as "Assets held for sale" in the accompanying condensed consolidated balance sheets and were not included in these amounts.

6. GOODWILL AND INTANGIBLE ASSETS

Changes in the carrying amount of goodwill are as follows:


	Total
Balance at September 30, 2023(1)	$	267,983
Goodwill attributable to preliminary purchase price adjustments and acquisitions during the nine months ended June 30, 2024	1,209
Balance at June 30, 2024(1)	$	269,192

__________________________

1.In connection with the anticipated sale of the Merchant Services Business pursuant to the terms of the Purchase Agreement, $141,580 at both June 30, 2024 and September 30, 2023 of the Company's goodwill was classified as "Assets held for sale" in the accompanying condensed consolidated balance sheets and were not included in these amounts.

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except unit, share and per share amounts)

Intangible assets consisted of the following as of June 30, 2024:


	Cost		Accumulated Amortization		Carrying Value		Amortization Life and Method
Finite-lived intangible assets:
Customer relationships	$	187,920	$	(35,924)	$	151,996	9 to 25 years – accelerated or straight-line
Non-compete agreements	298		(171)		127		3 to 6 years – straight-line
Website and brand development costs	7		(4)		3		3 to 4 years – straight-line
Trade names	4,641		(2,745)		1,896		3 to 7 years – straight-line
Total finite-lived intangible assets	192,866		(38,844)		154,022

Indefinite-lived intangible assets:
Trademarks	17		—		17
Total identifiable intangible assets(1)	$	192,883	$	(38,844)	$	154,039

__________________________

1.In connection with the anticipated sale of the Merchant Services Business pursuant to the terms of the Purchase Agreement, $62,276 at June 30, 2024 of the Company's net identifiable intangible assets was classified as "Assets held for sale" in the accompanying condensed consolidated balance sheets and were not included in these amounts.

Amortization expense from continuing operations for intangible assets amounted to $3,072 and $9,331 for the three and nine months ended June 30, 2024, respectively, and $3,227 and $9,561 for the three and nine months ended June 30, 2023, respectively.

Based on net carrying amounts at June 30, 2024, the Company's estimate of future amortization expense for continuing operations for intangible assets are presented in the table below for fiscal years ending September 30:


2024 (three months remaining)	$	3,064
2025	12,249
2026	11,823
2027	11,406
2028	11,243
Thereafter	104,236
	$	154,022

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except unit, share and per share amounts)

7. ACCRUED EXPENSES AND OTHER LIABILITIES

A summary of the Company's accrued expenses and other current liabilities as of June 30, 2024 and September 30, 2023 is as follows is as follows:


	June 30,		September 30,
	2024		2023
Accrued wages, bonuses, commissions and vacation	$	6,745	$	6,888
Accrued interest	1,027		1,313
Accrued contingent consideration — current portion	427		6,825
Escrow liabilities	2,146		3,965
Customer deposits	724		380
Employee health self-insurance liability	976		823
Accrued interchange	1,197		1,991
Other current liabilities	9,585		11,395
Accrued expenses and other current liabilities(1)	$	22,827	$	33,580

__________________________

1.In connection with the anticipated sale of the Merchant Services Business pursuant to the terms of the Purchase Agreement, $2,959 and $4,160 at June 30, 2024 and September 30, 2023, respectively, of the Company's accrued expenses and other current liabilities were classified as "Assets held for sale" in the accompanying condensed consolidated balance sheets and were not included in these amounts.

A summary of the Company's long-term liabilities as of June 30, 2024 and September 30, 2023 is as follows:


	June 30,		September 30,
	2024		2023
Accrued contingent consideration — long-term portion	$	111	$	1,414
Deferred tax liability — long-term	15,592		18,611
Other long-term liabilities	1,535		3,053
Total other long-term liabilities(1)	$	17,238	$	23,078

__________________________

1.In connection with the anticipated sale of the Merchant Services Business pursuant to the terms of the Purchase Agreement, $1,169 and $1,065 at June 30, 2024 and September 30, 2023, respectively, of the Company's other long-term liabilities were classified as "Assets held for sale" in the accompanying condensed consolidated balance sheets and were not included in these amounts.

8. LONG-TERM DEBT, NET

A summary of long-term debt, net as of June 30, 2024 and September 30, 2023 is as follows:


		June 30,		September 30,
	Maturity	2024		2023
Revolving lines of credit to banks under the 2023 Senior Secured Credit Facility	May 8, 2028	$	351,400	$	272,505
1% Exchangeable Senior Notes due 2025	February 15, 2025	26,223		117,000
Debt issuance costs, net		(3,508)		(4,424)
Total long-term debt, net of issuance costs		374,115		385,081
Less current portion of long-term debt		(26,223)		—
Long-term debt, net of current portion		$	347,892	$	385,081

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except unit, share and per share amounts)

2020 Exchangeable Notes Offering

On February 18, 2020, i3 Verticals, LLC issued $138,000 aggregate principal amount of 1.0% Exchangeable Senior Notes due 2025 (the “Exchangeable Notes”) in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”). The Company received approximately $132,762 in net proceeds from the sale of the Exchangeable Notes, as determined by deducting estimated offering expenses paid to third-parties from the aggregate principal amount.

i3 Verticals, LLC issued the Exchangeable Notes pursuant to an Indenture, dated as of February 18, 2020, among i3 Verticals, LLC, the Company and U.S. Bank Trust Company National Association, as trustee (the “Indenture”).

The Exchangeable Notes bear interest at a fixed rate of 1.00% per year, payable semiannually in arrears on February 15 and August 15 of each year, beginning on August 15, 2020. In accordance with the terms of the Indenture, beginning on August 15, 2024, the Exchangeable Notes may be exchanged at the option of the holders at any time until the close of business on the second scheduled trading day immediately preceding the maturity date. The Exchangeable Notes will mature on February 15, 2025, unless exchanged or repurchased at an earlier date.

For a discussion of the terms of the Exchangeable Notes, refer to the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2023.

Non-cash interest expense, including amortization of debt issuance costs, related to the Exchangeable Notes for the three and nine months ended June 30, 2024 was $61 and $420, respectively and $241 and $701 for the three and nine months ended June 30, 2023. Total unamortized debt issuance costs related to the Exchangeable Notes were $154 and $1,501 as of June 30, 2024 and September 30, 2023, respectively.

During fiscal year 2020, we repurchased $21,000 in aggregate principal amount of Exchangeable Notes in open market purchases. In addition, on December 21, 2023, i3 Verticals, LLC entered into agreements to repurchase an additional portion of its Exchangeable Notes pursuant to privately negotiated transactions with a limited number of holders of the Exchangeable Notes (the "Exchangeable Note Repurchases"). The repurchase payments were determined by the Company’s average stock price over the 15 trading-day measurement period ending January 16, 2024. The closing of the Exchangeable Note Repurchases occurred on January 18, 2024, and the Company paid $87,391 to repurchase $90,777 in aggregate principal amount of its Exchangeable Notes and to repay approximately $386 in accrued interest on the repurchased portion of the Exchangeable Notes. The Company wrote off $926 of debt issuance costs in connection with the repurchase transactions. These repurchases resulted in a decrease in the Company's total leverage ratio, and following the completion of the repurchases of these Exchangeable Notes, approximately $26,223 in aggregate principal amount of the Exchangeable Notes remained outstanding, with terms unchanged. The Company recorded a gain on retirement of debt of $2,397 due to the estimated acquisition price exceeding the net carrying amount of the repurchased portion of the Exchangeable Notes, adjusted for unamortized debt issuance costs and costs and third-party fees related to the transaction.

As of June 30, 2024, the aggregate principal amount outstanding of the Exchangeable Notes was $26,223.

The estimated fair value of the Exchangeable Notes was $25,227 as of June 30, 2024. The estimated fair value of the Exchangeable Notes was determined through consideration of quoted market prices for similar instruments. The fair value is classified as Level 2, as defined in Note 11.

Exchangeable Note Hedge Transactions

On February 12, 2020, concurrently with the pricing of the Exchangeable Notes, and on February 13, 2020, concurrently with the exercise by the initial purchasers of their right to purchase additional Exchangeable Notes, i3 Verticals, LLC entered into exchangeable note hedge transactions with respect to Class A common stock (the

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except unit, share and per share amounts)

“Note Hedge Transactions”) with certain financial institutions (collectively, the “Counterparties”). The Note Hedge Transactions cover, subject to anti-dilution adjustments substantially similar to those applicable to the Exchangeable Notes, the same number of shares of Class A common stock that initially underlie the Exchangeable Notes in the aggregate and are exercisable upon exchange of the Exchangeable Notes. The Note Hedge Transactions are intended to reduce potential dilution to the Class A common stock upon any exchange of the Exchangeable Notes. The Note Hedge Transactions will expire upon the maturity of the Exchangeable Notes, if not earlier exercised. The Note Hedge Transactions are separate transactions, entered into by i3 Verticals, LLC with the Counterparties, and are not part of the terms of the Exchangeable Notes. Holders of the Exchangeable Notes will not have any rights with respect to the Note Hedge Transactions. i3 Verticals, LLC used approximately $28,676 of the net proceeds from the offering of the Exchangeable Notes (net of the premiums received for the warrant transactions described below) to pay the cost of the Note Hedge Transactions.

The Note Hedge Transactions do not require separate accounting as a derivative as they meet a scope exception for certain contracts involving an entity's own equity. The premiums paid for the Note Hedge Transactions have been included as a net reduction to additional paid-in capital within stockholders' equity.

In December 2023, i3 Verticals, LLC received $250 from the Counterparties to terminate the portion of the Note Hedge Transactions corresponding to the Exchangeable Notes that were repurchased in fiscal year 2020. Also in December 2023, i3 Verticals, LLC entered into agreements with the Counterparties to terminate the portion of the Note Hedge Transactions corresponding to the Exchangeable Note Repurchases. On January 18, 2024, in connection with the Exchangeable Note Repurchases, the Company and i3 Verticals, LLC terminated the corresponding portions of the Note Hedge Transactions ("Note Hedge Unwinds"), and i3 Verticals, LLC received $987 for the sale of the Note Hedge Unwinds and recorded a loss on the sale of the Note Hedge Unwinds of $245.

Warrant Transactions

On February 12, 2020, concurrently with the pricing of the Exchangeable Notes, and on February 13, 2020, concurrently with the exercise by the initial purchasers of their right to purchase additional Exchangeable Notes, the Company entered into warrant transactions to sell to the Counterparties warrants (the “Warrants”) to acquire, subject to customary adjustments, up to initially 3,376,391 shares of Class A common stock in the aggregate at an initial exercise price of $62.88 per share. The Company offered and sold the Warrants in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act. The Warrants will expire over a period beginning on May 15, 2025.

The Warrants are separate transactions, entered into by the Company with the Counterparties, and are not part of the terms of the Exchangeable Notes. Holders of the Exchangeable Notes will not have any rights with respect to the Warrants. The Company received approximately $14,669 from the offering and sale of the Warrants. The Warrants do not require separate accounting as a derivative as they meet a scope exception for certain contracts involving an entity's own equity. The premiums paid for the Warrants have been included as a net increase to additional paid-in capital within stockholders' equity.

In December 2023, the Company paid $119 to the Counterparties to terminate the portion of the Warrants corresponding to the Exchangeable Notes that were repurchased in fiscal year 2020. Also in December 2023, i3 Verticals, LLC entered into agreements with the Counterparties to terminate the portion of the Warrants corresponding to the Exchangeable Note Repurchases. On January 18, 2024, in connection with the Exchangeable Note Repurchases, the Company and i3 Verticals, LLC terminated the corresponding portions of the Warrants ("Warrant Unwinds"), and the Company paid $433 for the repurchase of the Warrant Unwinds and recorded a gain on the repurchase of the Warrant Unwinds of $105.

2023 Senior Secured Revolving Credit Facility

On May 8, 2023, i3 Verticals, LLC (the “Borrower”), entered into that certain Credit Agreement (as amended, the “2023 Senior Secured Credit Facility”) with the guarantors and lenders party thereto and JPMorgan Chase

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except unit, share and per share amounts)

Bank, N.A., as administrative agent (“JPMorgan”). The 2023 Senior Secured Credit Facility replaced the prior senior secured credit facility of the Company which was entered into on May 9, 2019 (the "Prior Senior Secured Credit Facility"). The 2023 Senior Secured Credit Facility provides for aggregate commitments of $450 million in the form of a senior secured revolving credit facility (the “Revolver”). In addition, on June 26, 2024, the Borrower entered into the first amendment to the 2023 Senior Secured Credit Facility (the “Amendment”). Among other things, the Amendment permitted the execution of the Purchase Agreement and the consummation of the sale of the Merchant Services Business. Certain provisions of the Amendment were effective as of the date of the Amendment, and certain other provisions are to be effective upon the closing of the sale of the Merchant Services Business pursuant to the terms of the Purchase Agreement.

The 2023 Senior Secured Credit Facility provides that the Borrower has the right to seek additional commitments to provide additional term loan facilities or additional revolving credit commitments in an aggregate principal amount up to, as of any date of determination, the sum of (i) the greater of $100 million and 100% of the Borrower’s consolidated EBITDA (as defined in the 2023 Senior Secured Credit Facility) for the most recently completed four quarter period, plus (ii) the amount of certain prepayments of certain indebtedness, so long as, among other things, after giving pro forma effect to the incurrence of such additional borrowings and any related transactions, the Borrower’s consolidated interest coverage ratio (as defined in the 2023 Senior Secured Credit Facility) would not be less than 3.0 to 1.0 and the Borrower’s consolidated total net leverage ratio (as defined in the 2023 Senior Secured Credit Facility) would not exceed 5.0 to 1.0. As of June 30, 2024, the Borrower's consolidated interest coverage ratio was 3.5x and total leverage ratio was 3.6x.

The provision of any such additional amounts under the additional term loan facilities or additional revolving credit commitments are subject to certain additional conditions and the receipt of certain additional commitments by existing or additional lenders. The lenders under the 2023 Senior Secured Credit Facility are not under any obligation to provide any such additional term loan facilities or revolving credit commitments.

The proceeds of the Revolver, together with proceeds from any additional amounts under the additional term loan facilities or additional revolving credit commitments, may only be used by the Borrower to (i) finance working capital, capital expenditures and other lawful corporate purposes, (ii) finance permitted acquisitions (as defined in the 2023 Senior Secured Credit Facility) and (iii) to refinance certain existing indebtedness.

Borrowings under the Revolver will be made, at the Borrower’s option, at the Adjusted Term SOFR rate or the base rate, plus, in each case, an applicable margin.

The Adjusted Term SOFR rate will be the rate of interest per annum equal to the Term SOFR rate (based upon an interest period of one, three or six months), plus 0.10%, plus an applicable margin of 2.00% to 3.00% (3.00% at June 30, 2024). The Adjusted Term SOFR rate shall not be less than 0% in any event.

The base rate is a fluctuating rate of interest per annum equal to the highest of (a) the greater of the federal funds rate or the overnight bank funding rate, plus ½ of 1%, (b) Wall Street Journal prime rate and (c) the Adjusted Term SOFR rate for an interest period of one month, plus 1%, plus an applicable margin of 1.00% to 2.00% (2.00% at June 30, 2024). The base rate shall not be less than 1% in any event.

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except unit, share and per share amounts)

The applicable margin is based upon the Borrower’s consolidated total net leverage ratio (as defined in the 2023 Senior Secured Credit Facility), as reflected in the schedule below:

Consolidated Total Net Leverage Ratio

Commitment Fee

Letter of Credit Fee

Term Benchmark Loans

Base Rate Loans

> 3.0 to 1.0

0.30

3.00

i3 Verticals, Inc. [IIIV] Filings
10-Q	[2024-08-09]
10-Q	[2024-05-10]
10-Q	[2024-02-09]
10-K	[2023-11-22]
10-Q	[2023-08-09]
10-Q	[2023-05-10]
10-Q	[2023-02-09]
10-K	[2022-11-18]
10-Q	[2022-08-09]
10-Q	[2022-05-10]
10-Q	[2022-02-09]
10-K	[2021-11-22]
10-Q	[2021-08-09]
10-Q	[2021-05-10]
10-Q	[2021-02-09]
10-K	[2020-11-23]
10-Q	[2020-08-10]
10-Q	[2020-05-11]
10-Q	[2020-02-10]
10-K	[2019-11-22]
10-Q	[2019-08-13]
S-1	[2019-06-03]
10-Q	[2019-05-14]
10-Q	[2019-02-14]
10-K	[2018-12-07]
10-Q	[2018-08-13]
S-1	[2018-05-25]