What changed in this filing

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Item 1. Financial Statements

2020-08-10 compared with 2020-05-11 · 290 added, 226 removed, 853 unchanged (38% of the section changed)

3 unchanged sentences

(In thousands, except share and per share amounts)

March 31, September 30,

June 30, September 30,

Current assets

24 unchanged sentences

Preferred stock, par value $ 0.0001 per share, 10,000,000 shares authorized;

0 shares issued and outstanding as of March 31, 2020 and September 30, 2019 — —

0 shares issued and outstanding as of June 30, 2020 and September 30, 2019

Class A common stock, par value $ 0.0001 per share, 150,000,000 shares authorized;

15,038,918 and 14,444,115 shares issued and outstanding as of March 31, 2020 and September 30, 2019, respectively 1 1

15,085,813 and 14,444,115 shares issued and outstanding as of June 30, 2020 and September 30, 2019, respectively

Class B common stock, par value $ 0.0001 per share, 40,000,000 shares authorized;

12,411,621 and 12,921,637 shares issued and outstanding as of March 31, 2020 and September 30, 2019, respectively 1 1

12,391,621 and 12,921,637 shares issued and outstanding as of June 30, 2020 and September 30, 2019, respectively

Additional paid-in capital 107,654 82,380

8 unchanged sentences

(In thousands, except share and per share amounts)

Three months ended March 31, Six months ended March 31,

Three months ended June 30, Nine months ended June 30,

2020 2019 2020 2019

8 unchanged sentences

Total operating expenses 31,136 96,289 105,287 263,224

Income (loss) from operations 2,041 ( 203 ) 6,138 3,327

Income from operations 437 1,194 6,575 4,521

Other expenses

Interest expense, net 2,423 1,918 6,621 3,987

Other expense 829 — 829 —

Total other expenses 3,252 1,918 7,450 3,987

(Loss) income before income taxes ( 2,815 ) ( 724 ) ( 875 ) 534

(Benefit from) provision for income taxes ( 2,062 ) ( 136 ) ( 1,913 ) 129

Net income (loss) 1,919 ( 1,222 ) 3,853 1,129

Net income (loss) attributable to non-controlling interest 1,182 ( 120 ) 3,265 2,053

Net income (loss) attributable to i3 Verticals, Inc.

Benefit from income taxes ( 5 ) ( 131 ) ( 1,918 ) ( 2 )

Net (loss) income ( 2,810 ) ( 593 ) 1,043 536

Net (loss) income attributable to non-controlling interest ( 2,454 ) 598 811 2,651

Net (loss) income attributable to i3 Verticals, Inc.

$ ( 356 ) $ ( 1,191 ) $ 232 $ ( 2,115 )

Net income (loss) per share attributable to Class A common stockholders:

Net (loss) income per share attributable to Class A common stockholders:

Basic $ ( 0.02 ) $ ( 0.12 ) $ 0.02 $ ( 0.23 )

19 unchanged sentences

Equity-based compensation — — — — 2,510 — — 2,510

Forfeitures of restricted Class A common stock — — — — — — — —

Net (loss) income — — — — — 737 1,182 1,919

Net income — — — — — 737 1,182 1,919

Distributions to non-controlling interest holders — — — — — — ( 3 ) ( 3 )

6 unchanged sentences

Balance at March 31, 2020 15,038,918 1 12,411,621 1 104,122 ( 1,016 ) 63,673 166,781

Equity-based compensation — — — — 2,816 — — 2,816

Net loss — — — — — ( 356 ) ( 2,454 ) ( 2,810 )

Distributions to non-controlling interest holders — — — — — — — —

Redemption of common units in i3 Verticals, LLC 20,000 — ( 20,000 ) — 75 — ( 75 ) —

Establishment of liabilities under a tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis — — — — 61 — — 61

Exercise of equity-based awards 26,895 — — — — — — —

Equity component of exchangeable notes, net of issuance costs and deferred taxes — — — — 9 — — 9

Repurchases of exchangeable note hedges — — — — 571 — — 571

Balance at June 30, 2020 15,085,813 $ 1 12,391,621 $ 1 $ 107,654 $ ( 1,372 ) $ 61,144 $ 167,428

See Notes to the Interim Condensed Consolidated Financial Statements

17 unchanged sentences

Balance at March 31, 2019 9,192,030 1 17,112,164 2 41,284 ( 188 ) 73,636 114,735

Equity-based compensation — — — — 1,808 — — 1,808

Forfeitures of restricted Class A common stock ( 1,124 ) — — — — — — —

Net (loss) income — — — — — ( 1,191 ) 598 ( 593 )

Distributions to non-controlling interest holders — — — — — — ( 1,037 ) ( 1,037 )

Redemption of common units in i3 Verticals, LLC 4,190,527 — ( 4,190,527 ) ( 1 ) 11,786 — ( 11,786 ) ( 1 )

Sale of Class A common stock in public offering, net 1,000,000 — — — 21,660 — — 21,660

Capitalization of public offering costs — — — — ( 771 ) — — ( 771 )

Establishment of liabilities under a tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis — — — — 3,962 — — 3,962

Issuance of restricted Class A common stock under Equity Plan 8,799 — — — 225 — — 225

Exercise of equity-based awards 29,967 — — — 390 — — 390

Balance at June 30, 2019 14,420,199 $ 1 12,921,637 $ 1 $ 80,344 $ ( 1,379 ) $ 61,411 $ 140,378

See Notes to the Interim Condensed Consolidated Financial Statements

2 unchanged sentences

(In thousands)

Six months ended March 31,

Nine months ended June 30,

Cash flows from operating activities:

6 unchanged sentences

Debt issuance costs write offs 141 152

Loss on repurchase of exchangeable notes 828 —

Amortization of capitalized client acquisition costs 288 —

1 unchanged sentence

(Benefit from) provision for deferred income taxes ( 2,802 ) ( 36 )

Increase in non-cash contingent consideration expense from original estimate 12 2,153

(Decrease) increase in non-cash contingent consideration expense from original estimate ( 1,461 ) 1,736

Changes in operating assets:

20 unchanged sentences

(In thousands)

Six months ended March 31,

Nine months ended June 30,

Cash flows from financing activities:

4 unchanged sentences

Proceeds from issuance of warrants 14,669 —

Payments for repurchase of exchangeable notes ( 6,807 ) —

Payments of notes payable to banks — ( 35,000 )

Payment of debt issuance costs ( 5,071 ) —

Payments of debt issuance costs ( 5,215 ) ( 152 )

Proceeds from issuance of Class A common stock sold in public offering, net of underwriting discounts and offering costs — 21,660

Cash paid for contingent consideration ( 2,988 ) ( 2,634 )

2 unchanged sentences

Payments for employee's tax withholdings from net settled stock option exercises ( 121 ) —

Net cash (used in) provided by financing activities ( 4,994 ) 34,343

Net cash provided by financing activities 3,143 117,296

Net increase (decrease) in cash, cash equivalents, and restricted cash 7,486 1,888

4 unchanged sentences

Cash paid for income taxes (1)

$ 404 $ 1,323

____________________

After the issuance of the Form 10-Q for the nine months ended June 30, 2019, Management identified there was a mathematical mistake in the calculation of the cash paid for income taxes for the nine months ended June 30, 2019.

The Company has restated the cash paid for income taxes for the nine months ended June 30, 2019 to the correct amount of $ 1,323 from the originally reported amount of $ 24,611 .

There was no impact on any other disclosures.

The following table provides a reconciliation 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:

Six months ended March 31,

i3 Verticals, Inc.

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

(In thousands)

Nine months ended June 30,

Beginning balance

40 unchanged sentences

i3 Verticals, Inc.

has a minority economic interest in i3 Verticals, LLC.

has a majority economic interest in i3 Verticals, LLC.

Public Offering

7 unchanged sentences

The Continuing Equity Owners who own Common Units in i3 Verticals, LLC may redeem at each of their options (subject in certain circumstances to time-based vesting requirements) their Common Units for, at the election of i3 Verticals, LLC, cash or newly-issued shares of the Company's Class A common stock.

As of March 31, 2020, i3 Verticals, Inc.

As of June 30, 2020, i3 Verticals, Inc.

owned 54.9 % of the economic interest in i3 Verticals, LLC.

As of March 31, 2020, the Continuing Equity Owners owned Common Units in i3 Verticals, LLC representing approximately 45.2 % of the economic interest in i3 Verticals, LLC, shares of Class A common stock in the Company representing approximately 0.8 % of the economic interest and voting power in the Company, and shares of Class B common stock in i3 Verticals, Inc., representing approximately 45.2 % of the voting power in the Company.

As of June 30, 2020, the Continuing Equity Owners owned Common Units in i3 Verticals, LLC representing approximately 45.1 % of the economic interest in i3 Verticals, LLC, shares of Class A common stock in the Company representing approximately 0.5 % of the economic interest and voting power in the Company, and shares of Class B common stock in i3 Verticals, Inc., representing approximately 45.1 % of the voting power in the Company.

Combining the Class A common stock and Class B common stock, the Continuing Equity Owners hold approximately 45.6% of the economic interest and voting power in i3 Verticals, Inc.

On March 11, 2020, the World Health Organization declared the outbreak of COVID-19 as a pandemic, which continues to spread throughout the United States and other parts of the world.

The spread of COVID-19 has caused several states and cities to declare states of emergency or disaster proclamations.

State and local governments, together with public health officials, have recommended and mandated precautions to mitigate the spread of the virus, including the closure of local government facilities and parks, schools, restaurants, many businesses and other locations of public assembly.

Although many of the restrictions have eased across the country, the pandemic has yet to show substantial signs of decline in the U.S.

Some areas are re-imposing closures and other restrictions due to increased rates of COVID-19 cases.

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

As a result, the COVID-19 pandemic is significantly affecting overall economic conditions in the United States.

The economic impact of these conditions is materially impacting the Company's business and is expected to continue to adversely impact its strategic verticals and its business in general.

For example, the Company and its clients have experienced a decline and subsequent partial recovery in payment volume and the number of transactions processed, and therefore, a decline and subsequent partial recovery in revenue in the Company's strategic verticals.

There are no reliable estimates of how long the pandemic will last, how many people are likely to be affected by it or the duration or types of restrictions that will be imposed.

For that reason, the Company is unable to predict the long-term impact of the pandemic on its business at this time.

Given these conditions, there could be material changes to recorded balances and estimates in the future.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

2 unchanged sentences

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 March 31, 2020 and for the three and six months ended March 31, 2020 and 2019.

The results of operations for the three and six months ended March 31, 2020 and 2019 are not necessarily indicative of the operating results for the full year.

It is recommended that these interim condensed consolidated financial statements be read in conjunction with the

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

Company's consolidated financial statements and related footnotes for the years ended September 30, 2019 and 2018, included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2018.

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, 2020 and for the three and nine months ended June 30, 2020 and 2019.

The results of operations for the three and nine months ended June 30, 2020 and 2019 are not necessarily indicative of the operating results for the full year.

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, 2019 and 2018, included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2018.

Principles of Consolidation

8 unchanged sentences

Inventories consist of point-of-sale equipment to be sold to clients and are stated at the lower of cost, determined on a weighted average basis, or net realizable value.

Inventories were $ 1,662 and $ 1,294 at March 31, 2020 and September 30, 2019, respectively, and are included within prepaid expenses and other current assets on the accompanying condensed consolidated balance sheets.

Inventories were $ 1,527 and $ 1,294 at June 30, 2020 and September 30, 2019, respectively, and are included within prepaid expenses and other current assets on the accompanying condensed consolidated balance sheets.

Notes Receivable

Notes receivable consist of loans made to unrelated entities.

Notes receivable were $ 1,195 and $ 195 at March 31, 2020 and September 30, 2019, respectively, and are included within other assets on the accompanying condensed consolidated balance sheets.

Notes receivable were $ 1,195 and $ 195 at June 30, 2020 and September 30, 2019, respectively, and are included within other assets on the accompanying condensed consolidated balance sheets.

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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.

8 unchanged sentences

The operating results of an acquisition are included in the Company’s condensed consolidated statements of operations from the date of such acquisition.

No acquisitions were completed during the six months ended March 31, 2020.

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

No acquisitions were completed during the nine months ended June 30, 2020.

Revenue Recognition and Deferred Revenue

For the six months ended March 31, 2020, revenue is recognized as each performance obligation is satisfied, in accordance with ASC 606, Revenue from Contracts with Customers (“ASC 606”).

For the nine months ended June 30, 2020, 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.

2 unchanged sentences

Results for the reporting period beginning October 1, 2019 are presented under ASC 606, while prior period amounts continue to be reported in accordance with the Company's historic accounting practices under previous guidance.

The majority of the Company's revenue for the six months ended March 31, 2020 and 2019 is derived from volume-based payment processing fees (“discount fees”) and other related fixed transaction or service fees.

The majority of the Company's revenue for the nine months ended June 30, 2020 and 2019 is derived from volume-based payment processing fees (“discount fees”) and other related fixed transaction or service fees.

The remainder is comprised of sales of software licensing subscriptions, ongoing support, and other POS-related solutions the Company provides to its clients directly and through its processing bank relationships.

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

Discount fees represent a percentage of the dollar amount of each credit or debit transaction processed or a specified per transaction amount, depending on the card type.

The Company frequently enters into agreements with client under which the client engages the Company to provide both payment authorization services and transaction settlement services for all of the cardholder transactions of the client, regardless of which issuing bank and card network to which the transaction relates.

The Company frequently enters into agreements with clients under which the client engages the Company to provide both payment authorization services and transaction settlement services for all of the cardholder transactions of the client, 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 clients require on a daily basis over the contract term.

9 unchanged sentences

(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 six months ended March 31, 2020, subsequent to the adoption of ASC 606.

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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, 2020, subsequent to the adoption of ASC 606.

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.

8 unchanged sentences

Revenue from functional intellectual property is recognized at a point in time, when delivered to the client.

The Company also offers access to its software under software-as-a-service (“SaaS”) arrangements, which represent services arrangements.

The Company also offers access to its software under

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

software-as-a-service (“SaaS”) arrangements, which represent services arrangements.

Revenue from SaaS arrangements is recognized over time, over the term of the agreement.

15 unchanged sentences

• Other — Includes sales of software, sales of equipment, professional services and other revenues.

For the Three Months Ended March 31, 2020

For the Three Months Ended June 30, 2020

Merchant Services Proprietary Software and Payments Other Total

2 unchanged sentences

Total revenue $ 21,531 $ 10,458 $ ( 416 ) $ 31,573

For the Three Months Ended March 31, 2019

For the Three Months Ended June 30, 2019

Merchant Services Proprietary Software and Payments Other Total

2 unchanged sentences

Total revenue $ 87,264 $ 10,219 $ — $ 97,483

For the Six Months Ended March 31, 2020

For the Nine Months Ended June 30, 2020

Merchant Services Proprietary Software and Payments Other Total

2 unchanged sentences

Total revenue $ 74,014 $ 39,205 $ ( 1,357 ) $ 111,862

For the Six Months Ended March 31, 2019

For the Nine Months Ended June 30, 2019

Merchant Services Proprietary Software and Payments Other Total

9 unchanged sentences

• Revenue transferred at a point in time — Includes fixed service fees, software licenses sold as functional intellectual property, professional services and other equipment.

For the Three Months Ended March 31, 2020

For the Three Months Ended June 30, 2020

Merchant Services Proprietary Software and Payments Other Total

2 unchanged sentences

Total revenue $ 21,531 $ 10,458 $ ( 416 ) $ 31,573

For the Three Months Ended March 31, 2019

For the Three Months Ended June 30, 2019

Merchant Services Proprietary Software and Payments Other Total

2 unchanged sentences

Total revenue $ 87,264 $ 10,219 $ — $ 97,483

For the Six Months Ended March 31, 2020

For the Nine Months Ended June 30, 2020

Merchant Services Proprietary Software and Payments Other Total

2 unchanged sentences

Total revenue $ 74,014 $ 39,205 $ ( 1,357 ) $ 111,862

For the Six Months Ended March 31, 2019

For the Nine Months Ended June 30, 2019

Merchant Services Proprietary Software and Payments Other Total

13 unchanged sentences

Substantially all the Company's deferred revenue is anticipated to be recognized within the next year.

The following table presents the changes in deferred revenue as of and for the six months ended March 31, 2020:

The following table presents the changes in deferred revenue as of and for the nine months ended June 30, 2020:

Balance at September 30, 2019 $ 10,237

5 unchanged sentences

Balance at March 31, 2020 9,666

Deferral of revenue $ 5,630

Recognition of unearned revenue $ ( 5,512 )

Balance at June 30, 2020 $ 9,784

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 March 31, 2020, the Company had $ 2,830 , of capitalized contract costs, which relates to commissions paid to obtain new sales, included within "Prepaid expenses and other current assets” and “Other assets" on the condensed consolidated balance sheets.

The Company recorded commissions expense related to these costs for the six months ended March 31, 2020 of $ 184 .

As of June 30, 2020, the Company had $ 2,958 , of capitalized contract costs, which relates to commissions paid to obtain new sales, included within "Prepaid expenses and other current assets” and “Other assets" on the condensed consolidated balance sheets.

The Company recorded commissions expense related to these costs for the three and nine months ended June 30, 2020 of $ 104 and $ 288 , respectively.

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

18 unchanged sentences

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 uncertainty surrounding estimates is increased due to the recent development of COVID-19, which is further described in Note 15.

There could be material changes to these estimates as a result of COVID-19 developments in future periods.

The uncertainty surrounding estimates is increased due to the development of the COVID-19 pandemic, which is further described in Note 1.

During the third quarter of fiscal 2020, in response to the COVID-19 pandemic, the Company conducted an interim goodwill impairment analysis using the quantitative test for certain reporting units.

The testing date was May 1, 2020.

The Company determined that none of the reporting units were impaired and fair values of all of its reporting units substantially exceeded their carrying values at the assessment date.

There could be material changes to these estimates as a result of ongoing COVID-19 developments in future periods.

Actual results could differ from those estimates.

During the second quarter of fiscal year 2020, the Company has recorded a $ 2,668 reduction in the valuation allowance on the deferred tax asset related to the Company’s investment in partnership and a corresponding reduction in the Company's income tax expense in the three months ended March 31, 2020.

During the nine months ended June 30, 2020, the Company has recorded a $ 2,668 reduction in the valuation allowance on the deferred tax asset related to the Company’s investment in partnership and a corresponding reduction in the Company's income tax expense for the nine months ended June 30, 2020.

Management has determined an additional portion of the deferred tax asset will be more likely than not realized based off an evaluation of the four sources of taxable income.

During the three months ended June 30, 2020, the Company has elected to make a policy change to allocate stock compensation expense to the Class B shareholders of i3 Verticals, LLC.

This change resulted in a $ 557 reduction in the benefit from income taxes and a corresponding reduction in the Company's net loss, a $ 2,439 increase to the net loss attributable to non-controlling interest and a $ 1,882 decrease to the net loss attributable to i3 Verticals, Inc.

for the three and nine months ended June 30, 2020.

Recent Accounting Pronouncements

6 unchanged sentences

ASU 2014-09 supersedes the revenue recognition requirements in ASC 605.

The new standard provides a five-step analysis of transactions to determine when and how revenue is recognized, based upon the core principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

The new standard provides a five-step analysis of

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

transactions to determine when and how revenue is recognized, based upon the core principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

The new standard also requires additional disclosures regarding the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.

2 unchanged sentences

The new standard changed the timing of certain revenue and expenses to be recognized under various arrangement types.

More judgment and estimates are required when applying the requirements of the new

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

standard than were required under prior GAAP, such as estimating the amount of variable consideration to include in transaction price and estimating expected periods of benefit for certain costs.

More judgment and estimates are required when applying the requirements of the new standard than were required under prior GAAP, such as estimating the amount of variable consideration to include in transaction price and estimating expected periods of benefit for certain costs.

Through management's review of individual contracts and historical revenue recognition patterns in comparison to the provisions under ASU 2014-09, the Company determined the timing of revenue to be recognized under ASU 2014-09 for each of the Company’s revenue categories, including discount fees, software licensing subscriptions, ongoing support, and other POS-related solutions, is similar to the timing of revenue recognized under the historical guidance under ASC 605.

4 unchanged sentences

The Company determined that the most significant ongoing impact of adopting the new revenue standard was driven by changes in principal versus agent considerations, with the majority of the change overall in total net revenue attributable to reflecting the Company's payment authorization services net of related interchange and network fees prospectively.

The Company's interchange and network fees of $ 54,685 and $ 110,514 were classified in “Operating Expenses” on the Condensed Consolidated Statement of Operations for the three and six months ended March 31, 2019, respectively.

The Company's interchange and network fees of $ 63,199 and $ 132,301 were included as a reduction to revenue on the Condensed Consolidated Statement of Operations for the three and six months ended March 31, 2020, respectively.

The Company's interchange and network fees of $ 63,263 and $ 173,777 were classified in “Operating Expenses” on the Condensed Consolidated Statement of Operations for the three and nine months ended June 30, 2019, respectively.

The Company's interchange and network fees of $ 49,294 and $ 181,595 were included as a reduction to revenue on the Condensed Consolidated Statement of Operations for the three and nine months ended June 30, 2020, respectively.

Under the modified retrospective basis, the Company has not restated its comparative unaudited condensed consolidated financial statements for these effects.

The adoption of the new revenue standard did not have a material impact on net income.

The following table presents the material impacts of adopting ASC 606 on the Company's unaudited condensed consolidated statement of operations for the three months ended March 31, 2020:

Three months ended March 31, 2020

The following table presents the material impacts of adopting ASC 606 on the Company's unaudited condensed consolidated statement of operations for the three months ended June 30, 2020:

Three months ended June 30, 2020

As reported Adjustment Presentation without adoption of ASC 606

2 unchanged sentences

Interchange and network fees $ — $ 49,294 $ 49,294

The following table presents the material impacts of adopting ASC 606 on the Company's unaudited condensed consolidated statement of operations for the six months ended March 31, 2020:

Six months ended March 31, 2020

The following table presents the material impacts of adopting ASC 606 on the Company's unaudited condensed consolidated statement of operations for the nine months ended June 30, 2020:

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

Nine months ended June 30, 2020

As reported Adjustment Presentation without adoption of ASC 606

2 unchanged sentences

Interchange and network fees $ — $ 181,595 $ 181,595

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

The following table presents the impacts of adoption of ASC 606 on the Company's unaudited condensed consolidated balance sheet as of March 31, 2020:

As of March 31, 2020

The following table presents the impacts of adoption of ASC 606 on the Company's unaudited condensed consolidated balance sheet as of June 30, 2020:

As of June 30, 2020

As reported Adjustment Presentation without adoption of ASC 606

7 unchanged sentences

Non-controlling interest $ 61,144 $ ( 725 ) $ 60,419

The adoption of ASC 606 did not have a material impact on the Company’s unaudited condensed consolidated statement of cash flows for the six months ended March 31, 2020.

The adoption of ASC 606 did not have a material impact on the Company’s unaudited condensed consolidated statement of cash flows for the nine months ended June 30, 2020.

The Company has expanded its unaudited condensed consolidated financial statement disclosures as required by this new standard.

4 unchanged sentences

Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement (Topic 820) (“ASU 2018-13”).

The amendments in ASU No.

2018-13 provide clarification and modify the disclosure requirements on fair value measurement in Topic 820, Fair Value Measurement.

The amendments in this ASU No.

2018-13 are effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted.

As a result, the Company will not be required to adopt this ASU No.

2018-13 until October 1, 2021.

The amendments in ASU 2018-13 provide clarification and modify the disclosure requirements on fair value measurement in Topic 820, Fair Value Measurement.

The amendments in ASU 2018-13 are effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted.

As a result, the Company will not be required to adopt ASU 2018-13 until October 1, 2021.

The Company is currently evaluating the impact of the adoption of this principle on the Company’s condensed consolidated financial statements.

1 unchanged sentence

2016-13, Financial Instruments—Credit Losses (Topic 326) (“ASU 2016-13”).

The amendments in ASU No.

2016-13 require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts.

The amendments in this ASU No.

2016-13 are effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.

The amendments in ASU 2016-13 require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts.

The amendments in ASU 2016-13 are effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.

In November 2019, the FASB issued ASU No.

2019-10 (“ASU 2019-10”), which extends the effective date for adoption of ASU 2016-13 for certain entities.

As a result of the provisions in ASU No.

2019-10, and as the Company is an emerging growth company and has elected to use the extended transition period of such companies, the Company will not be required to adopt this ASU No.

2016-13 until October 1, 2023.

As a result of the provisions in ASU 2019-10, and as the Company was a smaller reporting company as of November 15, 2019, the Company will not be required to adopt ASU 2016-13 until October 1, 2023.

The Company is currently evaluating the impact of the adoption of this principle on the Company’s condensed consolidated financial statements.

In February 2016, the FASB issued ASU No.

2016-02, Leases (Topic 842) (“ASU 2016-02”).

2016-02 amends the existing guidance by recognizing all leases, including operating leases, with a term longer than twelve months on the balance sheet and disclosing key information about the lease arrangements.

The update requires modified retrospective transition, with the option to initially apply the new standard at the adoption date and recognize a cumulative-effect adjustment and elect various practical expedients.

i3 VERTICALS, Inc.

1 unchanged sentence

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

allowing lessees and lessors to recognize and measure existing leases at the beginning of the period of adoption without modifying the comparative period financial statements (which therefore will remain under prior GAAP, Topic 840, Leases).

In December 2018, the FASB issued ASU 2018-20, Narrow-Scope Improvements for Lessors, which clarifies or simplifies certain narrows aspects of the guidance issued in the amendments in ASU 2016-02 for lessors.

In February 2016, the FASB issued ASU No.

2016-02, Leases (Topic 842) (“ASU 2016-02”).

ASU 2016-02 amends the existing guidance by recognizing all leases, including operating leases, with a term longer than twelve months on the balance sheet and disclosing key information about the lease arrangements.

In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases, which narrows aspects of the guidance issued in the amendments in ASU 2016-02, and ASU 2018-11, Leases—Targeted Improvements (Topic 842), by allowing lessees and lessors to recognize and measure existing leases at the beginning of the period of adoption without modifying the comparative period financial statements (which therefore will remain under prior GAAP, Topic 840, Leases).

In December 2018, the FASB issued ASU 2018-20, Narrow-Scope Improvements for Lessors, which clarifies or simplifies certain aspects of the guidance issued in the amendments in ASU 2016-02 for lessors.

Since the Company has not yet adopted ASU 2016-02, the effective date and transition requirements will be the same as the effective date and transition requirements in ASU 2016-02.

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As a result of the provisions in ASU No.

2019-10, and as the Company is an emerging growth company and has elected to use the extended transition period of such companies, the Company will not be required to adopt this ASU No.

2016-02 until October 1, 2021.

2019-10, and as the Company is an emerging growth company and has elected to use the extended transition period of such companies, the Company will not be required to adopt ASU 2016-02 until October 1, 2021.

The Company is currently evaluating the impact of the adoption of these principles on the Company’s condensed consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) (“ASU 2020-04”).

The amendments in ASU No.

2020-04 provide optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met.

The amendments in this ASU No.

2020-04 are effective for all entities as of March 12, 2020 through December 31, 2022.

In March 2020, the FASB issued ASU No.

2020-04, Reference Rate Reform (Topic 848) (“ASU 2020-04”).

The amendments in ASU 2020-04 provide optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met.

The amendments in ASU 2020-04 are effective for all entities as of March 12, 2020 through December 31, 2022.

An entity may elect to apply the amendments for contract modifications by Topic or Industry Subtopic as of any date from the beginning an interim period that includes or is subsequent to March 12, 2020, or prospectively from the date that the financial statements are available to be issued.

Once elected for a Topic or an Industry Subtopic, the amendments must be applied prospectively for all eligible contract modifications for that Topic or Industry Subtopic.

The Company may be apply ASU 2020-04 as its contracts referenced in London Interbank Offered Rate (“LIBOR”) are impacted by reference rate reform.

The Company may elect to apply ASU 2020-04 as its contracts referenced in London Interbank Offered Rate (“LIBOR”) are impacted by reference rate reform.

The Company is currently evaluating the impact of the adoption of this principle on the Company’s condensed consolidated financial statements.

During the six months ended March 31, 2020, the Company acquired the following intangible assets:

In August 2020, the FASB issued ASU No.

2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity's Own Equity (Subtopic 815-40)—Accounting For Convertible Instruments and Contracts in an Entity's Own Equity (“ASU 2020-06”).

ASU 2020-06 simplifies accounting for convertible instruments by removing major separation models required under current GAAP.

Consequently, more convertible debt instruments will be reported as a single liability instrument with no separate accounting for embedded conversion features.

ASU 2020-06 removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for it.

ASU 2020-06 also simplifies the diluted net income per share calculation in certain areas.

The amendments in ASU 2020-06 are effective for public business entities for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years, with early adoption permitted for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years.

As the Company is an emerging growth company and has elected to use the extended transition period of such companies, the Company will not be required to adopt ASU 2020-06 until October 1, 2022.

The Company is currently evaluating the impact of the adoption of this principle on the Company’s 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)

During the nine months ended June 30, 2020, the Company acquired the following intangible assets:

Residual Buyouts

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These assets are amortized using a method of amortization that reflects the pattern in which the economic benefits of the intangible asset are expected to be utilized over their estimated useful lives.

During the six months ended March 31, 2020, the Company purchased $ 1,597 in residual buyouts using a combination of cash on hand and borrowings on the Company's revolving line of credit.

During the nine months ended June 30, 2020, the Company purchased $ 1,677 in residual buyouts using a combination of cash on hand and borrowings on the Company's revolving line of credit.

The acquired residual buyout intangible assets have a weighted-average amortization period of eight years .

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

2019 Business Combinations

During the year ended September 30, 2019, the Company completed the acquisitions of unrelated businesses, including Pace Payment Systems, Inc.

Certain of the purchase price allocations assigned for these acquisitions were considered preliminary as of September 30, 2019, and are considered preliminary as of March 31, 2020.

Certain of the purchase price allocations assigned for these acquisitions were considered preliminary as of September 30, 2019, and are considered preliminary as of June 30, 2020.

Purchase of Pace Payment Systems, Inc.

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The total purchase consideration was $ 56,053 , including $ 52,492 in cash consideration, funded by proceeds from the Company's revolving credit facility, $ 3,336 of contingent consideration and $ 225 of restricted shares of Class A common stock in i3 Verticals.

Certain of the purchase price allocations assigned for this acquisition are preliminary.

The goodwill associated with the acquisition is not deductible for tax purposes.

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The acquired capitalized software has an estimated amortization period of seven years .

The acquisition also included deferred tax assets related to net operating losses and Section 163(j) carryforwards and deferred tax liabilities related to intangibles, which are presented as a total net deferred tax asset as of March 31, 2020.

Acquisition-related costs for Pace amounted to approximately $ 507 and were expensed as incurred.

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The Company completed the acquisitions of other businesses to expand the Company’s software offerings in the public sector vertical market, provide technology that enhances the Company’s Burton Platform and expand the Company's merchant base.

Total purchase consideration was $ 98,887 , including $ 89,191 in revolving credit facility proceeds and $ 9,696 of contingent consideration.

Total purchase consideration was $ 98,887 , including $ 89,191 in revolving credit

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

facility proceeds and $ 9,696 of contingent consideration.

Certain of the purchase price allocations assigned for these acquisitions are preliminary.

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Acquisition-related costs for these businesses amounted to approximately $ 1,299 and were expensed as incurred.

Certain provisions in the purchase agreements provide for additional consideration of up to $ 34,900 , in the aggregate, to be paid based upon the achievement of specified financial performance targets, as defined in the

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

purchase agreements, through no later than September 2021.

The Company determined the acquisition date fair values of the liabilities for the contingent consideration based on probability forecasts and discounted cash flow analyses.

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See additional disclosures in Note 7.

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

Summary of 2019 Business Combinations

22 unchanged sentences

Net assets acquired $ 56,053 $ 98,887 $ 154,940

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

GOODWILL AND INTANGIBLE ASSETS

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$ 108,472 $ 59,812 $ — $ 168,284

Goodwill attributable to acquisition preliminary purchase price adjustments during the six months ended March 31, 2020 ( 933 ) ( 297 ) — ( 1,230 )

Balance at March 31, 2020 $ 107,539 $ 59,515 $ — $ 167,054

Intangible assets consisted of the following as of March 31, 2020:

Goodwill attributable to acquisition preliminary purchase price adjustments during the nine months ended June 30, 2020 ( 933 ) ( 297 ) — ( 1,230 )

Balance at June 30, 2020 $ 107,539 $ 59,515 $ — $ 167,054

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, 2020:

Cost Accumulated

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Total identifiable intangible assets $ 155,448 $ ( 55,564 ) $ 99,884

Amortization expense for intangible assets amounted to $ 3,088 and $ 6,282 during the three and six months ended March 31, 2020, respectively, and $ 3,019 and $ 5,821 during the three and six months ended March 31, 2019, respectively.

Based on net carrying amounts at March 31, 2020, the Company's estimate of future amortization expense for intangible assets are presented in the table below for fiscal years ending September 30:

2020 (six months remaining) $ 5,946

Amortization expense for intangible assets amounted to $ 3,066 and $ 9,348 during the three and nine months ended June 30, 2020, respectively, and $ 3,233 and $ 9,054 during the three and nine months ended June 30, 2019, respectively.

Based on net carrying amounts at June 30, 2020, the Company's estimate of future amortization expense for intangible assets are presented in the table below for fiscal years ending September 30:

2020 (three months remaining) $ 2,905

Thereafter 59,924

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

LONG-TERM DEBT, NET

A summary of long-term debt, net as of March 31, 2020 and September 30, 2019 is as follows:

March 31, September 30,

A summary of long-term debt, net as of June 30, 2020 and September 30, 2019 is as follows:

June 30, September 30,

Maturity 2020 2019

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Total long-term debt, net of issuance costs $ 134,114 $ 139,298

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

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If the Company or i3 Verticals, LLC undergoes a fundamental change, holders may require i3 Verticals, LLC to repurchase all or part of their Exchangeable Notes at a repurchase price equal to 100 % of the principal amount of the Exchangeable Notes to be repurchased, plus accrued and unpaid interest to, but not including, the fundamental change repurchase date.

As of March 31, 2020, none of the conditions permitting the holders of the Exchangeable Notes to early convert have been met.

As of June 30, 2020, none of the conditions permitting the holders of the Exchangeable Notes to early convert have been met.

i3 Verticals, LLC may not redeem the Exchangeable Notes prior to February 20, 2023.

On or after February 20, 2023, and prior to the 47th scheduled trading day immediately preceding the maturity date, if the last reported sale price per share of Class A common stock has been at least 130 % of the exchange price for the Exchangeable Notes for at least 20 trading days (whether or not consecutive), i3 Verticals, LLC may redeem all or any portion of the Exchangeable Notes at a cash redemption price equal to 100 % of the principal amount of the

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

Exchangeable Notes to be redeemed plus accrued and unpaid interest on such note to, but not including, the redemption date.

The Exchangeable Notes are general senior unsecured obligations of i3 Verticals, LLC and the guarantee is the Company’s senior unsecured obligation and rank senior in right of payment to all of i3 Verticals, LLC’s and the Company’s future indebtedness that is expressly subordinated in right of payment to the Exchangeable Notes or the guarantee, as applicable.

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The Exchangeable Notes and the guarantee are effectively subordinated to any of the Companies’ existing and future secured indebtedness to the extent of the value of the assets securing such indebtedness (including obligations under the credit agreement governing the Senior Secured Credit Facility, defined below).

The Exchangeable Notes and the guarantee will be structurally subordinated to all indebtedness and other liabilities and obligations (including the debt and trade payables) of the Company’s subsidiaries, other than i3 Verticals, LLC.

The Exchangeable

i3 VERTICALS, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

Notes and the guarantee will be structurally subordinated to all indebtedness and other liabilities and obligations (including the debt and trade payables) of the Company’s subsidiaries, other than i3 Verticals, LLC.

In accounting for the issuance of the Exchangeable Notes, the Company separated the Exchangeable Notes into liability and equity components.

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The Company capitalized $ 4,150 of debt issuance costs in connection with the Exchangeable Notes and allocated $ 1,088 of the third-party issuance costs to equity.

Non-cash interest expense, including amortization of debt issuance costs, related to the Exchangeable Notes for the three and six months ended March 31, 2020 was $ 70 .

Total unamortized debt issuance costs were $ 4,113 as of March 31, 2020.

The estimated fair value of the Exchangeable Notes was $ 107,469 as of March 31, 2020.

Non-cash interest expense, including amortization of debt issuance costs, related to the Exchangeable Notes for the three and nine months ended June 30, 2020 was $ 146 and $ 216 , respectively.

The Company also wrote off a portion of the debt issuance costs in connection with the repurchase transactions in April 2020, as described below.

Total unamortized debt issuance costs related to the Exchangeable Notes were $ 3,684 as of June 30, 2020.

The estimated fair value of the Exchangeable Notes was $ 124,168 as of June 30, 2020.

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 7.

The Company can choose to purchase its Exchangeable Notes on the open market.

In April 2020, the Company paid $ 6,807 in aggregate to repurchase $ 8,500 in aggregate principal amount of the Exchangeable Notes and to repay approximately $ 15 in accrued interest on the repurchased portion of the Exchangeable Notes.

The Company recorded a loss on retirement of debt of $ 828 due to the carrying value exceeding the fair value of the repurchased portion of the Exchangeable Notes at the dates of repurchases.

The Company wrote off $ 250 of debt issuance costs in connection with the repurchase transactions.

The effect of the repurchase was a decrease in the Company's total leverage ratio.

Exchangeable Note Hedge Transactions

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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 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

i3 VERTICALS, Inc.

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

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.

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.

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The second amendment reduced the Company's borrowing capacity under the Senior Secured Credit Facility.

During the three and six months ended March 31, 2020, the Company wrote off $ 141 of unamortized debt issuance costs, which was recorded in interest expense in the condensed consolidated statements of operations, due to the decrease in borrowing capacity.

During the nine months ended June 30, 2020, the Company wrote off $ 141 of unamortized debt issuance costs, which was recorded in interest expense in the condensed consolidated statements of operations, due to the decrease in borrowing capacity.

The Senior Secured Credit Facility consists of a $ 275,000 revolving credit facility, together with an option to increase the revolving credit facility and/or obtain incremental term loans in an additional principal amount of up to $ 50,000 in the aggregate.

The Senior Secured Credit Facility accrues interest at LIBOR (based upon an interest period of one, two, three or six months or, under some circumstances, up to twelve months) plus an applicable margin of 2.25 % to 3.25 % ( 2.75 % as of March 31, 2020), or the base rate (defined as the highest of (x) the Bank of America prime rate, (y) the federal funds rate plus 0.50 % and (z) LIBOR plus 1.00 %), plus an applicable margin of 0.25 % to 1.25 % ( 0.75 % as of March 31, 2020), in each case depending upon the consolidated total leverage ratio, as defined in the agreement.

The Senior Secured Credit Facility accrues interest at LIBOR (based upon an interest period of one, two, three or six months or, under some circumstances, up to twelve months) plus an applicable margin of 2.25 % to 3.25 % ( 3.25 % as of June 30, 2020), or the base rate (defined as the highest of (x) the Bank of America prime rate, (y) the federal funds rate plus 0.50 % and (z) LIBOR plus 1.00 %), plus an applicable margin of 0.25 % to 1.25 % ( 1.25 % as of June 30, 2020), in each case depending upon the consolidated total leverage ratio, as defined in the agreement.

Interest is payable at the end of the selected interest period, but no less frequently than quarterly.

Additionally, the Senior Secured Credit Facility requires the Company to pay unused commitment fees of 0.15 % to 0.30 % ( 0.25 % as of March 31, 2020) on any undrawn amounts under the revolving credit facility and

Additionally, the Senior Secured Credit Facility requires the Company to pay unused commitment fees of 0.15 % to 0.30 % ( 0.30 % as of June 30, 2020) on any undrawn amounts under the revolving credit facility and letter of credit fees of up to 3.25 % on the maximum amount available to be drawn under each letter of credit issued under the agreement.

The maturity date of the Senior Secured Credit Facility is May 9, 2024.

i3 VERTICALS, Inc.

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

letter of credit fees of up to 3.25 % on the maximum amount available to be drawn under each letter of credit issued under the agreement.

The maturity date of the Senior Secured Credit Facility is May 9, 2024.

The Senior Secured Credit Facility requires maintenance of certain financial ratios on a quarterly basis as follows:

Secured Credit Facility requires maintenance of certain financial ratios on a quarterly basis as follows:

(i) a minimum consolidated interest coverage ratio of 3.00 to 1.00, (ii) a maximum total leverage ratio of 5.00 to 1.00, provided, that for each of the four fiscal quarters immediately following a qualified acquisition (each a “Leverage Increase Period”), the required ratio set forth above may be increased by up to 0.25 , subject to certain limitations and (iii) a maximum consolidated senior secured leverage ratio of 3.25 to 1.00, provided, that for each Leverage Increase Period, the consolidated senior leverage ratio may be increased by up to 0.25 , subject to certain limitations.

As of March 31, 2020, the Company was in compliance with these covenants, and there was $ 256,000 available for borrowing under the revolving credit facility, subject to the financial covenants.

As of June 30, 2020, the Company was in compliance with these covenants, and there was $ 240,046 available for borrowing under the revolving credit facility, subject to the financial covenants.

The Senior Secured Credit Facility is secured by substantially all assets of the Company.

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and certain non-financial covenants pertaining to the activities of the Company during the period covered.

The Company was in compliance with such covenants as of March 31, 2020.

The Company was in compliance with such covenants as of June 30, 2020.

In addition, the Senior Secured Credit Facility restricts the Company's ability to make dividends or other distributions to the holders of the Company's equity.

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Debt issuance costs

During the three and six months ended March 31, 2020, the Company capitalized debt issuance costs totaling $ 4,245 , in connection with the issuance of the Exchangeable Notes, the Note Hedge Transactions and the

During the nine months ended June 30, 2020, the Company capitalized debt issuance costs totaling $ 4,212 , in connection with the issuance of the Exchangeable Notes, the Note Hedge Transactions and the Warrants and in connection with entering into the second amendment to the Senior Secured Credit Facility.

The Company's debt issuance costs are being amortized over the related term of the debt using the effective interest method.

i3 VERTICALS, Inc.

1 unchanged sentence

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

Warrants and in connection with entering into the second amendment to the Senior Secured Credit Facility.

The Company's debt issuance costs are being amortized over the related term of the debt using the effective interest method.

Debt issuance costs are presented net against long-term debt in the condensed consolidated balance sheets.

The amortization of debt issuance costs is included in interest expense and amounted to approximately $ 172 and $ 272 during the three and six months ended March 31, 2020, respectively, and $ 232 and $ 465 during the three and six months ended March 31, 2019, respectively.

issuance costs are presented net against long-term debt in the condensed consolidated balance sheets.

The amortization of debt issuance costs is included in interest expense and amounted to approximately $ 242 and $ 514 during the three and nine months ended June 30, 2020, respectively, and $ 154 and $ 619 during the three and nine months ended June 30, 2019, respectively.

i3 Verticals, Inc.

5 unchanged sentences

Each quarter, the Company updates its estimate of the annual effective tax rate, and if the Company’s estimated tax rate changes, it makes a cumulative adjustment in that period.

The Company’s provision for income taxes was a benefit of $ 2,062 and a benefit of $ 1,913 for the three and six months ended March 31, 2020, respectively, and a benefit of $ 136 and an expense of $ 129 for the three and six months ended March 31, 2019, respectively.

The Company’s provision for income taxes was a benefit of $ 5 and a benefit of $ 1,918 for the three and nine months ended June 30, 2020, respectively, and a benefit of $ 131 and an expense of $ 2 for the three and nine months ended June 30, 2019, respectively.

Tax Receivable Agreement

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The Company expects to benefit from the remaining 15 % of the tax benefits, if any, that the Company may realize.

During the six months ended March 31, 2020, the Company acquired an aggregate of 510,016 common units of i3 Verticals, LLC in connection with the redemption of common units, which resulted in an increase in the tax basis of our investment in i3 Verticals, LLC subject to the provisions of the Tax Receivable Agreement.

As a result of these exchanges, during the six months ended March 31, 2020, the Company recognized an increase to its net deferred tax assets in the amount of $ 3,086 , and corresponding Tax Receivable Agreement liabilities of $ 2,623 , representing 85% of the tax benefits due to the Continuing Equity Owners.

The deferred tax asset and corresponding Tax Receivable Agreement liability balances were $ 30,742 and $ 25,799 , respectively, as of March 31, 2020.

During the nine months ended June 30, 2020, the Company acquired an aggregate of 530,016 common units of i3 Verticals, LLC in connection with the redemption of common units, which resulted in an increase in the tax basis of our investment in i3 Verticals, LLC subject to the provisions of the Tax Receivable Agreement.

As a result of these exchanges, during the nine months ended June 30, 2020, the Company recognized an increase to its net deferred tax assets in the amount of $ 3,251 , and corresponding Tax Receivable Agreement liabilities of $ 2,764 , representing 85 % of the tax benefits due to the Continuing Equity Owners.

The deferred tax asset and corresponding Tax Receivable Agreement liability balances were $ 30,064 and $ 25,940 , respectively, as of June 30, 2020.

Payments to the Continuing Equity Owners related to exchanges through June 30, 2020 will range from $ 0 to $ 2,321 per year and are expected to be paid over the next 25 years.

The amounts recorded as of June 30, 2020,

i3 VERTICALS, Inc.

1 unchanged sentence

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

Payments to the Continuing Equity Owners related to exchanges through March 31, 2020 will range from $ 0 to $ 2,310 per year and are expected to be paid over the next 25 years.

The amounts recorded as of March 31, 2020, approximate the current estimate of expected tax savings and are subject to change after the filing of the Company’s U.S.

approximate the current estimate of expected tax savings and are subject to change after the filing of the Company’s U.S.

federal and state income tax returns.

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Level 3 — Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable in active exchange markets.

The carrying value of the Company’s financial instruments, including cash and cash equivalents, restricted cash, settlement assets and obligations, accounts receivable, other assets, accounts payable, and accrued expenses, approximated their fair values as of March 31, 2020 and 2019, because of the relatively short maturity dates on these instruments.

The carrying amount of debt approximates fair value as of March 31, 2020 and 2019, because interest rates on these instruments approximate market interest rates.

The carrying value of the Company’s financial instruments, including cash and cash equivalents, restricted cash, settlement assets and obligations, accounts receivable, other assets, accounts payable, and accrued expenses, approximated their fair values as of June 30, 2020 and 2019, because of the relatively short maturity dates on these instruments.

The carrying amount of debt approximates fair value as of June 30, 2020 and 2019, because interest rates on these instruments approximate market interest rates.

The Company has no Level 1 or Level 2 financial instruments measured at fair value on a recurring basis.

5 unchanged sentences

Contingent consideration paid ( 8,027 )

Balance at March 31, 2020 $ 11,761

Balance at June 30, 2020 $ 8,738

Accrued Contingent Consideration

3 unchanged sentences

Contingent consideration paid ( 4,194 )

Balance at March 31, 2019 $ 8,563

Balance at June 30, 2019 $ 13,856

i3 VERTICALS, Inc.

9 unchanged sentences

The Company develops the projected future financial results based on an analysis of historical results, market conditions, and the expected impact of anticipated changes in the Company's overall business and/or product strategies.

Approximately $ 8,484 and $ 10,223 of contingent consideration was recorded in accrued expenses and other current liabilities as of March 31, 2020 and September 30, 2019, respectively.

Approximately $ 3,277 and $ 8,003 of contingent consideration was recorded in other long-term liabilities as of March 31, 2020 and September 30, 2019, respectively.

Approximately $ 6,655 and $ 10,223 of contingent consideration was recorded in accrued expenses and other current liabilities as of June 30, 2020 and September 30, 2019, respectively.

Approximately $ 2,083 and $ 8,003 of contingent consideration was recorded in other long-term liabilities as of June 30, 2020 and September 30, 2019, respectively.

Disclosure of Fair Values

1 unchanged sentence

The Company estimates the fair value of the Exchangeable Notes through consideration of quoted market prices of similar instruments, classified as Level 2 as described above.

The estimated fair value of the Exchangeable Notes was $ 107,469 as of March 31, 2020.

The estimated fair value of the Exchangeable Notes was $ 124,168 as of June 30, 2020.

The carrying value of other financial instruments, including cash, accounts receivable, accounts payable, funds receivable and seller accounts, and funds payable and amounts due to sellers approximate fair value due to the immediate or short-term maturity associated with these instruments.

EQUITY-BASED COMPENSATION

A summary of equity-based compensation expense recognized during the three and six months ended March 31, 2020 and 2019 is as follows:

Three months ended March 31, Six months ended March 31,

A summary of equity-based compensation expense recognized during the three and nine months ended June 30, 2020 and 2019 is as follows:

Three months ended June 30, Nine months ended June 30,

2020 2019 2020 2019

1 unchanged sentence

Amounts are included in general and administrative expense on the condensed consolidated statements of operations.

Income tax benefits of $ 193 and $ 341 were recognized related to equity-based compensation during the three and six months ended March 31, 2020, respectively.

No income tax benefits were recognized related to equity-based compensation during the three and six months ended March 31, 2019.

Income tax expense of $ 164 and benefits of $ 177 were recognized related to equity-based compensation during the three and nine months ended June 30, 2020, respectively.

Income tax benefits of $ 30 were recognized related to equity-based compensation during the three and nine months ended June 30, 2019.

Stock Options

1 unchanged sentence

The number of shares of Class A common stock available for issuance under the 2018 Plan includes an annual increase on the first day of each year, beginning with the 2019 calendar year, equal to 4.0 % of the outstanding shares of all classes of the Company's common stock as of the last day of the immediately preceding calendar year, unless the Company’s board of directors determines prior to the last trading day of December of the immediately preceding calendar year that the increase shall be less than 4.0 %.

As of March 31, 2020, there are 360,190 equity awards available for grant under the 2018 Plan.

As of June 30, 2020, there are 384,600 equity awards available for grant under the 2018 Plan.

i3 VERTICALS, Inc.

1 unchanged sentence

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

The fair value of the stock option awards during the six months ended March 31, 2020 and from June 20, 2018 through September 30, 2019 was determined on the grant date using the Black-Scholes valuation model based on the following weighted-average assumptions:

March 31, 2020 September 30, 2019

The fair value of the stock option awards during the nine months ended June 30, 2020 and from June 20, 2018 through September 30, 2019 was determined on the grant date using the Black-Scholes valuation model based on the following weighted-average assumptions:

June 30, 2020 September 30, 2019

Expected volatility (1)

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Treasury securities with maturities equivalent to the expected term.

A summary of stock option activity for the six months ended March 31, 2020 is as follows:

A summary of stock option activity for the nine months ended June 30, 2020 is as follows:

Stock Options Weighted Average Exercise Price

4 unchanged sentences

Outstanding at end of period 5,074,622 $ 21.22

The weighted-average grant date fair value of stock options granted during the six months ended March 31, 2020 was $ 8.58 .

As of March 31, 2020, there were 5,128,655 stock options outstanding, of which 911,560 were exercisable.

As of March 31, 2020, total unrecognized compensation expense related to unvested stock options, including an estimate for pre-vesting forfeitures, was $ 21,484 , which is expected to be recognized over a weighted-average period of 2.2 years.

The weighted-average grant date fair value of stock options granted during the nine months ended June 30, 2020 was $ 8.71 .

As of June 30, 2020, there were 5,074,622 stock options outstanding, of which 1,696,850 were exercisable.

As of June 30, 2020, total unrecognized compensation expense related to unvested stock options, including an estimate for pre-vesting forfeitures, was $ 19,170 , which is expected to be recognized over a weighted-average period of 2.0 years.

The Company's policy is to account for forfeitures of stock-based compensation awards as they occur.

The total fair value of stock options that vested was $ 1,477 and $ 3,228 during the three and six months ended March 31, 2020, respectively.

The total fair value of stock options that vested was $ 4,451 and $ 7,679 during the three and nine months ended June 30, 2020, respectively.

i3 VERTICALS, Inc.

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The Company utilizes office space and equipment under operating leases.

Rent expense under these leases amounted to $ 675 and $ 1,416 during the three and six months ended March 31, 2020, respectively, and $ 532 and $ 1,025 three and six months ended March 31, 2019, respectively.

A summary of approximate future minimum payments under these leases as of March 31, 2020 is as follows:

Rent expense under these leases amounted to $ 657 and $ 2,073 during the three and nine months ended June 30, 2020, respectively, and $ 615 and $ 1,640 three and nine months ended June 30, 2019, respectively.

A summary of approximate future minimum payments under these leases as of June 30, 2020 is as follows:

Years ending September 30:

2020 (six months remaining) $ 1,290

2020 (three months remaining) $ 669

Thereafter 3,778

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If the Company submits a number of transactions that is lower than the minimum, it is required to pay to the processor the fees it would have received if the Company had submitted the required minimum number of transactions.

As of March 31, 2020, such minimum fee commitments were as follows:

As of June 30, 2020, such minimum fee commitments were as follows:

Years ending September 30:

2020 (six months remaining) $ 1,625

2020 (three months remaining) $ 812

Total $ 9,900

8 unchanged sentences

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

As of March 31, 2020, such knowable loan commitments, dependent on the third party sales organization's achievement of certain financial metrics, were $ 2,000 for the remainder of fiscal year 2020 and $ 1,500 for fiscal year 2021.

As of June 30, 2020, such knowable loan commitments, dependent on the third party sales organization's achievement of certain financial metrics, were $ 1,000 for the remainder of fiscal year 2020 and $ 1,500 for fiscal year 2021.

With respect to all legal, regulatory and governmental proceedings, and in accordance with ASC 450-20, Contingencies—Loss Contingencies , the Company considers the likelihood of a negative outcome.

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In accordance with ASC 606, revenue from the processing services is recognized net of interchange, residual expense and other fees.

The Company earned net revenues related to the AxiaMed Agreement of $ 22 and $ 44 during the three and six months ended March 31, 2020, respectively, and $ 20 and $ 38 during the three and six months ended March 31, 2019, respectively.

The Company earned net revenues related to the AxiaMed Agreement of $ 25 and $ 69 during the three and nine months ended June 30, 2020, respectively, and $ 21 and $ 59 during the three and nine months ended June 30, 2019, respectively.

i3 Verticals, LLC, Greg Daily, the Company’s CEO and Clay Whitson, the Company’s CFO, own 2.0 %, 10.5 % and 0.4 %, respectively, of the outstanding equity of AxiaMed.

6 unchanged sentences

See Note 6 for further information.

As of March 31, 2020, the total amount due under the Tax Receivable Agreement was $ 25,799 .

As of June 30, 2020, the total amount due under the Tax Receivable Agreement was $ 25,940 .

The Company determines its operating segments based on ASC 280, Segment Reporting , how the chief operating decision making group monitors and manages the performance of the business and the level at which financial information is reviewed.

12 unchanged sentences

The Company primarily uses processing margin to measure operating performance.

The following is a summary of reportable segment operating performance for the three and six months ended March 31, 2020 and 2019.

As of and for the Three Months Ended March 31, 2020

The following is a summary of reportable segment operating performance for the three and nine months ended June 30, 2020 and 2019.

As of and for the Three Months Ended June 30, 2020

Merchant Services Proprietary Software and Payments Other Total

13 unchanged sentences

$ 4,674 , $ 119 and $( 413 ) of residual expense, a component of other costs of services, are added back to the Merchant Services segment, Proprietary Software and Payments segment, and Other category, respectively.

As of and for the Six Months Ended March 31, 2020

As of and for the Nine Months Ended June 30, 2020

Merchant Services Proprietary Software and Payments Other Total

16 unchanged sentences

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

As of and for the Three Months Ended March 31, 2019

As of and for the Three Months Ended June 30, 2019

Merchant Services Proprietary Software and Payments Other Total

14 unchanged sentences

$ 4,449 , $ 150 and $ 0 of residual expense, a component of other costs of services, are added back to the Merchant Services segment, Proprietary Software and Payments segment, and Other category, respectively.

As of and for the Six Months Ended March 31, 2019

As of and for the Nine Months Ended June 30, 2019

Merchant Services Proprietary Software and Payments Other Total

23 unchanged sentences

As such, future redemptions or direct exchanges of Common Units of i3 Verticals, LLC by the Continuing Equity Owners will result in a change in ownership and reduce or increase the amount recorded as non-controlling interest and increase or decrease additional paid-in capital when i3 Verticals, LLC has positive or negative net assets, respectively.

As of March 31, 2020, i3 Verticals, Inc.

As of June 30, 2020, i3 Verticals, Inc.

owned 15,085,813 of i3 Verticals, LLC's Common Units, representing a 54.9 % economic ownership interest in i3 Verticals, LLC.

7 unchanged sentences

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

The following table sets forth reconciliations of the numerators and denominators used to compute basic and diluted earnings per share of Class A common stock for the three and six months ended March 31, 2020 and 2019:

Three months ended March 31, Six months ended March 31,

The following table sets forth reconciliations of the numerators and denominators used to compute basic and diluted earnings per share of Class A common stock for the three and nine months ended June 30, 2020 and 2019:

Three months ended June 30, Nine months ended June 30,

2020 2019 2020 2019

Basic net income (loss) per share:

Net income (loss)

Basic net (loss) income per share:

Net (loss) income

$ ( 2,810 ) $ ( 593 ) $ 1,043 $ 536

Net income (loss) attributable to non-controlling interests 1,182 ( 120 ) 3,265 2,053

Net income (loss) attributable to Class A common stockholders $ 737 $ ( 1,102 ) $ 588 $ ( 924 )

Net (loss) income attributable to non-controlling interests ( 2,454 ) 598 811 2,651

Net (loss) income attributable to Class A common stockholders $ ( 356 ) $ ( 1,191 ) $ 232 $ ( 2,115 )

Weighted average shares of Class A common stock outstanding (1)

14,858,858 10,064,785 14,515,506 9,254,549

Basic net income (loss) per share (2)

Basic net (loss) income per share (2)

$ ( 0.02 ) $ ( 0.12 ) $ 0.02 $ ( 0.23 )

2 unchanged sentences

Weighted average shares of Class A common stock outstanding (1)

14,456,970 14,344,768

Weighted average effect of dilutive securities (3)

1,649,787 1,433,309

Weighted average shares of Class A common stock outstanding - diluted

16,106,757 15,778,077

Diluted net income per share $ 0.01

____________________

Excludes 277,758 restricted Class A common stock units three and six months ended March 31, 2019, and 215,564 and 228,872 restricted Class A common stock units for the three and six months ended March 31, 2020, respectively.

For the three and six months ended March 31, 2019, all potentially dilutive securities were anti-dilutive, so diluted net loss per share was equivalent to basic net loss per share.

Excludes 193,709 and 225,985 restricted Class A common stock units for the three and nine months ended June 30, 2020, respectively, and 285,433 restricted Class A common stock units for both the three and nine months ended June 30, 2019.

For the three months ended June 30, 2020 and for the three and nine months ended June 30, 2019, all potentially dilutive securities were anti-dilutive, so diluted net loss per share was equivalent to basic net loss per share.

The following securities were excluded from the weighted average effect of dilutive securities in the computation of diluted net loss per share of Class A common stock:

17,112,164 shares of weighted average Class B common stock for both the three and six months ended March 31, 2019, along with the reallocation of net income assuming conversion of these shares, were excluded because the effect would have been anti-dilutive,

30,500 and 33,000 stock options for the three and six months ended March 31, 2019, respectively, were excluded because the exercise price of these stock options exceeded the average market price of our Class A common stock during the period (“out-of-the-money”) and the effect of including them would have been anti-dilutive, and

1,012,916 and 884,823 shares for the three and six months ended March 31, 2019, respectively, resulting from estimated stock option exercises as calculated by the treasury stock method, and 277,758 restricted Class A common units for both the three and six months ended March 31, 2019, were excluded because the effect of including them would have been anti-dilutive.

For the three and six months ended March 31, 2020, the following securities were excluded from the weighted average effect of dilutive securities in the computation of diluted earnings per share of Class A common stock:

12,769,568 and 12,846,018 shares of weighted average Class B common stock for the three and six months ended March 31, 2020, respectively, along with the reallocation of net income assuming conversion of these shares, were excluded because the effect would have been anti-dilutive, and

959,000 and 1,054,000 stock options for the three and six months ended March 31, 2020, respectively, were excluded because the exercise price of these stock options exceeded the average market price of our Class A common stock during the period (“out-of-the-money”) and the effect of including them would have been anti-dilutive.

12,404,368 shares of weighted average Class B common stock for the three months ended June 30, 2020, and 16,184,026 and 16,846,012 shares of weighted average Class B common stock for the three and nine months ended June 30, 2019, respectively, along with the reallocation of net income assuming conversion of these shares, were excluded because the effect would have been anti-dilutive,

1,498,000 stock options for the three months ended June 30, 2020, and 443,000 and 620,500 stock options for the three and nine months ended June 30, 2019, respectively, were excluded because the exercise price of these stock options exceeded the average market price of our Class A common stock during the period (“out-of-the-money”) and the effect of including them would have been anti-dilutive, and

1,127,509 shares for the three months ended June 30, 2020, and 1,188,987 and 974,402 shares for the three and nine months ended June 30, 2019, respectively, resulting from estimated stock option exercises as calculated by the treasury stock method, and 193,709 restricted Class A common units for the three months ended June 30, 2020, and 285,433 restricted Class A common units

i3 VERTICALS, Inc.

1 unchanged sentence

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

for both the three and nine months ended June 30, 2019, were excluded because the effect of including them would have been anti-dilutive.

For the nine months ended June 30, 2020, the following securities were excluded from the weighted average effect of dilutive securities in the computation of diluted net loss per share of Class A common stock:

12,699,339 shares of weighted average Class B common stock for the nine months ended June 30, 2020, along with the reallocation of net income assuming conversion of these shares, were excluded because the effect would have been anti-dilutive, and

1,105,000 stock options for the nine months ended June 30, 2020, were excluded because the exercise price of these stock options exceeded the average market price of our Class A common stock during the period (“out-of-the-money”) and the effect of including them would have been anti-dilutive.

Since the Company expects to settle the principal amount of its outstanding Exchangeable Notes in cash and any excess in cash or shares of the Company's Class A common stock, the Company uses the treasury stock method for calculating any potential dilutive effect of the conversion spread on diluted net income per share, if applicable.

7 unchanged sentences

SIGNIFICANT NON-CASH TRANSACTIONS

The Company engaged in the following significant non-cash investing and financing activities during the six months ended March 31, 2020 and 2019:

Six months ended March 31,

The Company engaged in the following significant non-cash investing and financing activities during the nine months ended June 30, 2020 and 2019:

Nine months ended June 30,

Restricted Class A common stock issued as part of acquisitions' purchase consideration (Note 3) $ — $ 225

Acquisition date fair value of contingent consideration in connection with business combinations $ — $ 10,315

Replacement of the 2017 Senior Secured Credit Facility with the Senior Secured Credit Facility $ — $ 100,229

Issuance of Exchangeable Notes and related Note Hedge Transactions and Warrants $ 85 $ —

Debt issuance costs financed with proceeds from the Senior Secured Credit Facility $ — $ 1,271

SUBSEQUENT EVENTS

In March 2020, the World Health Organization declared the outbreak of COVID-19 as a pandemic, which continues to spread throughout the United States and other parts of the world.

It is impossible to predict the effect and ultimate impact of the COVID-19 pandemic as the situation is rapidly evolving.

The spread of COVID-19 has caused public health officials to recommend precautions to mitigate the spread of the virus, including the closure of local government facilities and parks, schools, restaurants, many businesses and other locations of public assembly.

As a result, the Company and its clients have seen a significant disruption in business, including a steep decline in payment volume and the number of transactions processed, and therefore, a decline in revenue in the Company's strategic verticals.

There are no reliable estimates of how long the pandemic will last or how many people are likely to be affected by it.

For that reason, the Company is unable to predict the long-term impact of the pandemic on its business at this time.

COVID-19 is having a significant effect on overall economic conditions in the United States, and efforts to contain the spread of COVID-19 intensified in March and April 2020.

The economic impact of these conditions is materially impacting the Company's business and is expected to continue to adversely impact its strategic verticals and its business in general.

Given these conditions, there could be material changes to recorded balances and estimates in the future.

Recent Acquisitions

Subsequent to June 30, 2020, the Company completed the acquisition of two businesses.

One expands the Company's geographic reach and software capabilities in the public sector vertical.

The other adds text-to-pay capabilities and other software solutions in the Company's non-profit vertical.

Total purchase consideration included $ 16,438 in cash and revolving line of credit proceeds, and an amount of contingent consideration, which is still being valued.

Certain provisions in the purchase agreements provide for additional consideration of up to $ 13,200 , in the aggregate, to be paid based upon the achievement of specified financial performance targets, as defined in the purchase agreements, through no later than June 2022.

The Company is in process of determining the acquisition date fair values of the liabilities for the contingent consideration based on discounted cash flow analyses.

In each subsequent reporting period, the Company will reassess its current estimates of performance relative to the targets and adjust the contingent liabilities to their fair values through earnings.

The effect of the acquisitions will be included in the consolidated statements of operations beginning July 1, 2020.

The Company is still evaluating the allocation of the preliminary purchase consideration and pro forma results of operations.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements